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|Federal Highway Administration > Publications > Public Roads > Vol. 72 · No. 5 > Maximizing Transportation Investments: Collaborative Fraud Prevention And Outreach|
Publication Number: FHWA-HRT-09-003
Maximizing Transportation Investments: Collaborative Fraud Prevention And Outreach
by Barbara L. Barnet and Monica E. Russell
A series of national conferences cosponsored by USDOT and AASHTO aims to educate transportation professionals on ways to strengthen programs against fraud.
As recent events have shown, "get rich quick" and fraud schemes abound. Like other organizations, Federal, State, and local governments also are the victims of bribery, fraud, and other types of criminal activities. As Benjamin Franklin once said, "There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government."
During the past 5 years, special agents from the U.S. Department of Transportation's (USDOT) Office of Inspector General (OIG) have spent approximately 40 percent of their time investigating allegations related to contract and grant fraud involving highway, transit, and airport infrastructure projects and activities. These efforts have resulted in 278 indictments, 235 convictions, 191 years of jail time for offenders, and more than $737 million in fines, restitution/civil judgments, and recoveries.
Investigating and working with the U.S. Department of Justice (USDOJ) and others to prosecute fraud is an important part of USDOT OIG's mission; however, an equally important part is preventing fraud. Key to preventing fraud is education. The USDOT OIG and the American Association of State Highway and Transportation Officials (AASHTO) initiated a partnership in 2000 to host the Biennial National Fraud Awareness Conference on Transportation Infrastructure Programs and create opportunities to further educate transportation professionals and others about fraud. The conference highlights ways of detecting and preventing fraud and offers numerous general and breakout informational sessions of interest to transportation oversight providers at all levels of government, as well as industry. The most recent conference was held in the summer of 2008 in Chicago, IL.
Among those attending the 2008 conference were Ronald Brown, the acting contract compliance manager at the Illinois Department of Transportation (IDOT), and a labor compliance specialist on his staff. These IDOT employees attended because they were investigating whether a disadvantaged business enterprise (DBE) was trying to circumvent regulations and possibly commit fraud. "We wanted information on how to proceed with the investigation and what some of the indicators of DBE fraud are," Brown says. "We learned to track documentation discrepancies and conduct forensic auditing of timesheets, payrolls, materials, and invoices."
Another attendee, Federal Highway Administration (FHWA) Assistant Division Administrator James Christian, P.E., of the Florida Division Office, says, "Our agency provides oversight and stewardship of Federal-aid funds, but we do not have the authority to conduct official investigations. If we ever come across a fraud issue, we coordinate with the OIG for investigation. With that being said, I attended to get a better understanding of what we could be looking for in documentation and other information for possible fraud. I did get many good ideas, and I was able to get a sense of the types of fraud issues that exist. I was able to communicate that to staff, and we are much more aware of items to look for."
As another participant, Inspector General Tracy Smith of the Illinois Tollway, put it, "With $6.4 billion going out the door on a current construction project, they are monitoring for billing fraud (overstating quantity or time), product substitution, bid rigging, and DBE fraud, among other types of criminal acts. People come up with new and unique ways to cheat all the time, so you really have to be a good investigator — a good criminal thinker."
One take-home message for Smith is a better understanding of the range of law enforcement present in multiagency task forces to coordinate investigation of cases. A presentation on one case, for example, noted that the task force included the Internal Revenue Service. After hearing that presentation, Smith says, "We started looking at our cases a little differently — maybe we can't show fraud, but maybe we can show tax evasion. It opened up a whole new perspective."
History of the Conference
To improve the national focus on combating transportation-related fraud and encourage closer collaboration by all stakeholders, USDOT OIG, under the leadership of former Inspector General Kenneth M. Mead, along with former Secretary of Transportation Norman Y. Mineta, partnered with AASHTO in 2000 to organize a biennial fraud conference. Since then, conference cosponsors have included FHWA, the Federal Transit Administration (FTA), and Federal Aviation Administration (FAA).
The State department of transportation (DOT) where the conference is held serves as the host. The first conference was held in Atlanta, GA (2000), with subsequent conferences held in St. Louis, MO (2002); Seattle, WA (2004); Orlando, FL (2006); and most recently in Chicago, IL (2008). Typically, transportation professionals from around the country attend each conference, including program and project managers and executives, contracting and procurement officials, engineers, attorneys, auditors, investigators and other law enforcement personnel, and, in recent years, industry representatives.
Speakers from Federal, State, and local governments and private industry organizations provide the presentations and panel discussions. The program includes information about fraud schemes that adversely affect transportation programs and activities, as well as case studies of criminal and civil fraud investigations. The presentations focus on sharpening awareness of fraud schemes; sharing best practices in investigation, auditing, and oversight; and strengthening working relationships, with an emphasis on the importance of protecting the Nation's transportation investment.
