July 14, 2005
Previously published on June 16, 2005
With recent increases in federal procurement activity and further increases expected -- particularly in the areas of defense and homeland security -- the Department of Justice is gearing up for a potential increase in procurement fraud investigations and prosecutions.
New Working Group To Coordinate Anti-Fraud Effort
On February 18, 2005, the U.S. Attorney for the Eastern District of Virginia announced the formation of a Procurement Fraud Working Group. Members of the working group will be drawn from the following law enforcement agencies: the FBI, Defense Criminal Investigative Service, Naval Criminal Investigative Service, and Air Force Office of Special Investigations, and will also include Inspectors General from the Departments of State, Homeland Security, Transportation, Treasury, Education, Interior, Commerce, Veterans Affairs ,and from the National Science Foundation, Coalition Provisional Authority, IRS, NASA, GSA, and CIA.
Established following the conviction of Department of Defense official Darleen Druyun, the working group will coordinate and focus federal efforts to combat procurement fraud, which includes product substitution, defective pricing, misuse of classified or other sensitive information, labor mischarging, accounting fraud, fraud involving foreign military sales, conflicts of interest, and other ethical breaches. The working group's initiatives will include:
- Education of contracting officers, program managers, and other agency personnel relating to detection and prevention of procurement fraud;
- Placement of agency investigators at major procurement offices to work with agency employees who are directly involved in the negotiation of government contracts;
- Use of computer data-mining and other programs to uncover procurement fraud;
- Collaboration between special agents and prosecutors at early stages of procurement fraud investigations; and
- Improved training of special agents and auditors to assist them in conducting investigations of fraud, bribery and conflicts of interest.
The U.S. Attorney's Office for the Eastern District of Virginia led a similar effort in the 1980s, after the buildup in defense spending during the Reagan Administration. It played a pivotal role in Operation Ill Wind, which resulted in approximately 70 convictions of defense contractors, employees, consultants, and government officials.
Many Federal Contractors Will Feel the Impact
With this renewed emphasis on procurement fraud, the number and scope of procurement fraud investigations and prosecutions brought by the U.S. Attorney's Office is likely to increase.
Because the Pentagon is located in the Eastern District of Virginia and many federal agencies have operations there, defense contractors nationwide and other companies that do business with those federal agencies are subject to prosecution in the Eastern District of Virginia and, consequently, will feel the impact of this initiative.
The federal procurement laws are interpreted broadly to cover all manner of schemes to defraud the government. In some circumstances, a company can be criminally liable for fraud committed by one or more of its employees, even if the employees acted contrary to company policies and the company obtained no benefit from the fraud. Even when no criminal charges are brought, procurement fraud investigations often result in civil remedies, including fines and treble damages under the False Claims Act. Self-reporting known instances of procurement fraud and an effective compliance program can frequently mitigate the often disastrous impact of a procurement fraud investigation on a company.
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