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Federal Highway Administration Research and Technology
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This magazine is an archived publication and may contain dated technical, contact, and link information.
|Publication Number: FHWA-HRT-08-002 Date: Jan/Feb 2008|
Publication Number: FHWA-HRT-08-002
Issue No: Vol. 71 No. 4
Date: Jan/Feb 2008
"Red flag" indicators offer insights to help contracting officers, project managers, and others detect fraud schemes.
|(Above) OIG special agents occasionally use concealed recording devices during investigations involving allegations of fraud and corruption.|
The consequences of fraud within the transportation community can be staggering—with millions of dollars potentially siphoned off from agency budgets each year. Such fraud also can result in opportunity costs, loss of public trust in transportation officials and programs, project delays, increased costs, deployment of inferior transportation products or systems, funding shortfalls, and unmet program goals. All of these results adversely affect the entire transportation network. In recent years, the U.S. Department of Transportation's (USDOT) Office of Inspector General (OIG) has noted that transportation officials and project managers are devoting more attention to mechanisms that detect and prevent fraud. (See the companion article "Upholding the Public Trust")
Special agents in OIG are responsible for investigating fraud schemes that involve Federal funds and programs. Brief descriptions of these schemes, along with sample "red flag" indicators for each scheme, are offered here as a tool for transportation professionals to help them detect fraud when doing business on behalf of the American public. It is important to note that the presence of one or more indicators does not necessarily prove fraud, nor are the indicators shown all-inclusive for each of the schemes described.
In bid rigging and collusion, contractors misrepresent that they are competing against each other when, in fact, they agree to cooperate on the winning bid to increase job profit. Watch for:
Under this fraud scheme, a contractor misrepresents how much construction material was used on the job and then is paid for excess material to increase job profit. Watch for:
In a time overcharging scheme, a consultant or contractor misrepresents the distribution of employee labor on jobs in order to charge for more work hours, or a higher overhead rate, to increase profit. Watch for:
In a scheme involving product substitution, a contractor misrepresents the product used in order to reduce costs for construction materials. Watch for:
|Unauthorized alterations to timecards like those shown here is a type of fraud in which a contractor misrepresents employee labor, for example, by charging for more work hours in order to increase profit.|
Under this fraud scheme, a contractor misrepresents who performed the contract work in order to increase job profit while appearing to be in compliance with contract goals for involvement of minority- or women-owned businesses. Watch for:
In this scheme, a contractor misrepresents the results of quality control (QC) tests to earn contract incentives falsely or to avoid production shutdown in order to increase profits or limit costs. Watch for:
Bribery occurs when a contractor misrepresents the cost of performing work by compensating a government official for permitting contract overcharges to increase contractor profit. Watch for:
In kickback schemes, a contractor or subcontractor misrepresents the cost of performing work by secretly paying a fee for being awarded the contract and therefore inflating the job cost to the government. Watch for:
In fraud involving conflict of interest, a contracting or oversight official misrepresents that he or she is impartial in business decisions when he or she has an undisclosed financial interest in a contractor or consultant who inflates the job cost to the government. Watch for:
False statements or claims made "knowingly and willfully" constitute fraud. Knowledge is defined as (1) actual knowledge of falsity, (2) deliberate ignorance of truth or falsity, or (3) reckless disregard of truth or falsity. Watch for:
|As part of a surveillance operation, an OIG special agent installs an overt camera to help substantiate allegations received via the OIG Hotline. Agents sometimes also use covertly installed cameras to obtain evidence of crimes.|
OIG maintains a hotline (see "Methods for Reporting Fraud" above) to report allegations of fraud, waste, abuse, or mismanagement in USDOT programs or operations. Allegations may be reported by USDOT employees, contractors, or the public. The OIG Hotline is available 24 hours a day, 7 days a week. Issues that should be reported include the following:
Methods for Reporting Fraud
Report suspicions and allegations of fraud, waste, abuse, or mismanagement to OIG by using one of the following methods:
Note: The OIG Hotline is obligated to expeditiously forward all safety-related complaints to USDOT's safety regulatory agencies for action, as appropriate.
Not all businesses are on a mission to defraud Federal, State, or local governments or the American people. In fact, most businesses are composed of responsible and conscientious professionals who want to do a good job and provide superior products and services. However, the Latin warning caveat emptor , which means "Let the buyer beware," applies.
Agency transportation professionals at all levels of government are responsible and accountable for the stewardship and oversight of taxpayer money entrusted to them. Proactively recognizing the signs of potential fraud at each stage of a construction project and taking action, as appropriate, will go a long way in helping to detect and stop fraud.
American taxpayers rely on professionals like us—project managers, contracting professionals, engineers, inspectors, auditors, and compliance officers--to serve as their eyes and ears, and the success of the transportation system and the trust of the American people rely on our success. In the words of Abraham Lincoln, the 16th President of the United States, "If once you forfeit the confidence of your fellow citizens, you can never regain their respect and esteem."
Jim H. Crumpacker has served with the USDOT OIG since 2003. Previously he worked for the U.S. Postal Service OIG and the U.S. Air Force Audit Agency. He also is a colonel in the U.S. Air Force Reserve and a federally credentialed special agent with the U.S. Air Force Office of Special Investigations (AFOSI), whose mission is to identify, investigate, and neutralize criminal, terrorist, and espionage threats to Air Force and U.S. Department of Defense personnel and resources. In this capacity, he currently serves as the individual mobilization augmentee to AFOSI's executive director at Andrews Air Force Base, MD.