Fifth Biennial Conference: Chicago
The earlier conferences primarily highlighted fraud in highway programs. More recently, however, the conference has evolved also to address other modes of transportation, including transit and aviation. In fact, at the fifth conference in 2008, a transit agency — the Chicago Transit Authority — cohosted the conference for the first time. Past investigations have shown that fraud schemes affecting one type of transportation project, such as highway construction, often find their way to other transportation projects, such as transit or airport construction, and may involve the same cast of "bad actors." Inviting transit and airport organizations to participate in the conference was a logical evolution for the conference.
During the 2.5-day conference in 2008, more than 70 speakers from transportation agencies, industry, and consulting firms provided a diverse program with multiple general and track-specific sessions, including presentations on bribery and public corruption, DBE fraud, product substitution, and substandard products. Speakers included officials from USDOT's Office of the Secretary and USDOT operating administrations, such as FHWA, FTA, and FAA. In addition, cooperating witnesses and defendants in several criminal cases participated to provide a firsthand perspective on fraud, explaining how it happens and how to fight it.
To make information about this conference and other transportation oversight issues more accessible, a Web site is available to the public. (See "Fraud Conference Web Site".)
Identifying Successful "Best Practices" — General Sessions
In the sessions attended by all conference participants, the speakers provided insights on how to continue current efforts to combat fraud in the transportation community. For example, IDOT Former Secretary Milton R. Sees described one of his experiences with transportation fraud when he first became president of and chief lobbyist for the Wire Reinforcement Institute in Washington, DC: "I had an executive committee of five members; they were all major players in the steel market." At his first executive committee meeting, all five members were present. "Six months later, we had another meeting of the executive committee, and only two of them were there because the other three were incarcerated on Federal charges of price fixing on chain link fence, which was a product line that my association did not represent them in."
Price fixing for certain products or services agreed to by competitors is illegal and against the best interests of taxpayers. This scheme involved agreements to set prices made among one particular class of sellers — producers, wholesalers, or retailers. Other cases can involve agreements between different categories of sellers, such as between a manufacturer and wholesaler, a wholesaler and distributor, or a distributor and retailer. Sees' primary message was one that is easy to relate to: "I understand it's not as easy to distinguish between black and white, but ladies and gentlemen, it's easy to distinguish between right and wrong."
Other general session speakers included U.S. Attorney Patrick J. Fitzgerald of the Northern District of Illinois, who emphasized the importance of collaborating at all levels of government to fight fraud and corruption. For example, he supervised the public corruption investigation, Operation Safe Road, in Chicago, which initially began as an investigation of bribery for commercial driver licenses and culminated in the Federal conviction of former Illinois Governor George Ryan based on the cooperative efforts of numerous Federal and State law enforcement agencies. Fitzgerald also played a significant role in a number of other investigations of interest to conference attendees, including public corruption and corporate fraud, terrorism financing, and violent crime. In addition, Fitzgerald served as chief of the Organized Crime-Terrorism Unit as U.S. Attorney for the Southern District of New York.
Former FTA Administrator James Simpson also addressed attendees, highlighting the importance of oversight, accountability, policies, and programs to ensure that the Agency and its grantees are effective stewards of taxpayer dollars.
Another featured speaker was AASHTO Executive Director John Horsley, who discussed his association's longstanding commitment to fighting fraud in transportation projects. The main focus of Horsley's presentation was AASHTO's bid analysis software, which has helped State DOTs and others detect and prevent bid rigging and collusive behavior. The software (available at http://aashtoware.org/default.aspx?siteid=28&pageid=94) also has provided USDOJ with analysis of anticompetitive effects from proposed mergers of competing highway construction firms.
Industry representatives from the American Road & Transportation Builders Association and the Associated General Contractors of America discussed a current initiative by the transportation and construction industry to promote ethical conduct and compliance. The focus of the presentation was to promote a new program for construction industry leaders who agree to adopt and adhere to a code of conduct, properly handle their business conflicts, and share best practices. For more information on this topic, see www.ciecinitiative.org.
Another general session case presentation included participation by a convicted defendant who owned a rebar fabrication and installation company in New York. The defendant was convicted of laundering more than $11 million in furtherance of a DBE fraud scheme to secure transportation construction projects. Facing a lengthy prison term, the defendant cooperated with the Federal Government. In addition, the company went out of business, the defendant faced much public scrutiny by his industry for cooperating, was debarred from government contracts, and forfeited $0.5 million to the Government. Information from industry sources indicate this conviction had a deterrent effect on DBE fraud in the New York area.
The final session included representatives from USDOJ and USDOT OIG, who addressed recently settled cases involving construction of the Central Artery/Tunnel Project in Boston — also known as the Big Dig. In part, these cases concerned the collapse of a section of tunnel ceiling and defects in the slurry walls of the Thomas P. O'Neill, Jr. Tunnel. The presentation highlighted questionable construction practices by general contractors and significant lapses in oversight by the consultant joint venture hired to oversee the project. The ultimate effect of such actions: the compromise of public safety.
