Tuesday, November 30, 2010

Labor Mischarging

The Department of Justice just issued another press release - this time about a settlement with a defense subcontractor who "allegedly" mischarged labor costs to Government contracts. The press release used the word "allegedly" because the subcontractor, by settling, did not admit any guilt. Nevertheless, the Government got back about $2 million, of which the whistleblower who initially raised the issue, received $361 thousand.

From 2001 to 2006, this subcontractor was systematically altering employee timecards thereby charging the prime contractor, and ultimately the Government, for hours not worked. One of the employees bacame cognizant of what was going on, didn't like it, and alerted authorities by filing a "qui tam" action under the False Claims Act. The evidence provide by the whistleblower was sufficient enough for the Government to intervene and ultimately settle and recover the $2 million. Although the press release doesn't state so, the initial estimates of the cost impact was probably much higher than $2 million. These cases are often settled for much lower than initial estimates.

Contractors that play around with timecard alterations or instructing their employees to charge something other than what they are actually working on are at higher risk from being outed by their own employees than they are though a Government audit. If an employee believes there can be a big payday in the future for blowing the whistle on unethical or fraudulent activity, that is sometimes all the incentive required. When there's a hotline poster and a 1-800 telephone number staring them in the face every day, they don't even have to look up the telephone number to report their suspicions.

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