Agenda / Topic Areas

1. Fraud Awareness Training(Tier 3) Michael MarkDennis Blythe17 September 2015 NASA Langley Research Center

2. Agenda / Topic Areas Introduction and Overview Fraud Indicators and Conflict of Interest Issues Investigative Process and Reporting Coordination of Remedies Reform Measures Recoveries

3. Why Are You Here? You are in a UNIQUE POSITION that enables you to identify and combat fraud and potential fraud

4. Why Should You Care? Acquisition Integrity Commitment to integrity Public needs faith in the integrity of our procurement system We need public support to fulfill NASA’s mission The time is always right to do what is right. Martin Luther King, Jr.

5. Small Business Innovation Research Contracts • Section 9(j) of the Small Business Act requires SBA to issue an SBIR Program Policy Directive within the Federal Government. • 11 agencies, including NASA and DoD, administer SBIR program. • 3% of each agency’s R&D budget goes towards funding SBIR contracts • Purpose of SBIR Program is to strengthen the role of innovative small businesses in federally-funded research. Specific program purposes include: 1. Stimulate technological innovation of the small business; 2. Use small businesses to meet Federal R&D needs; 3. Foster and encourage participation by socially and economically disadvantaged companies; 4. Increase private sector commercialization of innovations derived from Federal R&D, thereby increasing competition, productivity and economic growth.

6. Funding Agreement • May be contract, grant, or cooperative agreement for experimental, developmental, or research work, including: • Study directed toward greater knowledge or understanding of a subject • Study directed toward applying new knowledge to meet a need • Application of knowledge toward the production of useful devices, materials, and systems/methods

7. Common Types of Misconduct in SBIR • Duplicative funding agreements • Research misconduct • False certifications regarding eligibility

8. Duplicative Funding • Failing to certify duplicative or overlapping proposals to different agencies (or to the same agency) for essentially the same work • Providing duplicative deliverables based on the same research to different agencies

9. Research Misconduct • Falsified or fabricated data/results • Plagiarized reports

10. False Statements and Certifications • May be associated with eligibility requirements, e.g.: • SBC (Small Business Concern) – defined by SBA regulations 13 C.F.R §§ 121.701-705 • Ownership and control • Size • Principal Investigators (PIs) who are not primarily employed by the SBCs • “Unique” eligibility requirements rely on contractor self-certifications – greater exposure to false certifications and false statements

11. Fraud Indicators and Conflict of Interest Issues

12. What is Fraud? Fraud is the misrepresentation of a material fact with the intent to deceive and includes: • Deliberate omission of material facts • Reckless disregard for the facts • Indicators are a clue or hint that an activity or event requires a closer examination

13. Can Fraud Occur on NASA Contracts? Fraud in Fixed Price Contracts: The Anghaies and New Era Technology Evidence/Information for this Section: Courtesy of NASA OIG

14. New Era Technology, Inc. (NETECH),Dr. Samim Anghaie, and Sousan Anghaie • Dr. Anghaie, was a University of Florida (UF) nuclear professor (recognized as a leader in his field) • His wife was president of NETECH, and Dr. Anghaie was identified as a Senior Scientist for NETECH • Both convicted of over 25 counts of fraud (mail/wire and conspiracy) • Couple submitted fraudulent proposals to obtain 11 SBIR contracts with NASA and USAF with payments totaling $3.4M by claiming NETECH performed research and analysis when the work was taken from: (1) research projects, theses, and presentations of UF graduate and doctoral students and (2) work performed at UF’s Innovation Nuclear Space Power and Propulsion Institute, UF’s Major Analytical Instrumentation Center, and a laboratory in Russia. • They also submitted fraudulent invoices to be reimbursed for payments made to employees who supposedly provided research under the contracts.

15. Source: NASA OIG Key Evidence at Trial • Witnesses testified they were unaware their names or resumes were being used on proposals and contracts. • Invoices and bank records showed Anghaies billed NASA and USAF for labor that did not exist. • Bank accounts showed money laundering scheme in which Sousan Anghaie paid her sons as workers on the contracts. However, those funds, totaling over half a million dollars, were ultimately transferred into the personal accounts of the parents. • Former students testified their dissertations were stolen and used as deliverables in NETECH reports to NASA and USAF. • Computer forensic evidence showed Anghaie created and forged “labor agreements” between NTECH and ghost employees. • Investigators testified to false time sheets and other documents.

