Don't Just Prosecute Federal Contractor Fraud. Prevent It.
Congress recently funded the federal government to the end of the fiscal year. For government contractors, ending the political impasse means that more public services will be fulfilled. For taxpayers, it means that important work is getting done on their behalf. And for fraudsters, this means major opportunities to make money at taxpayer expense.
One such fraudster was sentenced earlier this year for lying about body armor he provided to guards at U.S. embassies, with National Guard units, and with the Air Force. Tanner Jackson pled guilty after his three-and-a-half-year scheme was exposed and prosecuted by the U.S. Department of Justice.
More available money is a good thing to help contractors fulfill their obligations to taxpayers. But those same taxpayers often pay at least four times when fraud is involved – up front for illegal acts like Jackson’s, then having to pay again for the work to be completed, and then even more when the federal government prosecutes and jails fraudsters. Perhaps worst of all, just a fraction of money lost to fraud is ever recouped.
Fraud undermines many parts of the government contracting culture. Many veterans view government contracting as part of continuing public service, this time out of uniform. Taxpayers rightly see contracting as using their hard-earned money to provide government services. And contractors themselves can be defrauded, creating business challenges which can end with bankruptcy and other life-changing problems.
Despite its tremendous harm, fraud rarely makes big news. But it should – a recent, devastating Bloomberg News editorial laid out over $200 billion in COVID-19 relief fraud alone, related to tax, unemployment, and business fraud. The defense giant Airbus was hit with a four billion-dollar fine in 2020, the largest of its kind for a multi-year, multi-national fraud scheme which illegally earned the company a billion dollars. That fine led 130 investors to sue Airbus for over $300 million for lying to them – for taking advantage of people who trusted the company to put their interests first.
As big as these dollar amounts are, any fraud undermines trust in the government. Thankfully, the federal government uses several methods to protect taxpayers from fraudulent contractors.
Criminal investigations and prosecutions as described above are a strong deterrent to fraud, as are the significant federal prison sentences often imposed for criminal fraud. Even settlements can be a great deterrent, under the right circumstances – Airbus’s 2020 agreement with the U.S. and other countries laid out not just a fine, but also multiple audits and an outside compliance officer’s oversight. Failure to complete these requirements could lead to the company’s prosecution.
Government contracting companies also face suspension or debarment for committing fraud in government contracts. A contracting firm found to have committed fraud can be prohibited from receiving any federal contract of any type for up to three years. For many small firms, this can be the equivalent of a corporate death penalty. Big players like Airbus (that are foreign government-subsidized) regularly get around such restrictions, but the hit to their brand credibility can often prevent them from securing sizable contracts until their illegal actions are in the distant past.
Additionally, the False Claims Act provides the federal government with the means to recover treble damages for civil fraud. The FCA has a unique provision that allows private citizens to bring suits on behalf of the Federal government (referred to as “Qui Tam” actions) as whistleblowers. In Qui Tam actions, private citizens who bring such suits (referred to as “relators”) share in the recovery with the federal government. In Fiscal Year 2021, the U.S. Justice Department reported $5.6 Billion in judgments and settlements in Qui Tam actions, with $237 Million in payouts to the private citizens who helped the government find and punish criminal actors.
Most government contractors are, thankfully, ethical. However, it’s important to take pro-active steps to protect your company, your government client, and the taxpayers from criminal actors. The easiest way to prevent fraud is to have proper oversight and accountability for employees who act on behalf of the firm. This requires managers to be trained, an HR team with high staffing standards, and a legal team which handles both compliance and internal fraud investigations.
As federal spending continues to increase, so will the potential for criminals to sneak away with taxpayers’ hard-earned money. Government contractors have an important and unique opportunity to stop the crime before it happens.
Milton C. Johns has spent over three decades in government and defense contracting, including more than 20 years in the private practice of law. He is Managing Member of Executive Law Partners, PLLC.
