Tuesday, November 1, 2016

Federal Conspiracy Statutes

Most companies at some point interact with independent public accountants (i.e. Certified Public Accountants or CPAs). CPAs perform audits, reviews, and compilations of financial statements, perform routine bookkeeping services, and consult on various financial matters. One thing that many companies are unaware of when engaging a CPA firm to perform an audit or review of its financial statements is that those auditors are required by professional standards to assess the likelihood of fraud that could materially misstate financial representations. Just to be sure these auditors are well-trained to detect fraud, most states require that they receive specific fraud training as a prerequisite to licencing renewals every two or three years. Bet many of you didn't know that your CPA doubles as a gumshoe.

We spend a lot of time discussing contract fraud on these pages with the idea that contractors will use the information and case studies to assess their own vulnerabilities (risk) to fraud and develop internal controls to first of all, prevent it from happening in the first place, but short of that, be able to detect it when it happens. Many Government contractors have been caught totally unaware of fraud occurring withing their organization. And, when fraud occurs, it doesn't take much to show that it impacted costs to the Government or circumvented one or more regulations. Next thing you know, the investigators arrive and your day (week, month, year) is ruined.

There are many Federal statutes that a company, principles, or employees can be charged for violating. One that comes up often in contract fraud is the federal conspiracy statute. The principle federal conspiracy statute provides that if two or more persons conspire to commit any offense against the United States or its agencies, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined or imprisoned, or both.

The essential elements of this statute are

  • The conspiracy was willfully formed
  • The accused willfully became a member of it
  • At least one of the conspirators knowingly committed at least one overt act in furtherance of the conspiracy.

The essence of the offense is a combination or agreement of two or more persons to accomplish an unlawful purpose by lawful or unlawful means or a lawful purpose by unlawful means. The purpose of the conspiracy need not be accomplished for a violation to occur. However, at least one of the co-conspirators must have carried out at least one overt act in furtherance of the conspiracy. The overt act need not be criminal in itself and may be as innocuous as making a phone call or writing a letter.

Here is why conspiracy charges are popular. Conspiracy counts are favored by prosecutors because they provide evidentiary and pleading advantages. If a conspiracy is shown, the acts and statements of one co-conspirator may be admitted into evidence against all, and each co-conspirator may be convicted for the underlying substantive offense (e.g., destroying government property) committed by any one of its members.

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