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Build Your Future for DBEs CONFERENCE Minority-Owned Business Fraud in Transportation Senior...
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Transcript of Build Your Future for DBEs CONFERENCE Minority-Owned Business Fraud in Transportation Senior...
Build Your Future for Build Your Future for DBEsDBEs
CONFERENCE CONFERENCE
Minority-Owned Business Minority-Owned Business Fraud in TransportationFraud in Transportation
Senior Investigator Senior Investigator George F. SullivanGeorge F. Sullivan
U.S. Department of TransportationU.S. Department of TransportationOffice of Inspector GeneralOffice of Inspector General
OverviewOverview Mission and PrioritiesMission and Priorities Fraud Discovery, Schemes, and Fraud Discovery, Schemes, and
IndicatorsIndicators DBE Fraud and Case StudiesDBE Fraud and Case Studies Detection and Deterrence of DBE Detection and Deterrence of DBE
FraudFraud
OIG Mission OIG Mission
To conduct objective audits and investigations of DOT’s To conduct objective audits and investigations of DOT’s programs and operationsprograms and operations
To promote economy, effectiveness, and efficiency within DOTTo promote economy, effectiveness, and efficiency within DOT
To prevent and detect fraud, waste, and abuse in the To prevent and detect fraud, waste, and abuse in the Department’s programsDepartment’s programs
To review existing and proposed laws or regulations affecting To review existing and proposed laws or regulations affecting the Department and make recommendations about themthe Department and make recommendations about them
To keep the Secretary of Transportation and Congress fully To keep the Secretary of Transportation and Congress fully informed about problems in departmental programs and informed about problems in departmental programs and operationsoperations
Cambridge, MA (617) 494-2701
New York, NY (212) 337-1250
Washington, DC (202) 260-8580
Atlanta, GA (404) 562-3850
Chicago, IL (312) 353-0106
Ft. Worth, TX (817) 978-3236
San Francisco, CA (415) 744-3090
Investigative Investigative
RegionsRegions
American Recovery & Reinvestment Act American Recovery & Reinvestment Act
• February 17, 2009, the President signed into law the American February 17, 2009, the President signed into law the American Recovery and Reinvestment Act (ARRA), which designated Recovery and Reinvestment Act (ARRA), which designated over $48 billion to the USDOT.over $48 billion to the USDOT.
• According to the Secretary of Transportation, ARRA represents According to the Secretary of Transportation, ARRA represents “the largest investment in America’s roads, bridges, transit “the largest investment in America’s roads, bridges, transit lines, and rail systems since the creation of the interstate lines, and rail systems since the creation of the interstate highway system.”highway system.”
Key provisions:Key provisions:
preserve and create jobspreserve and create jobs
promote economic recoverypromote economic recovery
invest in transportation infrastructure to provide long-term economic benefitsinvest in transportation infrastructure to provide long-term economic benefits
FHWA: $27.5 Billion
FAA -AIP: $1.1 Billion
FRA : $8 Billion
AMTRAK: $1.3 Billion
FTA: 6.9 Billion
Potential source of revenue for job creation,
Potential source of revenue to promote the needed economic recovery
Potential source of revenue to rehabilitate the nations highway infrastructure
OR
HAVE 10 TO 20% LOST TO WASTE FRAUD OR ABUSE
How to use this money
Contract/Grant FraudContract/Grant Fraud
Contract Fraud Initiative Is Our Number One Contract Fraud Initiative Is Our Number One Priority Priority
Statistics FY-2009 and 2010 combinedStatistics FY-2009 and 2010 combined
- - 35 Indictments35 Indictments
- 62 Convictions- 62 Convictions
- $20 Million in Fines & Restitution, etc. -.- $20 Million in Fines & Restitution, etc. -.
