The government provides much of the infrastructure and several services that are available to American citizens, but in many cases, they end up hiring contractors to do their work. Unfortunately, this doesn’t always turn out well for the government.
Some contractors actually act in deceptive ways to earn money that they’re not entitled to. In fact, statistics have shown that about 10 percent of all government spending actually goes towards fraudulent billing. Because of the scope of this problem, every American should fully understand it.
Types of Scams
There are several types of fraudulent behavior that crooked contractors engage in. One of the most common is known as cross charging. In this scam, a company will have a fixed-price contract, which sets a certain amount they’ll be paid no matter what, and a cost-plus contract. The cost-plus contract will pay the contractor what it costs to do their job plus a percentage of profit. Cross charging occurs when contractors charge work done on the fixed-price contract to the cost-plus contract in order to earn more money.
Another common form of fraud is known as product substitution. The American government often requires specific products to be used by their contractors. Sadly, dishonest individuals sometimes purchase inferior products so that they can keep the difference in price.
Failing to follow project specifications, such as by cutting corners, is another form of fraud that can result in higher profits for a contractor as well.
Contractors using these schemes to scam Uncle Sam do a huge disservice to the country. According to the attorney firm of Goldberg Kohn at www.whistleblowersattorneys.com, ”American taxpayers lose millions of dollars to these fraudulent operations every day.”
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Real Life Examples
There are numerous instances of fraud committed by government contractors every year. It was estimated that in 2011, for instance, fraud committed within defense contractor companies alone cost the government about $12 million every single day.
It doesn’t take an international company building high-tech weaponry to commit fraud, though; even small contractors have been known to engage in fraudulent behavior.
One government contractor, known as Strong Castle, took advantage of rules within the contract bidding process, which gave the company an unfair advantage. In one instance, certain contracts were set aside for contractors who worked in lower-income areas. The company was actually located in a nice high-income area, but the owner simply decided to purchase a building in an economically distressed neighborhood and make the claim that his main operations were being performed there.
The consequences related to government fraud can encompass both the criminal and civil justice systems. Those complicit in the illegal activity may actually be sent to federal prison, and in many cases, the offending company will have to pay back everything they fraudulently acquired plus punitive damages. Unfortunately, these instances are sometimes difficult to catch, but the government figured out how to remedy this over 150 years ago.
The False Claims Act was passed during President Lincoln’s tenure, and it was aimed at stopping fraudulent activities against the government. Because of this law, individuals who recognize fraud can bring forth a lawsuit against the contractor on behalf of the government. If the government recovers money due to this, the person who filed the suit, also known as the “whistleblower,” is entitled to up to 30 percent of whatever was recovered.
Fraud is a serious problem for the Federal Government. Defense contractor fraud alone has cost tens of billions of dollars. Luckily, the government does have a way to fight against this, but it requires the help of those who take notice of the fraud.
Without these whistleblowers, it’s likely that numerous instances of fraud would never get reported, and this is why the government chooses to handsomely reward those who do the right thing.
Freelance writer Richard Freeland offers this article as a resource for taxpayers to learn about issues that might affect them and their pocketbooks. Visit www.whistleblowersattorneys.com to learn how the False Claims Act and other laws work to stop fraud, protect whistleblowers, and maximize rewards for those exposing fraudulent practices.
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