FRAUD

DoD SBIR/STTR Training

FRAUD

DoD SBIR/STTR Training

What is Fraud?

Fraud is the wrongful and criminal deception designed to unlawfully deprive the United States of something of value or to secure from the United States for an individual a benefit, privilege, allowance, or consideration to which he or she is not entitled. 

Who's responsible for fraud?

Individuals attempting to defraud the DoD can include contractors, subcontractors, civilian employees, and individual service members.

FRAUD

DoD SBIR/STTR Training

What are the factors that cause fraud?

OPPORTUNITY

The ability to commit fraud.  This also means that internal controls used to prevent fraud are either weak or nonexistent.

RATIONALIZATION

The ability to persuade yourself that something that is otherwise wrong is okay to do or act on.

MOTIVATION

The pressure or need felt by the individual to commit fraud.

FRAUD

DoD SBIR/STTR Training

There are 4 main types of fraud. 

What are they?

FRAUD

DoD SBIR/STTR Training

Misrepresentations or factual omissions

Misrepresentations or factual omissions to obtain, or otherwise receive funding under an SBIR award.

Type 1

Submitting false certifications, including representations that the company would not duplicate its research from another SBIR award. 

Examples

Submitting certifications that misrepresent a company's eligibility, including certifying that the company can do in-house research when it doesn't have the capability, and claiming that a company is American-owned or a small business when it is not.   

Providing inaccurate and inflated labor rates in its proposed labor costs for an SBIR contract award.

Identifying a primary investigator that is not primarily employed by the small business or does not perform a significant amount of the work.  

Providing falsified letters of reference.

FRAUD

DoD SBIR/STTR Training

Misrepresentations or factual omissions

Misrepresentations or factual omissions to obtain, or otherwise receive funding under an SBIR award

Type 1

Submitting false certifications, including representations that the company would not duplicate its research from another SBIR award. 

Examples

Submitting certifications that misrepresent a company's eligibility, including certifying that the company can do in-house research when it doesn't have the capability, and claiming that a company is American-owned or a small business when it is not.   

Providing inaccurate and inflated labor rates in its proposed labor costs for a SBIR contract award.

Identifying a primary investigator that is not primarily employed by the small business or does not perform a significant amount of the work.  

Providing falsified letters of reference

Learn more

Who is the Primary Employer of the Principal Investigator (PI) 

For SBIR contracts the PI's primary employer must be the small business concern submitting a proposal. 

For STTR contracts the PI's primary employer  must be the small business concern or research institute submitting a proposal.

​The small business cannot change the PI without the prior written consent of the Government. 

Not accurately reporting the primary investigator's place of employment accurately is fraud

 

Failing to report this information properly is a federal offense

FRAUD

DoD SBIR/STTR Training

Misrepresentations or factual omissions

Misrepresentations or factual omissions to obtain, or otherwise receive funding under an SBIR award

Type 1

Submitting false certifications, including representations that the company would not duplicate its research from another SBIR award. 

Examples

Submitting certifications that misrepresent a company's eligibility, including certifying that the company can do in-house research when it doesn't have the capability, and claiming that a company is American-owned or a small business when it is not.   

Providing inaccurate and inflated labor rates in its proposed labor costs for a SBIR contract award.

Providing falsified letters of reference

Learn more

Required certification when submitting proposal

The awardee is an SBC meeting the size eligibility provisions

SBC is at least 51% owned by U.S. citizens or permanent resident aliens of the U.S.

For SBIR contracts, at least 2/3 of the work will take place in the SBC’s facilities with the SBC’s employees

For SBIR contracts, PI is primarily employed by the SBC

Physical address of SBC is located in the U.S. (Includes Puerto Rico and Territories)

The SBC has not been awarded any other Federal Government contracts or grants for essentially equivalent work

Disclosure of family or academic relationships with company owners or employees, subcontractors, etc. 

Phase I and II Certifications - Award and Life Cycle Submissions

PI’s primary employment

Essentially equivalent work has not been funded by another federal agency

Phase II Mid-effort Certification – Upon completion of the effort, the SBC will have performed the required portion of the work

Phase I & II Final Certification – Work is completed and the SBC has performed the required portion of the work

The awarded R&D is being/has been performed in the U.S.