OIG - InvestigationsOIG - Investigations
U.S. Courts
The Process:The Process:
Referral-Investigation- ProsecutionReferral-Investigation- Prosecution
Characteristics of an Characteristics of an Administrative/Civil ActionAdministrative/Civil Action
Non-compliance with DOT RegulationsNon-compliance with DOT Regulations Inadvertent/Not deliberateInadvertent/Not deliberate Proved by a Preponderance of EvidenceProved by a Preponderance of Evidence Sanctions can include Orders to take Sanctions can include Orders to take
Corrective Action, Repayment of funds, Corrective Action, Repayment of funds, Withhold funding, Return of fundsWithhold funding, Return of funds
WOULD YOUR COMPANY
SURVIVE THIS TYPE OF
FINANCIAL HIT AT THE END OF A CONTRACT?
$1,817,619
FRAUDFRAUD
A Generic Term That Embraces All the Ways A Generic Term That Embraces All the Ways One Person Can Falsely Represent Something One Person Can Falsely Represent Something to Another in Order to Induce That Person to to Another in Order to Induce That Person to Surrender Something of Value.Surrender Something of Value.
Minority-Owned Minority-Owned Business FraudBusiness Fraud
Definition:Definition: Contractors Contractors misrepresents misrepresents who performed who performed contract work to contract work to limit costslimit costs while appearing to be in while appearing to be in compliance with contract requirement to use compliance with contract requirement to use minority/women-owned businessesminority/women-owned businesses
Example:Example: Prime contractor and minority-owned Prime contractor and minority-owned subcontractor submitted false payroll records and prepared subcontractor submitted false payroll records and prepared false job-cost records to indicate that a minority-owned false job-cost records to indicate that a minority-owned business performed specialty painting of highway business performed specialty painting of highway structures, when in fact a majority-owned subcontractor structures, when in fact a majority-owned subcontractor controlled and supervised the painting work.controlled and supervised the painting work.
Minority-Owned Business Minority-Owned Business “Red Flag” Indicators“Red Flag” Indicators
Minority owner lacks background, expertise, or Minority owner lacks background, expertise, or equipment to perform subcontract workequipment to perform subcontract work
Employees shuttle back and forth between prime Employees shuttle back and forth between prime contractor and minority-owned business payrollscontractor and minority-owned business payrolls
Business names on equipment and vehicles are covered Business names on equipment and vehicles are covered with paint or magnetic signswith paint or magnetic signs
Orders and payment for necessary supplies are made by Orders and payment for necessary supplies are made by individuals not employed by minority-owned businessindividuals not employed by minority-owned business
Minority-Owned Business Minority-Owned Business “Red Flag” Indicators “Red Flag” Indicators
ContinuedContinued
Prime contractor facilitated purchase of minority-Prime contractor facilitated purchase of minority-owned businessowned business
Minority-owned business owner never present at job Minority-owned business owner never present at job sitesite
Prime contractor always uses the same minority-Prime contractor always uses the same minority-owned businessowned business
Why Employees Do Not Why Employees Do Not Report FraudReport Fraud
According to a 2005 Business Ethics According to a 2005 Business Ethics Study, employees do not report fraud Study, employees do not report fraud because they:because they:
Believe nothing will happen.Believe nothing will happen.Don’t know who to contact.Don’t know who to contact.Think the report will not be kept confidential, so Think the report will not be kept confidential, so
supervisors or co-workers might retaliate.supervisors or co-workers might retaliate.Believe the situation has no personal impact on Believe the situation has no personal impact on
them.them.
OIG Focus on OIG Focus on DBE FraudDBE Fraud
Disclaimer
This presentation is intended only to reflect a partial summary of our investigation. It represents only one side of the story based on certain facts discovered through the course of the investigation.
Others may interpret this information, and the facts behind them, in a different manner and come to different conclusions.
Could this be you?Could this be you?