16. Source: NASA OIG Key Evidence at Trial • Testimony and computer evidence showed Anghaie stole a substantial amount of work from a scientist working at a Russian Laboratory. • UF officials testified NETECH and UF did not have a collaborative relationship as stated in proposals. • Anghaie’s UF conflict of interest forms showed multiple misrepresentations and false statements re: his employment at NTECH. • Contracting Officers testified they would not have awarded contracts to NTECH if they knew NTECH lied about information in proposals. • CORs testified they would not have accepted the work and recommended payment had they known much work was plagiarized and fabricated.

17. What Was The End Result? • Samim Anghaie found guilty of one count of Conspiracy, 27 counts of Wire Fraud and one count of False Statements • Sousan Anghaie found guilty of one count of Conspiracy and 27 counts of Wire Fraud • Ordered to Forfeit $390,252.50 • Samim Anghaie sentenced to 6 months Prison • Civil Lawsuit filed in May 2012 for $2.7 million under FCA • During the proceedings, NASA made no further payments • NETECH and Anghaies suspended and debarred by NASA for 5 years

18. Craig Near and Genziko, Inc. • Near owned Genziko and submitted numerous fraudulent grant and contract proposals resulting in NSF and NASA awards under SBIR Program totaling about $800,000 • Proposals were false in that: • Stated Genziko had multiple employees when it did not • Listed credentials of impressive management team with years of experience in relevant scientific and engineering disciplines without knowledge or consent of individuals named • Contained fraudulent budgets, including salaries for personnel not needed for the work and overhead and administrative costs based on fictitious wages

19. Craig Near and Genziko, Inc. • Trial held in June in Atlanta • LaRC personnel were witnesses • Inflated profits ranging from 79% to 197% • Near pocketed funds earmarked for university subcontractors and consultants who did perform work – spent lavishly on personal expenses unrelated to contracts, e.g., mortgage payments, private school tuition for his children, vacations, shopping, wire transfers to family and friends overseas • Jury convicted Near and company on 7 counts of wire fraud and 2 counts of filing false claims • Sentencing scheduled for October

20. Types of FraudPricing / Cost Fraud False Statements False Claims Cost Mischarging Price Fixing Defective Pricing Progress Payments

21. Grant Civil Fraud Example – Mischarging Yale University Focus of investigation: Improper transfer of grant funds to accounts not specifically related to the purpose of the grant Some researchers paid themselves for summer work even time and effort unrelated to the grant Over 30 agencies involved including NASA (over 140 NASA grants at issue) Yale settled for $7.6 million

22. Types of FraudQuality Control Fraud Product Substitution Counterfeit Parts False Testing False / Inaccurate Documentation

23. Description and Origin of Counterfeit Parts • Parts may be re-topped and/or re-marked to disguise parts differing from those offered by the original part manufacturer • Defective parts scrapped by the original manufacturer may be salvaged and sold as compliant parts • Previously used parts may be salvaged from scrapped assemblies and resold as new • Refurbished devices represented as new product Description Source: OSMA

24. VisionTech Components – Impact of Counterfeit Parts Administrator of Florida-based distributor sentenced to 38 months in prison in connection with sales of counterfeit high-tech devices destined to the U.S. military and other industries First federal prosecution in a case involving the trafficking of counterfeit integrated circuits Counterfeit integrated circuits can result in product or system failure or malfunction, and can lead to costly system repairs, property damage, and serious bodily injury, including death. They also raise national security concerns because their history is unknown. According to government’s evidence, company owner and others imported approximately 59,540 integrated circuits bearing counterfeit marks, including military-grade markings, from China and Hong Kong to U.S.

