DoD SBIR/STTR Training
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.
Individuals attempting to defraud the DoD can include contractors, subcontractors, civilian employees, and individual service members.
DoD SBIR/STTR Training
The ability to commit fraud. This also means that internal controls used to prevent fraud are either weak or nonexistent
The ability to persuade yourself that something that is otherwise wrong is okay to do or act on
The pressure or need felt by the individual to commit fraud
DoD SBIR/STTR Training
DoD SBIR/STTR Training
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
DoD SBIR/STTR Training
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.
DoD SBIR/STTR Training
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
DoD SBIR/STTR Training
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.
DoD SBIR/STTR Training
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
DoD SBIR/STTR Training
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.
DoD SBIR/STTR Training
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
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
DoD SBIR/STTR Training
Hint: main types of fraud are Misrepresentations or factual omissions, Misrepresentations of expended funds, Misuse of SBIR award funds, Duplication of Funds
Complete the activity to continue.
DoD SBIR/STTR Training
DoD SBIR/STTR Training
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)
DoD SBIR/STTR Training
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.
DoD SBIR/STTR Training
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.
DoD SBIR/STTR Training
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.
DoD SBIR/STTR Training
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.
Follow the contracting officer's guidance exactly.
CBS Enterprises - Topeka, KS
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.
CBS Enterprises - Topeka, KS
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.
CBS Enterprises - Topeka, KS
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.
CBS Enterprises - Topeka, KS
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.
CBS Enterprises - Topeka, KS
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.
Insight Enterprises - Dublin, OH
DoD SBIR/STTR Training
Service offering: innovative systems, products, and solutions for small to medium telecom projects.
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.
Insight Enterprises - Dublin, OH
Service offering: innovative systems, products, and solutions for small to medium telecom projects.
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.
Insight Enterprises - Dublin, OH
Service offering: innovative systems, products, and solutions for small to medium telecom projects.
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.
Insight Enterprises - Dublin, OH
Service offering: innovative systems, products, and solutions for small to medium telecom projects.
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.
Insight Enterprises - Dublin, OH
Service offering: innovative systems, products, and solutions for small to medium telecom projects.
DoD SBIR/STTR Training
Intelligent Wear - Los Angeles, CA
Service offering: Research and product development for wearable technology.
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.
Intelligent Wear - Los Angeles, CA
Service offering: Research and product development for wearable technology.
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.
Intelligent Wear - Los Angeles, CA
Service offering: Research and product development for wearable technology.
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.
Intelligent Wear - Los Angeles, CA
Service offering: Research and product development for wearable technology.
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.
Intelligent Wear - Los Angeles, CA
Service offering: Research and product development for wearable technology.
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.
DoD SBIR/STTR Training
Complete the question to continue.
DoD SBIR/STTR Training
Complete the questions to continue.
DoD SBIR/STTR Training
Complete the questions to continue.