The Justice Department The Justice Department announced todayannounced today
Two Michigan Construction Two Michigan Construction Firms to Pay More Than $1.4 Firms to Pay More Than $1.4 Million to Resolve Alleged Million to Resolve Alleged False ClaimsFalse Claims
John Carlo Inc. and Angelo John Carlo Inc. and Angelo IafrateIafrate
Are alleged to Have Falsely Claimed Using Are alleged to Have Falsely Claimed Using Disadvantaged Business at Detroit AirportDisadvantaged Business at Detroit Airport
– – Two Michigan construction companies Two Michigan construction companies have agreed to pay the United States $1.407 have agreed to pay the United States $1.407 million to resolve allegations that they million to resolve allegations that they knowingly submitted false claims relating knowingly submitted false claims relating to a federally funded construction projectto a federally funded construction project
WASHINGTONWASHINGTON The United States alleges that the companies, The United States alleges that the companies,
John Carlo Inc. and Angelo Iafrate John Carlo Inc. and Angelo Iafrate Construction Company, falsely claimed that Construction Company, falsely claimed that they had used Disadvantaged Business they had used Disadvantaged Business Enterprises (DBEs) for part of the work on the Enterprises (DBEs) for part of the work on the project when they had not.project when they had not.
In addition to the $1.407 million payment to In addition to the $1.407 million payment to resolve civil claims, Angelo Iafrate resolve civil claims, Angelo Iafrate Construction has also entered into a separate Construction has also entered into a separate administrative agreement with DOT to ensure administrative agreement with DOT to ensure future compliance with DBE requirements.future compliance with DBE requirements.
Minority-Owned Minority-Owned Business ExampleBusiness Example
State DOT decertified DBE company for not State DOT decertified DBE company for not being independent of primebeing independent of prime
Referred to the U.S. DOT/OIG because they Referred to the U.S. DOT/OIG because they suspected that the prime and DBE knowingly suspected that the prime and DBE knowingly and willfully misrepresented compliance with and willfully misrepresented compliance with DBE program for purposes of obtaining DBE program for purposes of obtaining contractscontracts
Minority-Owned Minority-Owned Business ExampleBusiness Example
An investigation/analysis was conductedAn investigation/analysis was conductedConducted interviews, issued subpoenas, and reviewed project Conducted interviews, issued subpoenas, and reviewed project
filesfiles
Prime established a former employee as a DBE and controlled Prime established a former employee as a DBE and controlled all all aspects of DBE business operationsaspects of DBE business operations
DBE contracted exclusively with primeDBE contracted exclusively with prime
As a result of the investigation/analysisAs a result of the investigation/analysisDBE confessed to making false statements and agreed to DBE confessed to making false statements and agreed to
cooperatecooperate
Prime acknowledged making false statements and paid $2.5 Prime acknowledged making false statements and paid $2.5 million finemillion fine
DBE Fraud SchemesDBE Fraud Schemes
Legitimate, DBE certified Cement Legitimate, DBE certified Cement Company has been in business for 25 Company has been in business for 25 years providing curb and gutter work.years providing curb and gutter work.
Owner is approached by non-DBE Owner is approached by non-DBE owned company to “assist in meeting their owned company to “assist in meeting their contract DBE goals.” DBE’s only actual contract DBE goals.” DBE’s only actual participation on the project was to provide participation on the project was to provide invoice payment services, and payroll invoice payment services, and payroll services, for a fee.services, for a fee.
BORBOLLA fee schedule presented to AJAX
AJAX strikes agreement with BORBOLLA on pass-AJAX strikes agreement with BORBOLLA on pass-through feethrough fee
Project manager Project manager implicates AJAX implicates AJAX VP in $10 M DBE VP in $10 M DBE schemescheme
Settlement for $11.75 M and Settlement for $11.75 M and Compliance AgreementsCompliance Agreements
Consequences to DBEConsequences to DBE
DBE was not prosecuted due to health DBE was not prosecuted due to health issues. However, the DBE Company issues. However, the DBE Company removed themselves from the DBE removed themselves from the DBE program, and closed down their family program, and closed down their family business.business.
