Monday, December 14, 2015

Jail Time for Timekeeping Fraud

If you know of a crime, you had better report it. Two former employees of Ingalls Shipbuilding have plead guilty of "misprision of felony" meaning that they had knowledge of a crime but deliberately concealed such knowledge and failed to report it. One was sentenced to six months in prison and a $20 thousand fine. The other was fined $17,500. Twenty other Ingalls' employees were fired from their jobs for their participation in the scheme.

It's not clear from news accounts the exact nature of the crime. Court papers state the pair repeatedly failed to report the fraudulent time employees under them submitted for work on hulls on Navy and Coast Guard vessels. All of this was done to meet unrealistic budgets.

From this we can surmise that employees were probably working on fixed price contracts that were at or close to overrunning their budget. but charging their time to cost-type contracts or some other type of contract with flexible pricing. The attorney for one of the pair stated that what the two were doing was common in the industry. That statement is disturbing.

The fraud occurred between 2010 and 2013 and was first reported earlier this year as costing the Government one million dollars. Now, the amount of the fraud is up to $11 million. It was discovered by Ingalls' own internal review program and subsequently turned over to NCIS for investigation.

The elephant in the room here that no one wants to talk about is the failure of Government oversight to prevent this type of fraud or at least catch it before it festers for three years. It doesn't speak well for efforts of dozens of contract auditors on-site whose job it is to perform floorchecks to make sure such things do not happen. The comment by the attorney that the practice is common in the industry should at least cause the minders of auditors to rethink their audit approach.

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