contract fraud: don’t overlook the obvious en...commander (captain-select) pleaded guilty (jan....

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Contract Fraud:

Don’t Overlook the Obvious

Don Mullinax

Headlines

Defense Contractor Paid $1 million to Ship Two 19-Cent Washers

Company Pleads Guilty to Bribing Government Officials for Contracts

Former Mayor Sentenced to 16 Years for Directing Millions of Dollars in City Contracts to a Sham Consulting Company That He Secretly Controlled

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$640 toilet seat cover

$435 hammer

$409 sink

$350 ball bearing

$76 screw

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Contract Fraud Schemes Bribery and Kickbacks

Bid-Rigging

Embezzlement

False Statements and Claims

Defective Pricing

Product Substitutions

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Overview

Who Commits Fraud?

How Could That Happen?

Can We Prevent Fraud?

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How Does Fraud Occur? Poor internal controls.

Management override of internal controls.

Collusion between employees and 3rd parties.

Collusion between employees and management.

Limited, unclear, or no policies and procedures.

Poor or non-existent ethics and/or policy.

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Who Commits Fraud?

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Who Commits Fraud?

Genetic Makeup:

The need to conquer

Show superiority

No rules, no laws

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More Specifically . . .

Ego-driven control freaks

Double standards

Patterns

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How Could That Happen?

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Why Are Warning Signs Important?

“Average fraud schemes last a median of 16 months before being detected.”

-- ACFE 2018 Report to the Nations

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Contract Fraud Indicators

Single Vendor.

Invoices with minimal information.

Simplistic or peculiar bids or quotes.

Contractor address is mail drop or post office box.

Multiple awards for similar work given to same contractor.

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Contract Fraud Indicators

Employee addresses match contractor addresses.

Successful bidder subcontracts to losing bidders.

Winning bidder is always last to bid.

Losing bidder cannot be located in business directories.

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Contract Fraud Indicators

Significant life-style change.

Refusal to take vacation.

Can’t talk to employees.

Turning down promotions or transfers.

Lack of segregation of duties.

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Leverage Technology

Government organization – $4 billion annual budget.

Analyzed 32,627 payments totaling $900 million for 12-month period.

Checks, invoices, and vendors.

Developed 100 tests (queries).

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Glenn Defense Marine Asia (“GDMA”)

Singapore-based firm.

Contracting with U.S. Navy over 25 years.

In June 2011, awarded contract – base year: $25 million plus 4 option years = $125 million total.

Provide “husbanding” services to U.S. ships and submarines in Asian ports.

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Glenn Defense Marine Asia (“GDMA”) “Husbanding” services:

Food

Water

Fuel

Tugboats

Security

Trash & Liquid Waste Removal

Port Authority & Custom Fees

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U.S. Navy Corruption Conspiracy

$500,000 cash

Prostitutes

Luxury Travel

Alcohol

Kobe Beef

Designer Handbags

Watches

Furniture

Electronics

Cuban Cigars

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GDMA General Manager, Global Government Contracts

Pleaded Guilty (Mar. 2014) – Conspiracy to Defraud the

United States. Sentenced (Mar. 2016)

– 63 Months in Prison – $34.8M in Restitution

Alex Wisidagama

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Alex Wisidagama, GDMA General Manager

Overbilled for fuel and created fake invoices to show GDMA prices were cheaper.

Generated bills charging U.S. Navy for port tariffs far greater than GDMA actually paid. Fuel: $2.3 million v. $900,000

Port Dues: $133,232 v. $6,849

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U.S. Navy Commander Pleaded Guilty (Jan. 2015)

– Conspiracy to Commit Bribery

– Bribery Sentenced (Pending)

Jose Luis Sanchez

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Jose Luis Sanchez, Navy Commander

CEO Francis: “J, got it we will hook up after the FLAG dinner, will arrange a nest for you guys and some birds [women].”

Navy Commander Sanchez: “Yummy. . .daddy like.”

Navy Commander Sanchez: “Where r we staying in KL [Kuala Lumpur]? No pictures to get our spirits up?”

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Commander (Captain-Select) Pleaded Guilty (Jan. 2016)

– Conspiracy to Commit Bribery

– Bribery Sentenced (Apr. 2016)

– 78 Months in Prison – $100k Fine – $95k Restitution

Michael Misiewicz

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Michael Misiewicz, Navy Commander

GDMA Manager to CEO Francis: “We got him!!:)”

CEO Francis: “Bro, slide a Bali visit in after Jakarta, and Dili Timor after Bali.”

Commander Misiewicz: “See, you ask – I deliver! LoL!”

CEO Francis: “Don’t chicken out bro we need u with us on the front lines.”

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Can We Prevent Fraud?

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Basic Strategies

Tone at the Top

Ethics Code

Fraud Hotline

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Summary

Place Greater Focus on Competency and Integrity of People

Be More Skeptical, Curious, and Creative

Use Proactive Strategies

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“Books and records don’t commit fraud – people do.”

– Dr. Joseph T. Wells ACFE Founder & President June 16, 2014

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Muchas Gracias

Don Mullinax

Contract Fraud: Don’t Overlook the Obvious