Monday, October 16, 2017

40 Months in Prison for Accepting $35,000 in Gratuities

We read this Justice Department Press Release from last Friday about a former Navy comptroller from the Norfolk Ship Support Activity being sentenced to 40 months in prison because he accepted $35,000 in gratuities over a four year period from a Government subcontractor. These gratuities were not paid in cash but consisted of cell phone service for he and his wife, and some other personal electronic items. We thought the punishment (3 plus years in prison plus restitution) seemed severe and certainly not typical of what we have come to expect based on similar prosecutions. That is, until we dug a little deeper than just the Justice Department's press release.

Why would a high-ranking Government employee, making somewhere around $150,000 a year, jeopardize his job, his career, his reputation, and his future by accepting a few thousand dollars of trinkets and junk jewelry? How does that even fit into the fraud triangle concept (perceived unshareable financial need, perceived opportunity, and rationalization)? Turns out, the case was not so much the gratuities he received but more about what he was setting himself up to receive after he retired from the Government.

The comptroller found a company that would collaborate with him to misuse Government funds; Global Services Corporation (GSC). He then directed that a certain (unnamed) prime contractor to award a subcontract to GSC. He then directed the prime contractor to pass Government funds to GSC. He then directed GSC to withhold unexpended funds that should have been returned to the  Government via the prime contractor. Obviously, the Navy comptroller had a lot of undue influence over the operations and activities of GSC. The complaint called GSC a willing participant in the scheme.

When all was said and done, the Navy controller, through the prime contractor parked about $5 million with GSC for which no services were ever rendered. What did the Navy comptroller get out of it besides $35 thousand in electronics? The promise of post-retirement employment at $150,000 per year to be paid out of the $5 million slush fund. He never got there. The scheme was uncovered before he retired by a routine audit by the Naval Audit Service. Now he will be spending the next few years of his retirement in prison.

The President of Global Services Corporation (GSC) also pleaded guilty on related charges. He is set to be sentenced later this year.

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