DBE Fraud SchemesDBE Fraud SchemesFalse EligibilityFalse Eligibility
The DBE does not belong to one of the recognized The DBE does not belong to one of the recognized socially or economically disadvantaged groupssocially or economically disadvantaged groups
The DBE provides false information concerning size The DBE provides false information concerning size or financial statusor financial status
Hidden assets or false statements concerning Hidden assets or false statements concerning origination of capitalorigination of capital
Bribery to Falsify DBE Bribery to Falsify DBE CertificationCertification
BackgroundBackground
Daniel Pellicciotti, nephew of Daniel Pellicciotti, nephew of a former Philadelphia a former Philadelphia councilman, is a non-councilman, is a non-disabled white male who disabled white male who incorporated the contractor incorporated the contractor Philly-Wide Interiors in 1998. Philly-Wide Interiors in 1998.
Minority Business Enterprise Minority Business Enterprise
Council (MBEC) is Council (MBEC) is Philadelphia’s agency Philadelphia’s agency responsible for certifying responsible for certifying DBE’s.DBE’s.
Bribery to Falsify DBE Bribery to Falsify DBE CertificationCertification
SchemeScheme Pellicciotti provided cash Pellicciotti provided cash
and free meals to an and free meals to an MBEC employee to MBEC employee to influence his decision to influence his decision to certify Philly-Wide as a certify Philly-Wide as a DBE owned and DBE owned and controlled by Pellicciotti’s controlled by Pellicciotti’s wife, a full-time nurse.wife, a full-time nurse.
Philly-Wide used its DBE Philly-Wide used its DBE
certification to obtain a certification to obtain a $228K contract in 2001 for $228K contract in 2001 for demolition and demolition and refurbishment work on a refurbishment work on a transit contract.transit contract.
Bribery to Falsify DBE Bribery to Falsify DBE CertificationCertification
DispositionDisposition Following cooperation and a Following cooperation and a
guilty plea, the MBEC guilty plea, the MBEC employee was sentenced to employee was sentenced to pay $1,500 in restitution and pay $1,500 in restitution and probation for 36 months.probation for 36 months.
After pleading guilty, After pleading guilty,
Pellicciotti and Philly-Wide Pellicciotti and Philly-Wide were sentenced to pay more were sentenced to pay more than $135,000 in fines and than $135,000 in fines and restitution, plus 8 years restitution, plus 8 years probation. Both were probation. Both were debarred from working on debarred from working on Federal-aid contracts for 3 Federal-aid contracts for 3 years.years.
DBE Fraud SchemesDBE Fraud Schemes Conduit CompaniesConduit Companies
DBE firm does not complete any of the contracted DBE firm does not complete any of the contracted workwork
The DBE sells his status to another company who The DBE sells his status to another company who completes the workcompletes the work
Usually allows the use of the DBE name on invoices, Usually allows the use of the DBE name on invoices, trucks, equipmenttrucks, equipment
ANOTHERANOTHERDBE FRONT ?DBE FRONT ?
AGW STEEL PRODUCTS was an Illinois AGW STEEL PRODUCTS was an Illinois Certified DBE firm. Certified DBE firm.
Operated by Mr. & Mrs. Harvey Williams, and Operated by Mr. & Mrs. Harvey Williams, and an occasional part time employee.an occasional part time employee.
Williams claimed he was certified in Williams claimed he was certified in seventeen states as a DBE steel supplier.seventeen states as a DBE steel supplier.
In Nebraska, he was certified as a steel In Nebraska, he was certified as a steel manufacturer.manufacturer.
AGW Shop FacilityAGW Shop Facility
AGW Delivery TruckAGW Delivery Truck
AGW ProjectsAGW Projects AGW was identified as the DBE steel supplier on AGW was identified as the DBE steel supplier on
several Kansas highway projects, with a combined several Kansas highway projects, with a combined value of over two million dollars.value of over two million dollars.
