Government Contracting: Evaluating Current Practices and Minimizing Deception Introduction The United States

Government Contracting: Evaluating Current Practices and Minimizing Deception
Introduction
The United States federal government is a massive buyer of goods of services. These goods and services range from buildings and information technology software to pharmaceuticals and missiles. To amass these goods and services, government agencies engage in contracting with private firms to ensure the best value for money spent. In fiscal year 2020, the government awarded $665B in contracts, with the Department of Defense (DOD) alone being responsible for over half that amount (U.S. Government Accountability Office, 2022). This is undoubtedly a tremendous amount of money to handle and keep track of and, sometimes, things can go awry. Even with current practices and procedures in place, the process of contracting is still riddled with the risk of fraud, waste and abuse of contracting funds. In fiscal year 2021 alone, the U.S. Department of Justice recovered more than $165.8 million dollars in False Claims Act settlements regarding procurement fraud (U.S. Department of Justice, 2022). Federal U.S. agencies having frequent problems regarding government contracting due to processing errors, ethical lapses, and training issues need stronger penalties, clearer auditing procedures, and more adequate staffing.
“Snapshot of government-wide contract spending amount in fiscal year 2020, in billions”, by U.S. Government Accountability Office (2021).
First paragraph-overview of contracting, contracting fraud is not new details
The government contracting process generally has four phases: The planning phase, the solicitation phase, the award phase, and the post-award phase (Compton, 2009). All phases are important and the entire contracting process is complex. Government contracting could be considered confusing with legalities to navigate and vast compliance regulations. If a government agency wishes to purchase goods and services, it must abide by an extensive amount of provisions and clauses in the Federal Acquisition Regulation, which is the primary acquisition regulation for government agencies (U.S. General Services Administration, 2017). Large government contractors and even small businesses that aim to do business with the federal government must also abide by these regulations. The concept of government contracting is not new and neither is contracting fraud. The government has been managing procurement of goods and services since before The Civil War, and implemented the False Claims Act (FCA) in 1863 to combat false claims for supplies that were sold to the Union military (Long, 2015). From a business perspective, contracting with the government is a serious obligation as the entire process from start to finish is very tedious. The complexity and confusion of each step can leave room for opportunity for experienced offenders to deceive government agencies and unlawfully appropriate specifically allotted funds.
Fraud from different angles
Contracting fraud can occur on both playing fields, internally from government agencies and externally from private contractors. Perhaps one of the largest instances of rampant contracting fraud can be seen during the War in Iraq in the early 2000s. Massive war-time contractors such as DynCorp, Halliburton, and the Louis Berger Group have been investigated and found guilty of contracting fraud. For example, it was discovered that DynCorp International received billions of dollars in contracts during this time. However, this was after charging the government for unauthorized work, inefficiently completely shoddy construction with structural defects, and the company’s inability to account for $1B dollars it was given to train Iraqi police (Lutz & Desai, 2015). There are multiple ways that contractors can manipulate the federal government in any one of the contract phases. Contractors can fail to report price decreases, post inflated cost prices, submit false or fictitious documents, fail to disclose data, or alter supporting data completely (Kimball, et al., 2008). Each of these acts is considered contracting fraud. Individual government employees who work in the acquisition field can also become corrupt and use their positions to abuse funds and receive kickbacks for choosing a specific firm, or authorizing more service. One recent example of this can be seen when a purchasing agent employed on the Fort Bragg military installation in North Carolina was caught in a bribery scheme that lasted from 2011-2019. The former employee would accept $200 per occurrence and over time, it is estimated that this individual employee accepted over $700,000 in bribes (U.S. Dept of Justice, 2022). Whether it is a corrupt individual seeking unentitled financial gain, or a large contractor skimming profits from the benefit of being awarded a vast amount of funds, any form of contracting fraud is stealing and severely undermines agencies’ missions and goals.
Contracting fraud affects the government, private contractors and citizens
Fraud in the solicitation or bidding process not only affects the federal government, but also private contractors. When an agency posts a bid for needed goods or services online, contractors are encouraged to bid on it. In order to outbid the competition, some contractors can substitute products, mischarge costs, or post defective prices (Kimball et al., 2008). When this happens and the deceptive contractor is awarded the contract, trustworthy contractors miss out on the opportunity to earn that business from the government. Fickey (2009) explains that this can amount to serious economic injury not only from lost profits, but losses in future market share as well. She also explains that currently, private contractors have very limited resources regarding compensation when the company loses a bid due to the competitor committing procurement fraud. The federal government on the other hand, has substantially more resources it can use to recover losses due to fraudulent activity from contractors. Not only can government agencies utilize the FCA, but there is also a provision within the FCA allowing whistleblowers and private citizens to expose contracting fraud in the name of the U.S. government called qui tam actions (Fickey, 2009.) If claims of the whistleblowers come to fruition, they can be compensated for their efforts.
Fraud wastes a vast amount of money each year, not only from fraud itself but from the investigation and judicial aspect as well.
Private contractors have the most to lose when it comes to protecting lost income due to fraud, while the government has better odds to recover abuse of funds.
