Wednesday, January 30, 2019

$2.75 Million Settlement for Gouging SBIR/STTR Programs

The Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs are the nation's largest Government source of early stage/high risk funding for start-ups and small businesses. To be eligible, the small business must be Americna -owned, organized as a for-profit entity, and have less than 500 employees. There are eleven federal agencies that participate in SBIR programs and five that participate in STTR programs. The largest spender of SBIR/STTR funds is the Defense Department followed closely by HHS (Health and Human Services). Together, SBIR/STTR obligations exceed $2.5 billion each year.

The Justice Department reached a $2.75 million settlement with E.M. Photonics (EMP) to resolve allegations that the company falsified labor costs and duplicative work in order to maximize charges to SBIR contracts award by the Navy, DARPA, Air Force, Energy, and NASA.

According to the Government, EMP engaged in two different schemes to defraud the programs. First, the company (and its CEO) directed EMP employees to falsify their time cards to record hours to SBIR programs while working on other projects. These inflated time cards were then used as a source to submit billings (i.e. false invoices) to the Government or payment.

The second scheme involved obtaining SBIR/STTR funding for substantially equivalent work that was already performed and funded by another Government agency. EMD falsely certified that such work was, in fact, non-duplicative.

We do not know, and the Justice Department did not disclose how this fraud was first uncovered. Given the nature of the fraud however, our first guess would be that an internal whistleblower was involved in the initial disclosure and an investigation ensured. The over-billing schemes lasted five years from 2009 to 2014 and with the announcement this week, the investigation and settlement discussions must not have been a high priority for the Government.

You can read the full Justice Department press release here.

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