Fraud in the DBE and ACDBE Programs

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					  FAA DBE Workshop


DBE Program Fraud

  U.S. Department of Transportation
      Office of Inspector General


                                      1
                 Overview
   Mission and Priorities
   Fraud Discovery, Schemes, and Indicators
   Detection and Deterrence of DBE Fraud




                                               2
                                    OIG Criminal
Alaska
                                 Investigative Regions
                                                                                                                                                                              Maine
                                                                                                                                                                    Vermont
                                                                        North Dakota
                                                                                        Minnesota
         Washington                     Montana


                                                                        South Dakota
                                                                                                      Wisconsin
                                                                                                                                                                     Mass
                                                                                                                                                                         NH

                                                                                                                                                                              1
         Oregon                Idaho
                                                  Wyoming
                                                                                       5                                 Michigan
                                                                                                                                               New York
                                                                                                                                                             2             Rhode Island
                                                                                                                                                                         Connecticut



                   9                                                     Nebraska              Iowa


                                                                                                                      Indiana
                                                                                                                                Ohio
                                                                                                                                             Pennsylvania

                                                                                                                                                                New Jersey
                      Nevada           Utah                                                                Illinois
                                                                              Kansas                                                               Maryland Delaware
                                                     Colorado                                   Missouri
                                                                                                                                       West


              California
                                                                                                                       Kentucky        Virginia
                                                                                                                                                  Virginia   3
                                                                    Oklahoma
                                       Arizona                                      Arkansas
                                                  New Mexico                                           Tennessee
                                                                                                                            North Carolina

     Hawaii
                                                                6
                                                                Texas
                                                                                               Mississippi
                                                                                                              4
                                                                                                            Alabama
                                                                                                                          South
                                                                                                                          Carolina
                                                                                                                                                             Washington, DC




                                                                                                                       Georgia
                                                                                           Louisiana



               OIG Regional Office
                                                                                                                          Florida

                                                                                (Includes Puerto Rico,                                                                         3
                                                                                Virgin Islands)
              Why Employees Do Not
                  Report Fraud

   According to a 2005 Business Ethics Study,
    employees do not report fraud because they:
       Believe nothing will happen.
       Don’t know who to contact.
       Think the report will not be kept confidential, so
        supervisors or co-workers might retaliate.
       Believe the situation has no personal impact on them.



                                                                4
            Difficulties in Prosecuting
                DBE Fraud Cases

   Project completed to owner’s satisfaction

   Unpopular program → unsympathetic jury

   Government loss is amount paid to DBE front → below
    threshold for prosecution

   Government prosecutor does not understand DBE program



                                                          5
               “Red Flag” Indicators

   Owner lacks background, expertise, or equipment to
    perform subcontract work

   Employees shuttle back and forth between prime
    contractor and minority-owned business payrolls

   Business names on equipment and vehicles are covered
    with paint or magnetic signs

   Orders and payment for necessary supplies are made by
    individuals not employed by minority-owned business

                                                            6
            Minority-Owned Business
             “Red Flag” Indicators
   Prime contractor facilitated purchase of minority-owned
    business

   Minority-owned business owner never present at job site

   Prime contractor always uses the same minority-owned
    business




                                                              7
Settlement for $11.75 M and
  Compliance Agreements




                              8
             DBE Fraud Schemes
                      False Eligibility

   The DBE does not belong to one of the recognized socially
    or economically disadvantaged groups

   The DBE provides false information concerning size or
    financial status

   Hidden assets or false statements concerning origination of
    capital

                                                                9
            DBE Fraud Schemes
                   Conduit Companies

   DBE firm does not complete any of the contracted work

   The DBE sells his status to another company who
    completes the work

   Usually allows the use of the DBE name on invoices,
    trucks, equipment


                                                            10
 Prototype
Fraud Card




             11
           Simple Recipe for
            Fraud Detection
   Identify selected big ticket items on big-dollar
    DOT projects.

   Closely examine supporting documentation for
    irregularities and discrepancies.

   Interview third parties concerning project details.
    Ask simple questions to detect fraud. Distribute
    fraud cards.

                                                       12
             DOT/OIG Hotline
   Call:    1-800-424-9071

   E-Mail: Hotline@oig.dot.gov

   Write:   U.S. DOT/OIG
             P.O.Box 23178
             Washington, DC 20026-0178

                                         13
  Questions?



OIG’s web site:
www.oig.dot.gov



                  14

				
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