There are gaps in contracting processes that make fraud easy to commit
Newer publications released by the Council of the Inspectors General on Integrity and Efficiency (CIGIE) examines key concerns regarding management and performance challenges affecting multiple federal agencies. CIGIE has issued two reports since 2018, and procurement management has made the list both times. Highlighted in these reports are issues such as contract oversight, invoice and payment review, the contract award process, and training and retaining procurement personnel. Contract oversight is specifically important in the post-award contract phase because agencies can monitor contractor performance to ensure compliance and maintain transparency in anticipated work completion in specified time frames. One unfortunate example of contract oversight is when a U.S. contracting official failed to oversee installation of certain equipment designed to combat the use of improvised explosive devices (IEDs) in the effort to reconstruct Afghanistan. The contractor responsible for implementation submitted fabricated paperwork confirming the work had been completed. Since there was no actual adequate follow up, the outcome of this contract fraud led to American soldiers being killed by enemy use of IEDs (Rendon & Rendon, 2016). In addition to the concerns pointed out in CIGIEs reports, Dr. Jaunita M. Rendon and Dr. Rene G. Rendon conducted research in 2016 on procurement fraud exclusively taking place at the DOD and concluded that unethical personnel also play a large role in procurement fraud. Although fraudulent activity can happen in any aspect of the government, incidences regarding bribery, conflicts of interest, and inaccurate financial disclosures are the most likely forms of fraud to take place in government contracting. Rendon’s extensive research efforts concerning procurement fraud at the DOD have also cited poor internal controls and incapable contracting processes being large factors as well (Rendon & Rendon, 2016).
Red flag analysis and auditability theory
Action needs to be taken by agencies to combat contracting fraud before it is committed. One way this can be done is through auditability theory. Auditability theory consists of focusing on three specific components: Personnel, Internal Controls, and Processes (Rendon & Rendon, 2016).
Conclusion
Given that fraudulent activity in government contracting costs large sums of money in lost profits, legal proceedings, and agency inefficiencies, the only way to significantly reduce the amount of fraud is by advancing the means agencies have in fraud detection ability. Hiring qualified employees and having impervious internal controls and procedures would give government agencies better opportunities to detect fraud earlier, and cease operations while then seeking legal justification. Having stricter legal penalties and higher fines, while permanently blacklisting fraudulent contractors thereafter would deter other contracting companies from engaging in this type of behavior. Severe legal penalties and immediate termination for any government employee who accepts bribes or have major conflicts of interest when awarding a contract need to be upheld without question. It is much easier to thwart problems such as government contracting fraud and abuse in the early stages, but swift and harsh justification needs to be available after fraud has been committed. By utilizing effective training measures for government employees, clear and concise auditing procedures, and consistent action from the legal system, agencies can decrease the amount of occurrences and minimize the financial impacts of government contracting fraud incidences.
Poor internal controls, unethical behavior, and lack of efficient training all have roles in contracting fraud.
Oversight in any phase of the contracting process can lead to an abuse of funds, especially in the post-contract award phase.
Government contracting fraud will only be solved through better internal controls, comprehensive training, and stricter penalties for fraudsters.
There is good indication that contracting fraud will continue with current practices and issues associated with them in place, as suggested by the continuous reporting by the Council of the Inspectors General on integrity and Efficiency.
Managerial accountability, mentorship and training is imperative to preventing fraud on the government side.
Stricter legal penalties for private contractors and government employees who commit fraud will deter participation.
References
Compton. (2009). Federal acquisition: key issues and guidance. Berrett-Koehler Publishers.
U.S. Government Accountability Office. (2022, June 7). A snapshot of government-wide contracting for FY 2020 (infographic).
https://www.gao.gov/blog/snapshot-government-wide-contracting-fy-2020-infographic
Ft. Bragg employee sentenced to 42 months’ imprisonment for receipt of bribes. The United States Department of Justice. (2022, May 18). https://www.justice.gov/usao-ednc/pr/ft-bragg-employee-sentenced-42-months-imprisonment-receipt-bribes
Federal Acquisition Regulation (FAR). U.S. General Services Administration. (2017, August 13). Retrieved June 10, 2022, from https://www.gsa.gov/policy-regulations/regulations/federal-acquisition-regulation-far
Luts & Desai, Brown Uni, Costs of War-cite correctly****
Long, S. (2015). CONTROLLING CONTRACTING FRAUD: THE FALSE CLAIMS ACT PLEADING STANDARD AND ITS IMPLICATIONS FOR FRAUD IN THE NEW HEALTH CARE SYSTEM. Public Contract Law Journal, 44(4), 777-797. https://www.proquest.com/scholarly-journals/controlling-contracting-fraud-false-claims-act/docview/1728266383/se-2?accountid=8289
Lander, G. H., Kimball, V. J., & Martyn, K. A. (2008). Government procurement fraud: Certified public accountant. The CPA Journal, 78(2), 16-22,24. https://www.proquest.com/scholarly-journals/government-procurement-fraud/docview/212237827/se-2?accountid=8289
Rendon, J. M., & Rendon, R. G. (2016). Procurement fraud in the US department of defense: Implications for contracting processes and internal[JP1] controls. Managerial Auditing Journal, 31(6), 748-767. doi:https://doi.org/10.1108/MAJ-11-2015-1267. https://www.proquest.com/abicomplete/docview/1826809382/D79F0C54A1B244AEPQ/1?accountid=8289
Lander, G. H., Kimball, V. J., & Martyn, K. A. (2008). Government procurement fraud: Certified public accountant. The CPA Journal, 78(2), 16-22,24.
https://www.proquest.com/scholarly-journals/government-procurement-fraud/docview/212237827/se-2?accountid=8289