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What is Government Contract Fraud?

April 1, 2022 Federal Criminal Attorneys

In carrying out their duties, the federal government and state governments routinely do business with private companies. From hiring a construction company for a public works project to buying the weapons that arm the military, all sorts of transactions take place within the government sphere. All these transactions require an official contract between the government and the private company. When someone involved with that contract breaks the rules, the resulting crime is known as government contract fraud.

Fraud can occur at various levels of government and on vastly different scales. From multimillion-dollar scams to minor infractions, all instances of fraud are punishable by law. As the federal government increases its vigilance, private-sector contractors need to be especially assiduous in avoiding government contract fraud.

Who Typically Commits Government Contract Fraud?

In theory, any contractor that works with the government could commit government contract fraud. In practice, fraud is especially prevalent in certain key industries. Defense contractors, or the companies that supply the military with supplies, sometimes commit fraud in their dealings with the government. Infrastructure projects and detention facilities, due to their scope and complexity, are also given to illegal activity. Professionals who work as consultants for the government can commit fraud, as can software or technology experts. Even subcontractors that don’t have direct contact with the government can commit government contract fraud if they engage in certain illegal behaviors.

Common Types of Government Contract Fraud

Not all instances of government contract fraud take the same form. There are many ways to defraud the government, and the only thing they share is their illegality. Here are five of the most common behaviors that fall into the category of government contract fraud.

Bid Rigging

To win a government contract, private companies typically compete with other firms to offer the lowest price. This process is called bidding, and it’s meant to happen in a climate of fairness and competition. Sometimes, however, companies will act as if they’re competing when they’re actually working together to keep the cost of the contract higher. This type of activity is illegal, and it falls squarely within the category of government contract fraud.

Kickbacks

Sometimes, a company will pay secret fees in exchange for the receipt of a contract. These illegal payments are called kickbacks, and, if discovered, they can land a company in serious legal trouble.

Conflict of Interest

For contracts to be awarded fairly, all government officials should be looking out for the general welfare, not pursuing their own interests. If an official involved with the process has a financial incentive to choose one company over another, they’re obligated to disclose the fact. Any undisclosed conflict of interest may be illegal, especially if it results in the unfair rewarding of a contract or an inflated price.

Bribery

Perhaps the oldest trick in the book, bribery is when a company gives illicit gifts, often in the form of money, to an official in exchange for a government contract. Companies may also bribe officials to ignore overcharges and other fraudulent behavior. No matter where in the process the bribery occurs, it constitutes flagrant government contract fraud.

Overcharging for Materials and Time

The dollar amount that private contractors charge the government usually depends on the time and materials needed to complete the project. Some companies inflate these numbers to increase their profits. Whether or not this behavior is accompanied by bribes to officials, it is considered both fraudulent and illegal.

Investigating and Prosecuting Government Contract Fraud

The federal government is fully aware that these types of schemes exist, and it puts considerable resources into uncovering and prosecuting them. Official audits search for unscrupulous behavior, and government employees are encouraged to come forward if they witness anything untoward. While some suspicious cases turn out to be nothing more than a reporting error or unfortunate misunderstanding, others are genuine examples of egregious government contract fraud.

Someone credibly accused of government contract fraud can be prosecuted in a court of law. Potential penalties include hefty fines and even lengthy prison sentences. This process promotes a fair, clean system for awarding and carrying out government contracts.

Understanding Government Grant Fraud

What is government grant fraud? It happens when an individual or entity that receives a government grant makes a form of false claim to the government regarding the grant. According to the Department of Justice, government grant fraud is considered lying, stealing and cheating. Although it is a serious offense to behave fraudulently with private grant funds, it is even more serious when the federal government is the victim. Grant fraud differs from a grant scam, which is a scheme that someone designs to pose as a government grant maker and solicit fake offers to people. Scam artists typically charge a fee for applying, so it helps to remember that it is always free to apply for a real government grant.

Common Types of Grant Fraud Claims

Federal grant funds are issued to provide a wide array of public services and benefits. They may be for health initiatives, community improvement, law enforcement, research or something else. Under the False Claims Act, there are several types of fraud claims that can be made by the government against recipients in any area. These are the most common types of grant fraud claims:

 

  • Using funds for purposes other than those specified in the agreement.
  • Providing false information on a grant application.
  • Not complying with the accounting and record-keeping requirements of the grant maker.

Risks of Government Grant Fraud

Not all people who are charged with grant fraud willfully commit a crime. When this happens, it is important to have an attorney who knows how to handle the issue. It is possible to be charged with grant fraud because of an error or negligence. There have been some cases in which grant recipients failed to file certain reports or documents and faced fraud charges.

Because of the complexities of government grants, it is critical to ensure full compliance of the terms. The Department of Justice provides several specific examples of risks that organizations must mitigate to avoid grant fraud. These are some examples:

 

  • Issuing reimbursement checks, credit cards or ATM cards liberally to multiple employees.
  • Failing to meet requirements for documentation or accounting.
  • Lacking internal controls and accountability steps to limit financial misconduct among employees.
  • Failing to regularly examine the internal structure of the program for fraud vulnerabilities.
  • Not properly vetting employees who are trusted to handle or account for grant funds.
  • Reporting erroneous, inaccurate or embellished information to obtain or maintain grant funds.

The best defense against fraud is ensuring that trustworthy employees are hired and that internal procedures minimize all risks of fraud. However, even the best measures require cooperation from many people, and fraud charges can leave organizational leaders wondering what happened.

Government Grant Fraud Penalties

The False Claims Act was established in 1863. At the time, it stated that anyone who made false claims to the government was liable for double the damages plus a set fee. Over time, that fee grew, and the act was amended to allow for even more financial recourse for the government. The penalties vary based on circumstances. However, there are strict legal and financial penalties for individuals or entities that knowingly and willfully deceive the government regarding grants. The Criminal False Claims Act guidelines state that anyone who knowingly makes false claims to the government may face between five and eight years in federal prison. The Civil False Claims Act guidelines allow for up to three times the amount of the total damages. Also, there may be a fee between $5,500 and $11,000 in addition to the damages.

Choosing a Government Grant Fraud Attorney

Any grant fraud allegation is a serious issue and warrants the need for an attorney who understands federal laws concerning government grants and fraud. Whether the claim is criminal or civil, it is important to have a winning defense strategy. Our attorneys know the right strategies and approaches for a variety of situations, and they consider all the complexities of each case’s unique details. Please contact us for a consultation.

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