Performance is taking/has taken place at the SBC’s facilities with the SBC’s employees

The SBC understands information submitted may be provided to federal, state, and/or local agencies to be used for determining violations of law and other purposes

Falsely certifying to any material fact or representation contained in a certification is fraud

FRAUD

DoD SBIR/STTR Training

Misrepresentations of expended funds

Misrepresentations of the use of funds expended, work done, results achieved, or compliance with program requirements under an SBIR award.

Type 2

Examples

Receiving funds, but not using the money to perform the agreed upon work.

Recycling research by submitting research that was performed under a previous contract.

Charging labor and materials used to complete commercial work to government-funded SBIR contracts.

Fabricating, falsifying, or plagiarizing in carrying out or reporting result data, especially when reporting Phase I results to obtain a Phase II award. 

Invoicing the government for the same equipment and materials under different SBIR contracts. 

Subcontracting work out to another company without the government's knowledge.

FRAUD

DoD SBIR/STTR Training

Misuse of SBIR award funds

Misuse or conversion of SBIR award funds, including any use of award funds while not in full compliance with SBIR Program requirements, or failure to pay taxes due on misused or converted SBIR award funds.  

Type 3

Examples

Funneling SBIR funds in to personal bank accounts and falsifying time sheets to conceal the improper use of funds.

Using SBIR funds to pay for cars, property, home renovations, or other purchases that enrich individuals, rather than completing research. 

Overpaying vendors in order to pocket the reimbursements.

Owners of companies overpaying themselves.

Paying kickbacks to government officials in order to secure SBIR grants.

FRAUD

DoD SBIR/STTR Training

Duplication of Funds

Duplicate awards from the same or different agencies for the same work.  

Type 4

Examples

Submitting duplicate proposals to different agencies and received multiple awards for essentially the same or overlapping work. 

Offer proposals that are supposed to do separate work, then provide identical deliverables. 

Receiving multiple payments for the same work product from different agencies.

Steering new SBIR research topics towards topics previously funded by other SBIR agencies to facilitate research recycling. 

FRAUD

DoD SBIR/STTR Training

Duplication of Funds

Duplicate awards from the same or different agencies for the same work.  

Type 4

Examples

Submitting duplicate proposals to different agencies and received multiple awards for essentially the same or overlapping work. 

Offer proposals that are supposed to do separate work, then provide identical deliverables. 

Receiving multiple payments for the same work product from different agencies.

Steering new SBIR research topics towards topics previously funded by other SBIR agencies to facilitate research recycling. 

What is Duplication of Funds?

It is unlawful to enter into multiple contracts or grants requiring essentially equivalent work. SBIR/STTR awards must certify at the time of proposal submission and the lifecycle of the award that they do not have any essentially equivalent work funded by the Federal Government. 

 

Submitting similar or even identical proposals for consideration by multiple federal agencies is permissible; however submission of proposals involving essentially equivalent work must be fully disclosed to the soliciting agency or agencies before award.

Bottom Line:  Absent specific authorization, it is fraud to accept payment from multiple agencies for the same or essentially equivalent work.  

If an applicant elects to submit multiple proposals describing duplicate or essentially equivalent work, a statement must be included in each such proposal indicating:

Disclosure of Similar Proposals or Awards

Name and address of each agency to which proposals were submitted or from which awards were received

Date of proposal submission or date of award

Title, number, and date of solicitations under which each proposal was submitted or awards received

Specific applicable research topics for each proposal submitted or award received

Titles of research projects; and

Name and title of principal investigator or project manager for each proposal submitted or award received

FRAUD

DoD SBIR/STTR Training

Failure to comply with applicable federal costs principles governing an award.

Self-dealing, such as a sub-award to an entity in which the primary investigator or one of the primary investigator's family members has a financial interest

Additional types

ACTIVITY

DoD SBIR/STTR Training

Fill in the blank with the correct type of fraud for each example

Hint: main types of fraud are Misrepresentations or factual omissions, Misrepresentations of expended funds, Misuse of SBIR award funds, Duplication of Funds

Submitting false certifications, including representations that the company would not duplicate its research from another SBIR award.
Type of fraud:
Offer proposals that are supposed to do separate work, then provide identical deliverables.
Type of fraud:
Funneling SBIR funds in to personal bank accounts and falsifying time sheets to conceal the improper use of funds.
Type of fraud:
Subcontracting work out to another company without the government's knowledge.
Type of fraud:

Complete the activity to continue.