Breakout Sessions on Specific Types of Crimes And Internal Controls
The breakout sessions addressed special interest topics such as public corruption, DBE fraud, audit practices, false statements and claims, substandard products and product substitutions, and law enforcement practices.
For example, special agents from the Federal Bureau of Investigation (FBI) provided insights into its public corruption program and discussed a case in which a public works director — and a manager of a municipal airport in Illinois — was responsible for uncovering a bribery scheme by a land developer. The director participated with FBI special agents during the conference and provided his personal account of the investigation. The director met with the land developer over a 6-month period to help the FBI obtain evidence of public corruption, which ultimately led to convictions of the land developer and a public official. Because of the director's selfless dedication to do right no matter the personal sacrifice, the Society of Former Special Agents of the FBI, Inc. recognized him for his assistance in uncovering wrongdoing.
Attendees also heard a presentation about IDOT's program to assure the quality of products used on highway construction projects. The program is composed of a number of components covering the range of materials used to construct highways. IDOT engineers described programs and requirements for evidence of inspection for products ranging from bolts to drainage pipe to concrete pavement. The presentation included examples of easily identifiable violations of specification requirements for domestic steel from actual projects.
Special agents from USDOT OIG gave numerous presentations on fraud cases, including one on an asphalt paving job. In this case, a road building company was supposed to provide random samples of asphalt cores for laboratory analysis to confirm their density. Instead, the company switched unacceptable core samples with ones that would pass the contractual density requirements. A company asphalt crew's former supervisor filed a whistle-blower lawsuit in Federal court, which ultimately awarded him $1.1 million in compensation in return for alerting the Federal Government about the fraud.
Agents from USDOT OIG's Computer Crimes Unit (CCU) also spoke about the value of digital evidence and how it has shaped many criminal, civil, and administrative investigations. "Paper trails have become electronic trails," said Supervisory Special Agent William L. Swallow, a Certified Forensic Computer Examiner and OIG's Computer Crimes and Forensics program manager. "Just as the workforce has gradually converted from a paper-driven environment to processing information electronically, criminal and other adherent activity has, to a large extent, also converted from a physical dimension, in which evidence and investigations are described in tangible terms, to a cyber dimension, in which evidence exists only electronically." In addition to emphasizing the importance of digital evidence, agents discussed its proper handling to ensure data are not destroyed or mishandled in such a way that they cannot be introduced in a court of law. Today, it is rare that a crime — regardless of the type — does not involve computers in some way.
New Perspectives Gained
In a conference evaluation, attendee Antoine Smith, of the Metropolitan Atlanta Rapid Transit Authority (MARTA), stated, "As [MARTA's] manager of economic opportunity, I now have a different perspective on how to detect fraud as it relates to DBE suppliers and how they can be used as a passthrough and front company."
IDOT's Ron Brown notes the outcome of the DBE case that motivated him and a colleague to attend the meeting: "Before the conference, we had investigated only one project for possible DBE fraud. Since the conference, we've initiated investigations of three projects."
Brown adds, "I believe the conference will have an impact on the integrity of our DBE program and our consistency in enforcing the regulations. When we are more comfortable with and able to conduct proper forensic audits on projects and have a better idea of some of the indicators of fraud, then our field specialists and analysts will be better equipped to identify projects that would cause concern about adherence to DBE regulations."
USDOT then-Deputy Assistant Secretary for Management and Budget Mark Haerr, wrote, "As a first-time attendee, I found this conference to be very relevant for financial managers charged with protecting the taxpayers' transportation investments. The breakout sessions and panel discussions provided us with important information about increasingly sophisticated fraud schemes. With this knowledge, stewards of public funds are definitely better equipped to develop more effective audit and oversight practices."
Citizens have entrusted all levels of government to ensure that tax dollars are spent wisely on transportation infrastructure projects that enhance the safety, security, and mobility of the traveling public. Working together, all members of the transportation community can protect these projects from fraud and maintain the public's confidence in the integrity and safety of the Nation's transportation system. This conference provides the perfect and unique opportunity to strengthen transportation infrastructure programs against fraud with firsthand accounts of matters that can adversely impact transportation projects.
Again, Benjamin Franklin said it best, "An ounce of prevention is worth a pound of cure."
Barbara L. Barnet is a federally credentialed special agent (law enforcement officer) and OIG's national safety investigations program manager, responsible for monitoring and supporting criminal and civil safety-related investigative efforts throughout the United States. She coordinated the National Fraud Awareness Conferences in Orlando in 2006 and Chicago in 2008. Barnet has been with OIG since 1992.
Monica E. Russell, CEM, is AASHTO's deputy director for meetings and membership services. She is a certified events manager responsible for planning meetings, events, and trade shows, and overseeing all logistical aspects of these activities. She, along with Barnet, coordinated the 2008 Chicago conference and is helping plan the 2010 conference.
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