Tuesday, August 14, 2012

Who Manages the Daily Operations of the Business?

Last week, the Department of Justice announced a guilty plea involving a business owner who falsely claimed minority and service-disabled veteran status for his business. Sentencing comes later but could result in five years in prison, followed by three years of supervised release and a $250 thousand fine.

The business owner (and a co-conspirator) falsely represented that a minority and service-disabled veteran owned and managed the daily operations of the business. They arranged the charade in order to obtain federal Government contracts that were set aside for, or preferentially awarded to, disadvantaged minority and service-disabled veteran-owned and operated businesses.

These kinds of cases are becoming more frequent. Although the DOJ press release does not disclose how the fraud was disclosed, many other cases have come about through disgruntled, envious, or conscientious employees or insiders.

Another recent case involved an ostensibly woman-owned business whose husband, for all intents and purposes, ran the company. Still another involved a minority-owned business used as a front for a large company.

The goal in all these schemes is to get Federal government contract awards that were set aside for small, disadvantaged, service-disabled veteran-owned businesses. The common denominator in these cases is that the qualifying business owner did not materially participate in the day to day management and operations of the business.

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