FRAUD

DoD SBIR/STTR Training

What are the consequences of committing Fraud?

FRAUD

DoD SBIR/STTR Training

What are the consequences of committing Fraud?

Criminal Prosecution

Civil Liability

Administrative Remedies

Lying to obtain an SBIR/STTR contract, or lying about the work performed violates several criminal laws and will result in prosecution for the following crimes: 

False Statements, 18 U.S.C. § 1001 (5 years in prison, forfeiture, and $250K fine)

Theft of Federal Property, 18 U.S.C. § 641 (10 years in prison, forfeiture, and $250K fine) Criminal forfeiture means that personal assets can be seized to satisfy the full amount of the grant or contract, as well as any fines ​ 

Wire Fraud, 18 U.S.C. § 1343 (20 years in prison, forfeiture, and $250K fine)

FRAUD

DoD SBIR/STTR Training

What are the consequences of committing Fraud?

Criminal Prosecution

Civil Liability

Administrative Remedies

In addition to criminal prosecution, individuals that commit fraud against the SBIR/STTR program are civilly liable based on the Civil False Claims Act, 31 U.S.C. §§3729-3733:

Liability includes treble damages (3x actual damages) and a fine of up to $11,000 for each false claim

False claims liability includes payments received when the Government relied upon false information in the SBIR/STTR proposal, in a certification of current cost or pricing data, in a request for payment or in progress reports

Although the statute requires knowledge that the claim was false, the term “knowledge” includes “deliberate ignorance” or “reckless disregard for the truth

Whistleblowers can receive up to 30% of award for reporting fraud via qui tam provision of False Claims Act

FRAUD

DoD SBIR/STTR Training

What are the consequences of committing Fraud?

Criminal Prosecution

Civil Liability

Administrative Remedies

On top of criminal and civil liability, administrative remedies will be imposed on the small business and the individuals involved in committing fraud:

The Government can terminate contracts tainted by fraud 

The Government can debar SBC, owner, and/or employees 

The debarred small business or individual can be prohibited from receiving any federal contracts or working as a subcontractor on federal contracts (debarment is typically for three years, but can be for longer) 

FRAUD

DoD SBIR/STTR Training

How do I prevent fraud?

Keep open lines of communication with your contractors and awardees.

Followed established rules and policies when dealing with contractors and awardees. 

Keep contractors and awardees accountable by reviewing the work performed and ensuring it complies with the terms of the contract and the agreed upon work to be performed. 

If you suspect any irregularities or criminal acts contact the DoD Inspector General immediately.

http://www.dodig.mil/hotline/

Hotline: (800) 424-9098

Email: hotline@dodig.osd.mil

Continue to do your job normally. Don't feel compelled to act as a detective and prove the case. The Office of Inspector General will conduct the investigation. 

FOR GOVERNMENT EMPLOYEES

FRAUD

DoD SBIR/STTR Training

How do I prevent fraud?

FOR SMALL BUSINESSES

Good Recordkeeping

The Government retains the right to examine the status of an SBIR/STTR contract at any time. Status checks include:

Site visits

Requests for records including financial documents and timesheets

Good record keeping is key to protecting yourself. It will help eliminate suspicion and ensure successful status checks.

Documentation

Small businesses should maintain the following documentation while completing work on an SBIR/STTR award: 

Timesheets for hours worked by ALL involved employees
All financial receipts, invoices, and statements for expenses related to the project
Laboratory notebooks

Weekly or daily updates on the project’s status, including successes and failures, should be part of the process, if possible.