25. Quality Control Fraud Example Subcontractor sold metals for use on NASA’s orbiter fleet and critical ground support equipment When test results and specifications did not conform with customers’ purchase order requirements, company altered: Test certificates from metal testing laboratories Mill reports of metals manufacturers Certificates of compliance from metal distributors

26. Result • Owners, sales manager, and two administrative assistants were convicted – sentences ranged from over 2 years to probation and restitution ordered in excess of $390k • Company and owners debarred from working on any federal government contract Jailhouse Blues

27. Types of Fraud Public Corruption Collusion Bid Rigging Bribery Kickbacks Theft

28. Public Corruption Example • Courtney Stadd • Former NASA Chief of Staff • Convicted in two cases • Both Stadd and his company, Capitol Alliance Solutions, debarred for 5 years

29. Performance Phase Public Corruption - Crown Roofing • Source – Crown Manager bragged he “has lock” on JSC roof contracts • Witnesses – Alleged that Crown bribed JSC employees with prostitutes, secret contracts and other gratuities • Investigation – Revealed JSC COR has personal company that obtained contracts from Crown in excess of $290k while COR was acting in official NASA capacity; second COR assists with Crown contracts and obtains $40k.

30. Performance Phase Result of Crown Roofing Matter • Criminal Convictions – Both NASA CORs resigned and pleaded guilty to violating Federal Conflict of Interest law • Civil – Crown Roofing settled False Claims Act allegations for $3 million • Contractual – JSC terminated the contract for default and denied payment on approximately $800,000 in outstanding invoices • Administrative • Crown, its principals, and individuals engaged in the scheme proposed for debarment • Key individuals debarred for periods ranging up to five years, and the company and its principals entered into an administrative agreement after being excluded from government contracting for over 2 years.

31. Who Commits Fraud? People who commit fraud can be: Employees or Management Contractor Personnel or Government Employees Companies can be held responsible for their employees and managers

32. Adverse mission impact due to system failures Safety and possibly life threatening issues Substandard materials “Getting less for what NASA paid” Necessity for second purchase of materials Monetary loss to the Government and NASA programs Loss of public trust What are the Consequences of Fraud?

33. How Do You Detect Possible Fraud in the Acquisition Process? Fraud Indicators: Defining requirements improperly so that only certain contractors qualify Identifying time frames as critical when requirements are of questionable urgency Impact: Decision to buy goods and services in excess of those actually needed and/or from selected sources Phase 1: Identifying the Need or Requirement What was Needed: What was Solicited:

34. Phase 2: Pre-Solicitation Stage Example: Collusion between government and contractor personnel to write restrictive or vague specifications Fraud Indicators: Contractor involvement in writing of specifications without proper precautions concerning conflicts of interest Restrictive conditions placed in solicitation documents that tend to restrict competition Statements of work and specifications designed to fit products or capabilities of single contractor Contractors provided with advance information or advice on a preferential or selective basis Splitting requirements to lower the cost to avoid supervision and oversight How Do You Detect Possible Fraud in the Acquisition Process? $$

35. How Do You Detect Possible Fraud in the Acquisition Process? Fraud Indicators: Excessive personnel or geographic limitations Selective revelation of information to certain contractor(s) but not all Excessive use of a single contractor in a competitive field Phase 3: Solicitation Examples: • Activities that diminish use of competition and keep government from obtaining goods and services at the best value • Collusive bidding, kickbacks, or other anti-competitive activity • Not adequately publicizing the procurement • Government contracting or program personnel socializing with successful contractors • Contracting or program personnel “recommending” a particular supplier or subcontractor • Misrepresenting/ making false statements during the pre-award survey

36. Bid rotation: All contractors involved submit bids but agree to take turns on being the low bidder Indication: A pattern for getting the award Indication: Successful bidders agree to use other participating contractors as subcontractors. Sporadic bidding: One or more competitors agree to refrain from bidding or agree to withdraw a previously low bid Token bids: Competitors submit bids that are too high to be acceptable to create the appearance of genuine competition (AKA “complimentary" or “shadow” bidding) Market allocation: Contractors agree not to compete in designated parts of the market Change-order schemes: Contractor submits a low bid to assure receiving the award while anticipating change orders (contract modifications) to be issued during the life of the contract How Do You Detect Possible Fraud in the Acquisition Process? Phase 4: Proposals

37. How Do You Detect Possible Fraud in the Acquisition Process? Phase 5: Fraud in Contract Negotiation Example: Using competitor’s proprietary data to gain unfair advantage Fraud Indicator: Disclosure of information resulting in a competitive advantage to one contractor over others

