Wednesday, September 26, 2012

Falsifying (or Embellishing) Your Small Business Status

We've reported here a number of times over the years how Government contractors get themselves in hot water by claiming a small or disadvantaged business status to which they were not entitled. Although it can be tempting to do so in order to secure a Government contract, the risks are not worth it. Challenges by competing bidders to a successful bidder's representations are now common. Insiders, with varying motives have been "blowing the whistle" with increasing frequency. Last week, the Wall Street Journal reported on a "misrepresentation" case where someone went to jail.

A New York businessman posed as a disabled veteran to qualify and win more than $16 million in Government contracts between 2007 and 2010. The problem was, this individual had never even served in the military. He was convicted by a jury and will now spend the next three plus years in the slammer.

The fraud was made known to investigators through a "confidential informant". We don't know who this person was but it was obviously someone who knew the contracts were restricted to companies run by small disabled veteran owned businesses and also knew that this individual was not one of those but owned and managed the company nevertheless. It could have been a competitor or an employee.

Once the investigation began, this guy knew he was in trouble. He found one of his construction workers who was a disabled veteran and coerced him, under threat of losing his job, to tell the investigators that he was a 51 percent owner of the company and was also responsible for the day-to-day operations of the company. The problem was that this employee was not a very good liar and his story quickly fell apart under interrogation. .

The days where contractors could play loose with their certifications are gone. There's no longer enough "businessf" to go around. There are more competitors chasing fewer dollars and those companies are doing a lot of the policing for the Government. Also, the Qui Tam provisions of the False Claims Act provide the lure of untold riches for employees or persons with inside knowledge of a situation to blow the whistle and share in the Government's recovery of ill-gotten gains.

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