Procurement Fraud & Avoiding Criminal LiabilityWhen it comes to government procurement fraud investigations and legal consequences, companies should realize that the federal government has significantly increased its oversight for large or small businesses who show signs of purchasing fraud. Federal contractors often find themselves exposed to criminal fraud charges from either a whistleblower or some other interested party.

When it comes to purchasing fraud allegations and government contracting, not every defendant has done something wrong. Unfortunately federal prosecutors tend to seek out small businesses and larger companies with allegations that the prosecutors themselves may not quite understand. As a result, companies and their CEOs face serious jail time without even a chance of a plausible defense.

Why is this? Oftentimes, individuals hire local criminal defense counsel that very little experience in government contracting and procurement law. 

In any event, this is not a good situation to be in. Avoiding criminal liability should be a top priority for both large and small businesses involved with federal government contracts.

Make sure that your procurement fraud lawyer understands federal government contracts and issues related to small business programs.

What is Procurement Fraud?

Federal government procurement fraud occurs when a contractor, small business or large, or an individual intentional and deliberate causes the government to pay or otherwise act based upon deception, false statements or otherwise. The person or company committing fraud would then benefit from some type of financial gain, or loss.  In other situations, government employments may be involved in kickbacks based on gifts, cash or something else of value. Federal law enforcement agencies are heavily targeting companies suspected of committing procurement fraud. This is done via government fraud investigations, indictments, criminal liability and civil fines.

Government Investigations for Purchasing Fraud

The federal government usually commences a procurement fraud investigation ( SBA Inspector General or DOJ law enforcement) way before the contractor knows it. Sometimes a year or more. Contractors targeted in a purchasing fraud investigation for corruption in the procurement process should immediately seek legal counsel.

Why is this? Because the federal investigation offices tend to have a substantial amount of resources over what the contractor has. Although all potential targets should cooperate with federal investigators, there are also constitutional rights that must be protected. Having a government contracting fraud attorney on board that understands the process, can be beneficial in protecting your rights.

  • Potential defendants in a criminal case, often wait until charges are brought to retain a defense lawyer.
  • By this time, the government has already developed its case and potential witnesses well in advance. This places a contractor at a great disadvantage.

Consequences of Government Procurement Fraud Schemes and Corruption in the Procurement Process

Penalties and other legal consequences for government procurement fraud investigations can cause a person to serve jail time or even have to go through a civil trial to fines in the hundreds of thousands or even in the millions.

If you are a party to a civil lawsuit for corruption in the procurement process, the burden of proof is a lot lower than in a criminal case. Government attorneys look at the viability of other types of cases.

The consequences of procurement fraud in a Federal False Claims Act case can cripple your company because both a whistleblower or the government can take shots at your or your company. Having the right legal defense counsel that understands the substantive issues can benefit the overall outcome and even lower any potential consequences through negotiations or trial.

Are You Involved in a Government Contract Fraud Investigation?

Many things can lead to a government procurement fraud investigation. Common issues that can trigger such an adverse action include tips that your company does not meet the small business size standards, submission of inaccurate invoices by the prime contractor or subcontractor, consistent complaints from contractors not getting paid, and false certifications.

  • When you seek defense counsel, you also want to make sure that you have a government contracting fraud lawyer that understands the FAR rules and small business programs. This is true regardless of if you are facing and SBA inspector general inquiry or congressional investigation.

Conspiracy and Collusion Criminal Charges

In federal procurement, most procurement and purchasing fraud schemes involve some level of conspiracy or collusion. This is the approach that the government typically takes. In addition to wire fraud, many small businesses or large DOD contractors often find themselves under indictment for criminal conspiracy and some level of collusion with federal officials leading to kickbacks and other charges.

  • Avoiding conspiracy and criminal charges involving federal government contracts means attacking the governments underlying crime. Many federal prosecutors make allegations in their court documents. However, they can find themselves at a great disadvantage at trial.
  • An example is avoiding conspiracy to defraud the government by alleged violations of the SBA (a) Program but the prosecutor is totally incorrect about what is a disadvantaged person or what constitutes ‘control’ in relation to SBA affiliation rules.

A Disadvantage for Small Businesses

 Small business government contractors are more exposed to consequences of procurement fraud simply because they do not have experienced legal staff on board that understands the brutal rules that can criminally implicate the corporation.

An example is when the government’s attorney alleges that your SDVOSB business has violated the limitations in subcontracting regulations but fails to realize that contracts under the simplified acquisition limitation do not require complying with the subcontract limitations rules. Without the rights procurement lawyer on their team, individuals or corporations find themselves entering a plea when there was nothing legally wrong.

In addition, small businesses are also at a disadvantage because they do not have the basic internal policies and controls implemented. Avoiding criminal liability can start with having the basic tools implemented and training internal staff.

When the feds come knocking on the door it is usually too late. Despite the fact that a simple mistake could be made, the common approach is to pursue criminal charges and then use any credible mitigating circumstances at the end to reduce a criminal sentence. See information about SDVOSB fraud and small business fraud cases.

What are the types of government procurement and purchasing fraud schemes?

Embezzlement: Stealing money or property by a person who is in a position of trust, such as an employee or an agent. Embezzlers typically come into possession of money or property legally but take it fraudulently. Embezzlement is a white-collar crime and involves no physical violence. Embezzlement charges may be filed for almost any amount, but the amount of money taken usually determines the charge. High-profile embezzlement cases can involve the misappropriation of millions of dollars.

