Empowering People to Question Is the First Line of Defense Against Fraud

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According to the U.S. Government Accountability Office, the federal government spent more than $586 billion on contracts in fiscal year 2019. With that much money floating around, it’s no surprise that fraudsters often target the contract awarding process. Vince Haecker, Ed.D., assistant special agent-in-charge in western region investigations for the U.S. Department of the Interior, Office of the Inspector General, explained to attendees at the 32nd Annual ACFE Global Fraud Conference how common fraud schemes occur in the contract process.

In his session, “Lessons Learned From Tracking a Deceptive Mastermind,” Haecker told a story of two contractors who he discovered were securing contracts, farming them out to subcontractors while posing as contracting agents for the government and then failing to pay the subcontractors. “This complaint is probably the most common one,” he said. He became aware of the fraud when the subcontractor came directly to the government asking to be paid for the work done. “The complainant believed they were the government’s prime contractor.”

Using the Contractor Performance Assessment Reporting System database, he discovered that the fraudsters had an incredibly high number of contracts awarded to them with many notes of the contracts being terminated without work being completed. “There are more anomalies and more patterns here that suggest this was an intentional act,” he said.

One of the red flags he noticed was that the contractors would routinely underbid the contracts by thousands of dollars. Since the contracting agents for the government perform detailed market research to come up with how much the project should realistically cost, that tipped him off. “That’s a flag,” he said. “When somebody comes in and underbids that low, it makes you wonder.”

To look deeper into the contractors, he checked state business registrations, pending lawsuits and even social media. “We are in the virtual age of information. Everything is at our fingertips,” Haecker said. “It often shocks me and surprises me of how limited vetting or research people will do … but I love looking at open source searches.” He discovered that the contractors seemed to spend lavishly, which helped confirm his suspicions.

He interviewed the contracting agents who awarded many of these contracts and found the fraudsters would often time their contract bids to coincide with the end of the fiscal year when contracting staff was often overwhelmed trying to spend budget. “These contractors know our cycles. They know what to ask for.”

When asking the contracting agents if they felt the bids were odd, Haecker said they did, but were given assurances when they asked questions. “Because we do heavily rely on these independent contractors to get our mission done, vetting these contractors and vetting their ability to do this becomes a very critical step,” he said.

He stressed that it wasn’t the fault of the contracting agents for failing to mark the bids as suspicious, but rather an issue with what they felt they could ask and do. “Even though we’ve given them this fiduciary responsibility to really ask and probe and make sure that we’re getting into good contractual agreements with the right vendors, they don’t feel empowered,” he explained. “I feel empowered as an investigator because I know my leadership has full faith in me. As managers, we’ve got to make sure that the supervisory level of contracting and grant administrators have that same level of empowerment because that’s first line of defense. We’ve got make sure they understand and they don’t feel that they can’t push back.”

Haecker repeatedly told attendees to listen to their gut when seeing red flags. “For my auditors and my investigators, [use your] professional skepticism. That’s a big theme here when looking at this with a critical eye,” he said. “Don’t discount those obscure facts or those facts that don’t make sense initially.”

He also emphasized the importance of communication between investigators and other departments. “We’ve got to be creative on how we track these people,” he said. “We’ve got to compare notes with other contracting officers to figure out what schemes and patterns they’re seeing.”

For all fraud examiners, regardless of whether you deal with contracts or public sector fraud, it’s key to remember to share information and communicate with people in different job functions in order to catch fraud. Encourage those on the front lines of handling money to ask probing questions and employ a critical eye when dealing with situations or people that seem too good to be true.