Tuesday, March 12, 2013

Huge Timecard Fraud Settlement

Last week, the Department of Justice (DoJ) announced a settlement in which CH2M Hill Hanford Group (CHG) admitted to federal criminal violations by engaging in widespread timecard fraud over a ten year period. In order to resolve CHG's civil and criminal liability, CHG agreed to pay a total of $18.5 million, commit an additional $500 thousand towards accountability systems, consent to a corporate monitor, and to continue to actively cooperate with the ongoing fraud investigation. There are many fascinating aspects to this case.

First, the discovery of the fraud came from a whistleblower who himself, had engaged in the fraud (however, the whistleblower was not allowed to share in the recovery). The discovery did not come from any Governmental oversight even though the Government spent untold thousands of hours auditing CHG's contracts. The Defense Contract Audit Agency was on-site, so was the DoE Inspector General, and so were DoE's financial analysts. Makes one wonder whether the audit risks were properly identified.

Secondly, it seems like the employees were controlling the supervisors and managers. Employees were refusing to work overtime unless they were guaranteed eight hour shifts. As stated in the agreed statement of facts, the inability of CHG's upper management to secure the necessary overtime volunteers for various jobs threatened CHG's ability to complete various projects linked to performance incentives. This in turn threatened CHG's ability to earn certain fees, and therefore profits under the contract. The inability to obtain performance based incentives would have directly impacted the personal corporate bonuses of certain members of CHG's upper management. Consequently, these upper management folks as well as direct supervisors of the hourly workers and other supervisory personnel, accepted the practice of hourly workers only working until the particular overtime job was completed, leaving the project site but falsely claiming a full eight hours even when the job took less than eight hours.

One would think that under normal circumstances, employees' refusal to work overtime would be a cause for separation. But, Hanford workers have a very strong union. Every few years, DoE brings in a new contractor to oversee the nuclear clean-up effort but all the incumbent employees keep their jobs.

Thirdly, the DoJ press release makes no mention of any consequence for the fraud committed. No one was fired, no one went to jail, no one, except the corporation, paid a fine. There was not even the proverbial slap on the wrist. In fact, the press release stated that there was no discipline, formally or informally. What kind of message does that send?

As we've stated here many times, contractors must have strong ethics, core values, and codes of conduct. It begins at the top and must permeate the entire organization. It is pretty obvious from the DoJ press release that top management knew the fraud was ongoing but rather than stop it, allowed it to continue in order to pad their own pockets.

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