Federal Contracting Fraud Continues

The Federal Government spends a great deal of money every year on contracting. They buy services, hardware, food and every other thing imaginable. This year spending has been at an all time high with a big part of that from the American Recovery and Reinvestment Act (ARRA) or “stimulus” bill. This was passed by Congress in March with the hope that it would jump start the economy and create millions of jobs.

Unfortunately fraud in receiving or performing these contracts has always been an issue and the expanded spending of this year only highlighted it more. One area of concern has been misuse of the various disadvantage business designations. The Government has goals to award so many percent of their contract values to small businesses and ones owned by disadvantagde groups. Another category is disabled veteran owned companies. If someone can manipulate the system to get one of these designations then they qualify for sole source awards. This makes it much easier to get contracts.

Recent audits of the Small Business Administration (SBA) have shown that many companies, including large companies such as Boeing (BA) or General Dynamics (GD) have received contracts designated for small businesses. Another issue has arisen with companies receiving disadvantaged status and contracts when they were not really eligible. In 2008 the Government Accountability Office (GAO) reported that they could not verify the estimate of $3.3 billion in awards to these types of companies and that the program was vulnerable to “fraud and abuse”.

It has also turned out that about a hundred million dollars worth of contracts under the ARRA were mistakenly given to companies thought to be disabled veterans. Part of the problem faced is there is no central database of these companies so when a contracting officer is doing the source selection and award they cannot turn anywhere for verification. The Veterans Administration (VA) is trying to develop one. A bill has been introduced into Congress to establish an office in the SBA to do this as well. The bill also increases the penalties for misusing the designation to win contracts.

The easiest way to prevent this type of fraud would be to have an easy way to verify the companies bidding which is obviously being worked on. As long as the Government has goals for these types of groups where they get priority in selection it will lead dishonest company owners to try and take advantage. It is clear that the current system in place for government procurement does not adequately work and fraud occurs.