Document review disclosed AGW was purchasing Document review disclosed AGW was purchasing from a broker, and reselling the steel products. They from a broker, and reselling the steel products. They were drop shipped to the project site by the mfg., were drop shipped to the project site by the mfg., and never received by AGW.and never received by AGW.
The review also disclosed that one of the The review also disclosed that one of the manufacturer’s representatives used the AGW DBE manufacturer’s representatives used the AGW DBE status as a selling point, to help prime contractors status as a selling point, to help prime contractors meet the DBE goals.meet the DBE goals.
KOSS PO 2944KOSS PO 2944
KOSS PO 2944KOSS PO 2944
KOSS PO 2950KOSS PO 2950
KOSS PO 2950KOSS PO 2950
Carter WatersCarter Waters
Missing DocumentsMissing Documents
• PURCHASE ORDER FROM PURCHASE ORDER FROM AGWAGW
CONSEQUENCESCONSEQUENCES
No Admission of Guilt But…No Admission of Guilt But…AGW STEEL, INC.AGW STEEL, INC.
III. TERMS AND CONDITIONS
1. A.G.W. Steel, Incorporated agrees to pay to the United States $50,000.00 (Settlement Amount).
They further agreed to be debarred for five years from the date of the settlement.
IN ADDITION…IN ADDITION…
Two prime contractors and the supplier Two prime contractors and the supplier reached settlement agreements with the reached settlement agreements with the U.S. Department of Justice as follows…U.S. Department of Justice as follows…
CARTER WATERS INC.CARTER WATERS INC.
III. TERMS AND CONDITIONS
1 Carter-Waters agrees to pay to the United States $176,000.00 (Settlement Amount).
7. Carter-Waters also agrees to all of the terms and conditions of the Corporate Compliance Plan,
KOSS CONSTRUCTIONKOSS CONSTRUCTION
III. TERMS AND CONDITIONS
1. Koss agrees to cause to be paid to the United States $600,000.00 (Settlement Amount).
7. Koss also agrees to adopt, as a company policy, the terms and conditions of the Koss Construction Company Corporate Compliance Program, attached hereto as Exhibit 1.
IDEKER INCORPORATEDIDEKER INCORPORATED
III. TERMS AND CONDITIONS
1. Ideker, Inc. agrees to pay to the United States $22,000.00 (Settlement Amount).
7. Ideker, Inc. also agrees to all of the terms and conditions of the Corporate Compliance Plan, attached hereto as Exhibit 1 and incorporated herein by reference.
WHERE DID THE MONEY GO?WHERE DID THE MONEY GO?
After considerable effort by John Ehmen working After considerable effort by John Ehmen working with FHWA Headquarters, KDOT has finally with FHWA Headquarters, KDOT has finally been credited with the settlement funds from the been credited with the settlement funds from the DBE fraud case that was completed this year. DBE fraud case that was completed this year.
Of the $848,000 Koss/CarteWaters/Ideker/AGW Of the $848,000 Koss/CarteWaters/Ideker/AGW settlement, KDOT received $822,560 and the settlement, KDOT received $822,560 and the Department of Justice (US Attorney) received Department of Justice (US Attorney) received $25,440 (3%).$25,440 (3%).
DOT/OIG HotlineDOT/OIG Hotline Call:Call: 1-800-424-9071 1-800-424-9071
E-Mail:E-Mail: [email protected] [email protected]
Write:Write: U.S. DOT/OIGU.S. DOT/OIGP.O.Box 23178P.O.Box 23178Washington, DC 20026-0178Washington, DC 20026-0178
QUESTIONSQUESTIONS
Senior Investigator Senior Investigator George F. SullivanGeorge F. SullivanU.S. Department of TransportationU.S. Department of TransportationOffice of Inspector GeneralOffice of Inspector General312-353-0450312-353-0450George.f.sullivan@[email protected]