The U.S. Department of Justice is maintaining its momentum in the prosecution of alleged government contracting fraud.  DOJ had its third largest year ever in terms of civil False Claims Act recoveries in Fiscal Year 2016, clawing back $4.7 billion from government contractors accused of misconduct.  And the latest trends for 2017 show that individual corporate executives (not just the companies themselves) should be on high alert in the year ahead.

On December 28, 2016, the U.S. Attorney’s Office in Baltimore announced a $4.535 million settlement with Advanced C4 Solutions, Inc. (Advanced C4).  The settlement resolved claims that the SBA 8(a) small business contractor submitted inflated invoices from its subcontractor, Superior Communications Solutions, Inc. (Superior Communications), under a project management and labor services contract for work at Andrews Air Force Base (Joint Base Andrews).  The contract required Advanced C4 to design, construct, and implement computer technology upgrades in support of the U.S. Air Force personnel working at Joint Base Andrews. The U.S. Navy’s Space and Warfare Systems Command (Navy) awarded and administered the contract.

Under the terms of the contract, Advanced C4 was required to bill its labor costs, as well as those of its subcontractors, according to certain job classifications and the number of hours worked at each classification.  Collectively, the Justice Department, the Air Force’s Office of Special Investigations, DCIS, and the SBA investigated and determined that Advanced C4, and its project manager and vice president Andrew Bennett, passed false invoices from its subcontractor, Superior Communications, (and potentially others) through to the government.

The invoices allegedly charged for hours that were not worked and charged higher rates for personnel that did not meet the job classification requirements. The government paid the invoices, opening the door for False civil False Claims Act charges.

The Justice Department ultimately indicated three people, including Mr. Bennett, as well as a retired Navy contracting official, James T. Shank and John Wilkerson.  Mr. Wilkerson owned Superior Communications.  The Air Force also issued a memorandum in support of proposed debarment for all three companies.

The indictments strongly indicate that the Justice Department is following the directive provided by Deputy Attorney General, Sally Quillian Yates in her September 9, 2015 memorandum (The Yates Memo) that directed Department of Justice attorneys to focus on individuals and not just their employers.  According to the Yates Memo, “[o]ne of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.”

In this case, while the settlement resolved the allegations that Advanced C4’s employee submitted fraudulent invoices, Mr. Bennett and Mr. Shank previously pled guilty to conspiracy to commit wire fraud for their actions on the contract. Mr. Wilkerson is scheduled for trial beginning on January 30, 2017.

Contractors interested in learning more about avoiding False Claims Act liability and establishing a culture of corporate compliance should check out our previous posts about implementing a FAR-complaint Business Ethics and Conduct Program.