Thursday, November 30, 2017

Prison Time for Accepting Kickbacks from Subcontractor

Have you ever discounted the importance of good, sound internal controls over your purchasing system? You shouldn't and here's why.

A former employee of a U.S. Government contractor in Afghanistan will spend the next 21 months in prison because he accepted more than $250,000 in kickbacks from one of the contractor's Afghan subcontractors. These kickbacks were given in exchange for assistance in obtaining subcontracts.

The employee (or, now the former employee) admitted that while he was employed as a project manager, he an Afghan executive agreed that in exchange for illicit kickbacks, the employee would ensure that the Prime Contractor awarded "lucrative" subcontracts to the Afghan company.

How did the employee do it? He admitted that he repeatedly told his supervisors that the Afghan subcontractors should be awarded "sole source" subcontracts, which allowed them to supply services to the Prime contractor without having to competitively bid on them.

That must have really been some convincing sole source justifications, or the superiors weren't all that concerned, or they had a big cost-type contract so no skin off their back. Or perhaps, this employee was highly trusted. But, as we've repeated here in this blog over and over, "trust" is not an internal control.

The value of the subcontracts totaled $1.6 million and the contractor employee got 15 percent of that. That should be a good indication right there that the prices were overstated. He stored the cash payments into his personal effects and when he got back to the states, he deposited the funds into several bank accounts.

No word in the DoJ Press Release as to how the kickback scheme was uncovered. Perhaps someone started looking into why so many sole-source subcontract awards were being made.

You can read the entire DOJ Press Release here.

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