Fraud Among the Disadvantaged Business Enterprises

The Department of Justice announced last week the conviction of an individual who, over a period of 15 years, was able to obtain contracts that were set aside for Disadvantaged Business Enterprises (DBEs) for his not so disadvantaged firms (SPI and CDS). The Government estimated that he was able to steer about $136 million in Department of Transportation contracts to SPI and CDS by using a "front" firm (Markina, a legitimate DBE) to obtain these contracts. Obviously, this scheme involved co-conspirators.

Although the "front" firm, Marikina, received the contracts on paper, all the work was performed by the SPI and CDS. According to the Department of Justice, SPI and CDS kept all of the profits but did manage to pay small fixed fees to Marikina.

The firms went to great lengths to conceal the scheme. SDI and CDS personnel reutinely pretended to be Marikina employees by using Marikina business cards, email addresses, stationery, and signature stamps, as well as using magnetic placards and ecals bearing the Marikina logo to cover up SPI and CDS logos on their own vehicles.

According to the Department of Transportation, this is the largest DBE fraud case in Department history. The Transportation Inspector General is advising prime and subcontractors to report any suspected DBE fraud and has warned that its agents will continue to "expose and shut down DBE fraud schemes throughout ... the United States.

On a related matter, at least two Congressional committees are continuing to investigate the degree to which contracts awarded to small businesses are actually performed by small business and how much is subcontracted out to large and non-disadvantaged firms. The Alaska Native Corporations (ANCs) are bearing the brunt of these investigations but the committees are not limiting their investigations to that particular group.

These kinds of schemes not only affects the Government and taxpayers but cheats those small minority-owned businesses that the program is intended to help.