$6 Million Fraud Case Related to Humvee Production

The U.S. Army Tank-Automotive and Armaments Command (TACOM) is the organization responsible for buying Humvees (High Mobility Multipurpose Wheeled Vehicles). A company named "Ibis Tek" had a subcontract to produce Vehicle Emergency Escape Window (VEE Window) kits for the Humvees.

A couple of brothers who ran the subcontractor, Ibis Tek, are now in a lot of trouble with the Army (and the Justice Department). It has been alleged that the brothers set up another company, Alloy America to purchase window frames from China for $20 each and sell them to Ibis Tek for $70 each. That's a nice little markup for doing nothing more than pass-through. However, the nature of the subcontract made such markups inappropriate. Inter-company transfers were to have been made at cost.

In addition to inflating the cost of purchased parts, Ibis Tek sold scrap aluminum collected in the manufacturing process but failed to credit that money back to TACOM, according to the terms of the subcontract (see FAR 31.205-26 (b)(1) - the contractor shall adjust the costs of material for income and other credits, including available trade discounts, refunds, rebates, allowances, and cash discounts, and credits for scrap, salvage, and material returned to vendors and credit such income and other credits either directly to the cost of the material or allocate such income and other credits as a credit to indirect costs).

Between the inflated cost of the window frames from China and the sale of scrap aluminum, Ibis Tek overcharged TACOM by more than $6,000,000. That, according to the Justice Department, constitutes a "Major Fraud Against the United States" (see 18 USC 1031) and carries significantly higher penalties.

But that's not all. There was a Government civilian employee who accepted more than $1,000,000 of illegal gratuities from the brothers. This Deputy Project Manager is not only in trouble for accepting the gratuities (bribes) but also for failing to report the million dollars as taxable income on his tax returns.

The defendants in this case are expected to enter guilty pleas.

The Justice Department press release does not explain how the fraud was uncovered. There are a number of possibilities but most likely, a whistleblower came forward to spark the Government's interest.