Friday, June 16, 2017

"Steering Contracts" Results in Guilty Plea

One thing well known about fraudulent activity is that fraud involving collusion is one of the hardest to detect and prevent. It is extremely difficult to design a system of internal controls that can or woulds be effective in preventing or discouraging collusion from happening. A simple internal control that requires two signatures on each check is ineffective if the two signatures conspire to both sign a check to a fictitious company and then split the proceeds.

Recently, a former deputy director of US Aid for International Development (USAID) plead guilty to a contract-steering scheme where "by engaging in cronyism and contract steering" she chose to enrich a friend instead of actively seeking the most qualified and cost-effective bidder.

The case involved a close personal fried of Ms. Moskov who she want to hire for some consulting work. Ms. Moskov engineered the contracting process so that she was the selecting official, the approving official, and the person to whom the consultant would report. She provided internal government documents for the consultant to pattern his bid and all but guaranteed his the work: "we need to jump thru a few hoops and will go through the motions but you will be selected in the job". Moreover, she pretty much directed him to submit fraudulent invoices by telling his that his activities related to the bid should be added to his days of consultancy.

What was in it for her? The investigators found that she received a $7 thousand loan from the consultant that she never repaid. She called him "peaches". He was the "man of honor" at her wedding. They took trips together. The full extent of her largess may never be known.

It is hard to imagine that given all of the regulations inherent in Government contracting that one person could wield this much authority. The Justice Department write up of the case noted a co-conspirator which was probably why internal controls were ineffective.

We don't know how the scheme was uncovered. Perhaps someone took notice of the cozy relationship between contracting authority and one of the contractors/consultants she to oversee and blew the whistle. Do you have any similar situations in your organization?

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