Thursday, January 16, 2014

Contractor Admits to Falsifying it Annual Incurred Cost Submission

Well, I guess that it sometimes pays to do an audit. Just when we think that nothing scintillating, or at least interesting, is ever discovered during an incurred cost audit, the Justice Department comes out with a press release proclaiming otherwise.  Vector Planning out of San Diego just plead guilty to criminal charges that it cooked its books and overcharged the Government on some DoD contracts. Vector has to pay about $6.5 million in restitution and gets a deferred prosecution out of the deal. Needless to say, its days as a Government contractor are in jeopardy as well. Accolades to DCAA for uncovering this fraud.

Under cost reimbursement contracts, contractors are allowed to bill for its direct costs and a pro-rata share of indirect expenses. At year end, contractors are required to submit annual incurred cost proposals for audit, review, reconciliation and approval. Contractors certify these costs. In this case, Vector admitted that after claiming and being paid for direct costs in connection with other, firm-fixed-price and time-and-materials contracts, it systematically reclassified the same costs in its accounting system to make it appear as if the costs were indirect costs. This inflated the indirect rates which were, in turn, charged to the Government. This allowed Vector to get paid twice for the same costs; once as direct and again as indirect.

This practice was going on for some time. Vector admitted to the false submissions in 2005 through 2009. When the auditors started their audit in 2011, Vector falsified its electronic accounting entries, and prepared and backdated fake invoices in order to support those falsified accounting entries. Vector blamed it on the dead guy - said that the entire scheme was orchestrated by its former CEO who is now deceased.

Although the fraud tallied $3.6 million, Vector agreed to pay $6.5 million to settle up the civil side of things. Vector also has to set up and maintain an ethics and compliance program. If Vector says clean for three years, the Justice Department will drop its criminal case.

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