In addition, Research Institutions should maintain the following documentation (if applicable): 

Agreements for use of research facilities

Personnel logs for assistance from institution’s staff and/or students

Ask Questions

If you are unsure about any of the rules relating to the award of an SBIR or STTR contract:

Contact the appropriate contracting officer and provide all relevant facts

Request written guidance from the contracting officer

and follow the contracting officer's guidance exactly

BENSON RENAUD | CEO

CBS Enterprises - Topeka, KS

FRAUD CASE STUDY

DoD SBIR/STTR Training

8(a) Service-Disabled Veteran-Owned (SDVO) small business

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

BENSON RENAUD | CEO

CBS Enterprises - Topeka, KS

FRAUD CASE STUDY

DoD SBIR/STTR Training

8(a) Service-Disabled Veteran-Owned (SDVO) small business

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

Motivation

Rationalization

Opportunity

Consequence

CBS won both Phase I and Phase II SBIR awards. The Phase I award is roughly $150K and the Phase II award will not exceed $1 Million. 

Unfortunately, the project expense was estimated at over $1.5 Million. As a result, Benson had to figure out ways to hugely lower the expense so that his company could make a profit.

BENSON RENAUD | CEO

CBS Enterprises - Topeka, KS

FRAUD CASE STUDY

DoD SBIR/STTR Training

DoD SBIR/STTR Training

8(a) Service-Disabled Veteran-Owned (SDVO) small business

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

Motivation

Rationalization

Opportunity

Consequence

If the project is subcontracted to newly starting standard 8(a) companies, it can be done under budget. CBS can help new businesses get more work.

To keep things simple and avoid complication, CBS Enterprises will bill the government as if they are doing the work. It's a win-win situation.

BENSON RENAUD | CEO

CBS Enterprises - Topeka, KS

FRAUD CASE STUDY

DoD SBIR/STTR Training

8(a) Service-Disabled Veteran-Owned (SDVO) small business

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

Motivation

Rationalization

Opportunity

Consequence

Benson was able to find 3 newly starting 8(a) companies that were hungry for work and were willing to work for lower prices. He has them sign an NDA without any other  signed agreements between them and CBS.

The subcontractors were able to complete the many task orders for less than planned.

BENSON RENAUD | CEO

CBS Enterprises - Topeka, KS

FRAUD CASE STUDY

DoD SBIR/STTR Training

8(a) Service-Disabled Veteran-Owned (SDVO) small business

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

Motivation

Rationalization

Opportunity

Consequence

CBS Enterprises is investigated and charged with multiple counts of fraud based on their misrepresentation of expended funds

Benson Renaud and CBS Enterprises received a penalty of $500,000 for passing subcontractor labor off as their own work. 

JUNE JACOBS | Head of Business Development

Insight Enterprises - Dublin, OH

FRAUD CASE STUDY

DoD SBIR/STTR Training

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

FRAUD CASE STUDY

DoD SBIR/STTR Training

Motivation

Rationalization

Opportunity

Consequence

June recently bought her dream home but unexpected renovations leave her short on money. She was in need of a short-term fix to finish what she’d started.

JUNE JACOBS | Head of Business Development

Insight Enterprises - Dublin, OH

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

FRAUD CASE STUDY

DoD SBIR/STTR Training

Motivation

Opportunity

Rationalization

Consequence

June oversaw the proposal team. Several SBIR projects from different federal agencies, including the DoD, were on her radar. She noticed a few potential projects which required similar work. If she could win multiple awards for overlapping research, she knew she could get away with it.

JUNE JACOBS | Head of Business Development

Insight Enterprises - Dublin, OH

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

FRAUD CASE STUDY

DoD SBIR/STTR Training

Motivation

Opportunity

Rationalization

Consequence

If June was caught, she was certain her punishment would be minor, because it would have been a first time offense and she could plead ignorance.

Insight Enterprises won awards from the DoD SBIR, as well as the SBIR of other agencies. The company was happy growing their business. June was able to successfully complete her projects, pocketed bonuses, and comfortably finished her house project.

 

JUNE JACOBS | Head of Business Development

Insight Enterprises - Dublin, OH

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

FRAUD CASE STUDY

DoD SBIR/STTR Training

Motivation

Opportunity

Rationalization

Consequence

Insight is investigated. June committed a type of fraud referred to as duplicative funding, which is used to obtain multiple SBIR awards for the same overlapping work. She pled guilty to mail fraud and tax evasion.

