What is Government Fraud?
Funds of the Federal government are considered to be a restricted resource. This money is limited to the benefit of special areas such as homeland security, national defense, natural disaster relief and various social issues. Over the last few years, federal contracts were a significant part of the country's discretionary budget. Between the years of 2000 and 2005, procurement spending increased 86%, nearly double that of the discretionary spending which increased by 43%.
According to the United States DOJ (Department of Justice), reported statistics for the fiscal year which ended on September 30, 2005 declared that the U.S. redeemed well over 1.4 billion dollars in the way of judgements and settlements involving allegations of fraud. This number increased to nearly 3.1 billion dollars for the fiscal year ending on September 30, 2006.
Government related fraud such as illicit procurement spending, not only takes money from the country, but also threatens our safety and national defense, cheats hard working taxpayers, and reduces consumer ability to obtain important goods and services. What has proceeded this disturbing fallout is much discussion about the various types of government fraud and what is currently being done to detect and prevent it.
Contract Fraud
One of the most common types of fraud involves the misuse of government issued contracts. The probability is strong in areas such as defective pricing, cost mis-charging schemes, antitrust violations and process payment scams.
The practice of defective pricing consists of knowingly using inaccurate or outdated cost data to inflate prices. As declared by the Truth in Negotiations Act, contractors are required to submit cost data before negotiations begin. They must also certify that this data is correct, complete and current. When a contractor is found submitting defective cost data, the government is then entitled to a price reduction under the contract clause. This makes the contractor responsible for the overpayment as well as interest calculated from the date of the over overpayment up to the date the government is reimbursed.
Telltale signs of Government Fraud
Fraudulent signs in defective pricing include the following:
• the submission or alteration of cost data
• the failure to update pricing data when prior activity indicates a price deflation
• failure to disclose any data known to assigned contractor personnel
• alteration of baseline data or overhead accounts by transferring accounts or charges that have a direct impact on government issued contracts
• a protracted delay in the release of information to the government to preclude probable cost reductions
• submitting any fraudulent documentation
• the failure to disclose any relative vendor discounts or internal documents
• the failure to disclose the actual costs associated with follow-up contracts
The increased spending on government contracts has greatly magnified the threat of procurement fraud and many other schemes. Due to the large amount of funds being misused, taxpayers are well deserving of a solution that puts a stop to this issue, one the government has responded to. The attention given to methods able to detect and prevent government fraud is rather justifiable considering that money spent on federal contracts has drastically increased over the years. The successful recovery in judgements and settlements from cases involving fraud has provided incentive for the U.S. government and civilians as well.
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