Monday, September 30, 2019

Fines and Prison for Contractor Employee Accepting Kickbacks

How well do you know your employees? Can you vouch for their honesty and integrity? Do you have adequate internal controls to detect and prevent employees receiving kickbacks from suppliers and subcontractors? Do you have sufficient controls to ensure that employees do not have conflicts of interest with suppliers and subcontractors? Here's a case where deficient internal controls led to known losses of $1.4 million and perhaps much more.

A construction company with contracts at Picatinny Arsenal and Ft. Dix employed James Conway as a regional manager to oversee those contracts. Mr. Conway also (secretly) owned his own company, Walsh Construction. For six years up until 2015, Mr. Conway steered subcontracts to Walsh Construction. To conceal his ownership of Walsh Construction, Conway signed the subcontracts as Keith Walsh, the purported owner and vice president of Walsh Construction. There was, in fact, no person by that name who owned or was the vice president of Walsh Construction.

Conway used Walsh Construction to obtain payments from his employer by submitting invoices and bills on behalf of Walsh Construction. Many of the bills included charges for work that Walsh Construction only partially completed or for work not performed by Walsh at all.

Conway, according to the Justice Department press release covering this investigation, also accepted kickbacks totaling $180 thousand from four other subcontractors, knowing that the subcontractors expected, in return, to obtain favorable treatment from Conway.

Mr. Conway has been ordered to pay restitution of $1.4 million and will be spending the next 28 months in prison.

How could this have been avoided? A couple of easy things for starters. Someone should have been reviewing Mr. Conway's purchase order requests and verifying that the work was necessary and that the negotiated prices were reasonable and based on competitive procurements. Second, someone at the construction sites should have been reviewing invoices to validate that the services were indeed rendered. Third, the accounts payable department should have been performing three-way matches; purchase orders, invoices, and evidence of services rendered.

Obviously in this case, Mr. Conway, the regional manager, was given a lot of latitude and very little oversight in carrying out his responsibilities.

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