#procurement fraud

Raytheon Agrees to $1M Settlement of Claim Involving Procurement Fraud United States Attorney Nicholas A. Trutanich announced today that Raytheon Company, a supplier of equipment to various Government agencies, has agreed to pay $1.075 million to resolve allegations that it violated the False Claims Act by inducing the County of Los Angeles, California, to enter…

Pyramid scheme fraud. Identity theft. Caller ID spoofing. Graft and corrupt practices between government agencies and third party contractors. All these spark controversy and attract enormous attention from the media, government officials, and the public. However, little is known about the actual penalties that convicted fraudsters incur.

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Procurement fraud is categorically defined as any fraud relating to a company purchasing goods, service, or commissioning constructions projects from third parties. The International Anti-Corruption Resource Center identifies bribes and kickbacks as among the most common schemes of this type of fraud.

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Many reported cases involve contracts with various government agencies as they encompass multi-level networks and personnel in charge. Examples of cases are when a contractor fraudulently certifies costs incurred, when non-conforming materials are used, when charges overlap or are over the actual price, and when false documents are presented to report pricing or costs incurred especially for resources or services which were not delivered.

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Despite procurement fraud challenges, such as not having clear guidance on mitigation and a central database for procurement fraud intelligence, it is still is getting visibility. There has been a noticeable rise in the number of suspensions and debarments of contractors. In connection with this, regulations in contracts and procurements are becoming more rigorous, leading to mandatory disclosures, which eventually result to a higher risk in procurement fraud. Even whistle-blowers are getting better protection.

Penalties such as fines, non-payment of actual incurred costs for convicted contractors, debarment, and suspension await procurement fraudsters. Though there has been an observed reluctance in the investigation, litigation, and implementation of penalties as contractors are often the sole supplier, discussions among regulators and legislators are constantly being held to resolve conflicts, if not completely eradicate, such impacting fraudulence.

A Florida couple who owned a military contracting company has pleaded guilty in federal court in Salt Lake City to their roles in a bribery and fraud scheme involving federal procurement contracts. Sylvester Zugrav, 70, of Sarasota, Fla., pleaded guilty to conspiracy to commit bribery and procurement fraud. His wife, Maria Zugrav, 67, also of Sarasota, pleaded guilty to misprision of a felony related to her efforts to conceal the conspiracy. The Zugravs owned Atlas International Trading Company, a business that contracted to provide foreign military materials to the U.S. government through FMASO.

The Zugravs were charged in an indictment, returned on Oct. 12, 2011, along with Jose Mendez, 51, of Farr West, Utah, a procurement program manager for the U.S. Air Force Foreign Materials Acquisition Support Office (FMASO) at Hill Air Force Base, in Ogden, Utah.

The indictment charged Mendez with conspiracy, bribery and procurement fraud. He has since pleaded guilty to all charges and has agreed to forfeit more than $180,000 he received as part of the bribery scheme. Mendez is currently awaiting sentencing.

In his plea agreement, Sylvester Zugrav admitted that, from 2008 through August 2011, he gave Mendez more than $180,000 in bribe payments, and offered Mendez more than $1.05 million in additional bribe payments contingent upon Atlas’s receipt of future contracts with FMASO. In exchange for Sylvester Zugrav’s bribe payments and offers, Mendez ensured that Atlas and Sylvester Zugrav received favorable treatment in connection with procurement contracts,

The U.S. Justice Department, with the assistance of other members of the government’s Financial Fraud Enforcement Task Force, has announced “great success” this year in the pursuit of procurement fraud, including fraud connected to the procurement of equipment and services for the military. In fiscal year 2012, the department recovered $427 million in false claims for goods and services purchased by the government, bringing total recoveries for procurement fraud since January 2009 to $1.7 billion. 

The department recovered $73 million in cases related to the wars in Iraq and Afghanistan.

These cases include a $37 million settlement with ATK Launch Systems Inc. to resolve allegations that ATK sold dangerous and defective illumination flares used by the Army and the Air Force for nighttime combat and for covert and search and rescue operations. In another wartime contracting case, Maersk Line Limited paid the United States $31.9 million to resolve allegations that the company knowingly overcharged the Department of Defense to transport cargo to U.S. troops in Afghanistan and Iraq. For details on these settlements, go to ATK and Maersk .

The department also recovered $200 million from software manufacturer Oracle Corp. and Oracle USA in the largest False Claims Act settlement ever obtained under a General Services Administration contract.