CONTRACTOR FRAUD OVERVIEW

Defense contractor fraud occurs when a private company contracted by the U.S. Department of Justice (DOJ) does not satisfactorily provide the military with the goods or service it was paid for. Whistleblowers may report private contractors who defrauded the government by falsifying their records to receive higher payments, underdelivering or providing defective products.

WHAT IS DEFENSE CONTRACTOR FRAUD?

The U.S. government relies on private companies to deliver on their promises across many sectors, but none is arguably more important than the goods and services provided to the government by defense contractors. These “goods and services” can be anything from combat equipment for soldiers to critical intelligence analysis performed by private technology contractors. Whatever equipment or services they may be, U.S. servicemen and women rely on them to protect American interests abroad and at home.

Each year the U.S. government spends approximately $500 billion on defense and international security. This amounts to about 20% of the Federal budget. As the role of private contractors has expanded within the Department of Defense so have their costs. In 2014, the top 10 defense contractors alone accounted for $110.3 billion in spending. When fraud is committed under these circumstances American taxpayers are left to pick up the tab as their taxes are shifted to overpay for government contracts instead of being reinvested into services and communities that would benefit citizens. A Department of Defense report prepared in the Senate found that since 2011 hundreds of defense contractors who had defrauded the government were awarded $1.1 trillion in contracts.

In order to reduce and discourage defense contractor waste and fraud, the Department of Justice created a whistleblower reward program to find and prosecute corrupt defense contractors. Since 1987, the Department of Defense has recovered $2.6 billion from defense contractors who defrauded the government under the False Claims Act. Due to their part in the government’s recovery of fraudulent funds, whistleblowers have received $455 million for reporting defense contractor fraud.

EXAMPLES OF DEFENSE CONTRACTOR FRAUD

VIOLATING FEDERAL CONTRACT TERMS

When a company lies about fulfilling terms specified in a federal contract.

Example:

Sometimes, before a federal contract is secured with a company, the government will require that the business is owned by or employs U.S. veterans. Some unscrupulous companies misrepresented or lied about their background in order to circumvent the requirements, committing a False Certification crime.

FAILURE TO COMPLY WITH CONTRACT SPECIFICATION

This includes omitting quality procedures, required testing, or other steps in the production process.

Example:

Purchasing vehicle parts of substandard quality from an unauthorized source even though the contract specified that products delivered are to be built using specific guidelines.

OVERBILLING AND INFLATING EXPENSES

Private companies may intentionally inflate contract costs, timelines, or required resources.

Example: 

Although the military may have paid to receive high-quality equipment, goods delivered are then discovered to be inferior, defective or outright broken. In other instances, mercenary troops who were paid to provide security services on U.S. bases overbilled the Army for employees who were not physically present in the base.

WINNING A CONTRACT THROUGH KICKBACKS OR BRIBES

In order to secure their business or work on another federally-funded project, some companies bribe or provide gifts to U.S. officials.

Example: 

Kickbacks include both direct payments (bribery), as well as other indirect favors such as expensive gifts, paid vacations, or the hiring of a relative.

CONTRACTOR FRAUD AND THE FALSE CLAIMS ACT

All forms of government contractor fraud are prosecuted under the False Claims Act. The Department of Justice regularly relies on individual whistleblowers to come forward and help root out fraud and corruption. In return, the government provides whistleblower protections and whistleblower rewards.