38. Phase 6: Award Example: Activities that compromise evaluation of the proposal Fraud Indicators: Poorly written source selection that does not adequately justify award Favoritism or bias in proposal, evaluation, or contract award Awards to contractors with poor histories of past performance or inadequate evaluation of a contractor’s present responsibility Misrepresenting a firm's capabilities/qualifications Failure to fully disclose required information Disqualification of a qualified contractor Indication that contractor submitted false claims or false cost or pricing data How Do You Detect Possible Fraud in the Acquisition Process? Past Performance Evaluation • Technical Performance: POOR • Contract Management: POOR • Cost Performance: POOR RESULT: CONTRACT AWARD

39. How Do You Detect Possible Fraud in the Acquisition Process? Fraud Indicators: Serial numbers missing Inspection reports that appear altered by whiteouts Requests for payment that are inconsistent with earlier cost history History of frequent invoice/voucher errors, poor documentation, & claiming unallowable costs Little or no physical progress on the contract even though significant costs have been billed Phase 7: Contract Performance and Administration Examples: • Product Substitution • Cost Mischarging • Progress payment fraud Source: Genuine-Performance.com News Alert

40. Contract Performance PhaseQuality Control Issues Testing Issues: Lack of time to test for the amount of equipment or parts to be tested Questionable testing claims Altered test reports Minor discrepancies in typeface “White out” sections Handwritten portions of typed documents Non-operating test equipment Part failures after “100% Inspection and Testing” Subsequent test and inspection failures on products in performance-based contracts Commingled tested and untested items Source: Army

41. Access Issues: Limited government access to production and storage facilities Unwillingness to mark or seal in presence of government representative Contractor efforts to hide records Documentation Issues: Non-availability of basic information such as documentation for quality reviews or cost verification Altered certifications and test reports Pre-signed certification or receipt forms Poor reproduction of certifications, illegible, or incomplete documentation Substitution Issues: Substitution of generic for brand name parts without notification Substitution of foreign parts for domestic items Use of lesser skilled labor than specified in the contract Contract Performance PhaseQuality Control Issues Source: Army

42. Personal Conflicts of Interest • 18 U.S.C. 208: Prohibits Government employees from engaging in official duties that could affect personal financial interests (including family and business) • Conflict of interest convictions have resulted in debarments (ex. Stadd and Biondolillo) • Contracts/purchase orders tainted by conflict of interest can be voided/rescinded (FAR Subpart 3.7) • May result in bid protests • NOTE: Employee includes person working at NASA under an IPA (Intergovernment Personnel Act) Agreement or as a Special Government Employee

43. Conflict of Interest Sample Scenarios • NASA employee uses official position to draft statement of work to continue his/her research with a contractor before he departs NASA • NASA employee serving as a Contracting Officer Representative, who is personally and substantially involved with a procurement activity, uses that process to arrange for post employment with the contract awardee

44. What Should I Do? • IF: Actions as a government employee are going to: • Help you get a non-government job • Help a family member get government work • Give an appearance of impropriety that you trying to steer work to family or friends • THEN: JUST DON’T TAKE THAT ACTION • Not Sure? Ask before proceeding – Be sure to disclose all relevant information to ensure advice you receive is correct

45. Example – Excerpts from E-mail Messagesfrom a Real NASA Case From Head of Division to another NASA employee: “[My spouse] would like to speak with [NASA personnel], endorsing the idea of spending stimulus money on [my spouse’s company/project]… It would be a great gesture on your part to throw your influence behind [my spouse] and it would go a long way to moving forward on past issues.” Question: What would you do if you got this e-mail message?

46. Example – Excerpts from E-mail Messagesfrom a Real NASA Case Response from NASA employee to Head of Division: “I don’t feel I can ethically endorse funding [your spouse’s] effort based on this request. In my opinion, to personally influence funding to go to the [spouse] of a civil servant would leave me directly open to charges of misuse of NASA funds. I have thought a lot about this matter, and this is the only course I feel I can take.”

47. Reporting and the Investigative Process

48. Reporting Requirements • NPD 9800.1B • All NASA employees are required to report any suspected fraud, waste, or abuse to OIG (do not have to all the details to report) • NASA employees may ask for confidentiality and are not required to report their contacts with the OIG to their supervisors

49. What Should You Do if You Suspect Fraud? OIG Hotline: 1-800-424-9183 AIP Contact: (202) 358-2262

50. Reporting MechanismsOffice of Inspector General http://www.hq.nasa.gov/office/oig/hq/cyberhotline.html