The company paid almost $2 million in restitution, civil damages, taxes, and penalties. To avoid negative press, June negotiated a deal requiring her to retire.

JUNE JACOBS | Head of Business Development

Insight Enterprises - Dublin, OH

Service offering:  innovative systems, products, and solutions for small to medium telecom projects. 

FRAUD CASE STUDY

DoD SBIR/STTR Training

MICHAEL STEVENSON | CEO & Chief Scientist

Intelligent Wear - Los Angeles, CA

Service offering:  Research and product development for wearable technology.

FRAUD CASE STUDY

DoD SBIR/STTR Training

Motivation

Rationalization

Opportunity

Consequence

Michael spent years trying to build up his company, Intelligent Wear, through client work and several SBIR contracts. After nearly a decade he couldn't seem to grow the company beyond its humble beginnings. Though, he was able to secure SBIR contracts nearly every year, Michael wanted a more stable source of income. So, after submitting a final DoD SBIR proposal in which he was listed as the primary investigator, he applied for several jobs in the area.

MICHAEL STEVENSON | CEO & Chief Scientist

Intelligent Wear - Los Angeles, CA

Service offering:  Research and product development for wearable technology.

FRAUD CASE STUDY

DoD SBIR/STTR Training

Motivation

Opportunity

Rationalization

Consequence

Michael heard back from many of the employers he applied to, and after a few rounds of interviews, decided to accept one of the jobs. A few weeks into his new job, he received news that his DoD SBIR proposal had been accepted. Unfortunately, Michael was now working a full-time job. As the primary investigator in the proposal, Michael was required to be primarily employed by the small business, which was no longer the case.

MICHAEL STEVENSON | CEO & Chief Scientist

Intelligent Wear - Los Angeles, CA

Service offering:  Research and product development for wearable technology.

FRAUD CASE STUDY

DoD SBIR/STTR Training

Motivation

Opportunity

Rationalization

Consequence

Michael considered informing the DoD that he would no longer be able to work on the contract because he had found another job, but after some consideration he thought he would be able to work his new day job and also compete the research during nights and evenings. The SBIR research was for wearable technology, a topic he was every excited and passionate about, but was not part of his day job. He accepted money from the contract to begin his research.

MICHAEL STEVENSON | CEO & Chief Scientist

Intelligent Wear - Los Angeles, CA

Service offering:  Research and product development for wearable technology.

FRAUD CASE STUDY

DoD SBIR/STTR Training

Motivation

Opportunity

Rationalization

Consequence

The demands of Michael's day job caused him to fall behind on his SBIR research. When SBIR officials investigated the project they learned about Michael's day job, which he failed to disclose. Not accurately reporting the primary investigator's place of employment accurately is fraud. Michael plead guilty to one count of wire fraud, is placed on probation for three years, and must pay $133,333.00 in restitution to the Government.

MICHAEL STEVENSON | CEO & Chief Scientist

Intelligent Wear - Los Angeles, CA

Service offering:  Research and product development for wearable technology.

PUTTING IT ALL TOGETHER

So far you've learned about the many types of fraud, who is responsible for committing fraud, as well as the contribute factors. We've also seen many examples for what constitutes fraud. 

In the next section you will test your knowledge of fraud in the SBIR/STTR program. Use this time to review the course before proceeding.

TEST YOUR KNOWLEDGE

DoD SBIR/STTR Training

1. The following is true of the Principal Investigator:






Complete the question to continue.

TEST YOUR KNOWLEDGE

DoD SBIR/STTR Training

2. Subcontracting work out to another company without the government's knowledge is not considered fraud.

3. It is legal to offer proposals that are supposed to do separate work but provide identical deliverables.

4. It is not legal to certify that the company can do in-house research when it doesn't have the capability.

Complete the questions to continue.



TEST YOUR KNOWLEDGE

DoD SBIR/STTR Training

5. What can't a small business do when reporting results data?

6. Submitting research performed under a different contract is called research __________.

7. It is not fraud to charge labor and materials used to complete commercial work to an SBIR contract as long as it helps complete the SBIR research.

Complete the questions to continue.



You've finished the lesson on Fraud.

Congratulations!