Fraud and False Claims: Procurement fraud schemes come in various forms. Contractors investigated or indicted for mischarging for cost or labor can be held for violating the False Claims Act. Criminal penalties can also be implemented for knowingly charging customers higher rates or costs than contracted for.

Bid Rigging: Bid rigging in government contracting occurs when there is some form of price fixing when a public contract is somehow promised before the solicitation is published or evaluated. Bid rigging also leads to other criminal procurement fraud charges such as conspiracy or collusion and false claims violations.

Accounting and mischarge procurement fraud schemes: When small businesses and other contractors knowingly charging unallowable costs to the government, concealing or misrepresenting them as allowable costs, or otherwise hiding them in an effort to deceive the government, companies will face criminal liability for government contract fraud.

Labor mischarge fraud schemes: Where federal contracts include payment for labor costs, a contractor may be tempted to falsify the numbers of staff employed. This can be especially true for federal construction contracts. This type of procurement fraud scheme can lead the IG and DOJ to prosecute small businesses and federal contractors for procurement fraud. If your company is an SBA 8(a) certified company or HUBZone, you can also find your company defending a suspension and debarment case and termination for default. Learn about FAR 52.212-3 Offeror Representations and Certifications Form Reps and Certs.

 Investigations & SBA 8(a) Procurement Fraud Schemes

Many small businesses involved in the 8(a) BD Program find themselves facing criminal liability and procurement fraud investigations for violating the SBA small business program. Oftentimes, former 8(a) companies are charged with conspiracy to defraud the government because after graduation they help other 8(a) companies to develop business strategies to get federal government contracts. 

There are many procurement fraud cases where defendants are at odds and simply do not understand how to defend the case. The best way to minimize liability in a criminal case involving fraud in the SBA 8(a) Program is to have an SBA lawyer on your defense team that understands the rules.

Avoiding criminal fraud liability and facing criminal charges means finding a government procurement fraud lawyer that understands how the 8a program laws work and whether the government’s charges hold merit.

  • Not all criminal defense attorneys understand the substantive nuances of the SBA 8a Program. Without such representation, your company may find itself at the government’s mercy during a procurement fraud investigation.

Service Disabled Veteran SDVOSB Fraud Schemes

Another category where the federal government is seeking out small businesses for having procurement fraud schemes is the service-disabled veteran owned small business program (SDVOSB). Whether you are self-certified or certified through the Veteran Administration. Small contractors are usually charged with pass-through procurement schemes, violation of the limitations on subcontracting rules, or some other form of conspiracy or false representation to the government.

If you are providing goods and services to the federal government and are facing criminal liability for government procurement fraud, you should seek immediate help before the investigation gets too far gone. Having an attorney that understands the FAR regulations, SBA regulations regarding mentor protege relationships, teaming and joint venture regulations.

HUBZone Fraud Procurement Schemes

The SBA HUBZone program provides federal contracting assistance to qualified small businesses located in historically underutilized business zones. To qualify as a HUBZone small business, you must show that at least 35 percent of your company’s employees must reside in a HUBZone.  Companies involved in HUBZone fraud cases may find themselves charged with falsifying information to the SBA or a specific federal agency.

Whether or not the company actually meets the HUBZone employee requirements can be one of the many legal issues that come up.  However, being investigated for having a HUBZone fraud scheme can involve many other issues such as pass-through contract schemes, limitation on subcontracting rule violations and more.

If your business meets SBA qualification, it’s eligible to get federal contracts specifically set aside for HUBZone businesses and gets a price preference when bidding on federal contracts subject to open competition.  In order to remain in the HUBZone program, your small business must apply for recertification by the Small Business Administration every three years.  

If you are involved in a HUBZOne procurement fraud case, find a government contract small business lawyer that understands the program. Without it, you may be at substantial risk of getting a criminal conviction.

Contracting Officer Referral For Fraudulent Contract Claims

Most government contract claims are covered under the Contract Disputes Act. However, the contracting officer cannot decide claims or resolve them if such resolution includes penalties or forfeitures that are governed by statute of regulation. This level of government contract fraud leaves the contracting officer no other choice than to refer the matter to the “agency official responsible for investigating fraud.” See FAR 33.209. 

 If you are a government contractor and the agency has denied your claim and the only explanation is fraudulent invoices, you should seek the immediate help of a government contract claims lawyer. The same applies to an appeal of the contracting officer’s final decision, where the government attorneys counterclaim based upon fraud.

Can a contractor be criminally charged?

Yes. In most cases, after the DOJ or some other federal law enforcement agency investigate the allegations, contractors are indicted and often criminally charged. This can cause significant hardship to the company. Having the right government investigations lawyer on board can make a huge difference in the outcome of your case.

Government Contractor Fraud Prevention Policies

The best way to avoid criminal liability is to develop and comply with company internal policies and controls. Many companies, especially small businesses, do not have sufficient protections and fraud prevention measures in place. Having a viable policy in place can help your company in a proposed suspension and debarment proceeding.

To Avoid Costly Mistakes, Get My Free Claims Checklist

If you are an individual or business facing an procurement fraud investigation or criminal charges for federal government procurement fraud and looking to avoid criminal liability, call Watson & Associates LLC federal criminal defense lawyers for a FREE Initial Consultation to see how we can minimize the consequences. Call 1-866-601-5518.

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