Green Grants and Grantees are now in #GFPFE crosshairs and there is no bag limit

The Economist’s handy graph showing the breakdown of the Trump Administration’s Proposed Budget shows in stark budgetary terms what US government agencies are facing.  I have reviewed the proposed budget and have concluded that it is the strongest indicator yet that the Trump Administration intends to reinvigorate Grant Fraud and Procurement Fraud Enforcement (#GFPFE).  The graph shows a change in overall agency funding and portends an intra-agency reorientation that is likely to effect grantees or contractors that have been awarded or are currently working on Grants or Contracts awarded by Environmental Protection Agency (EPA) or Department of Energy (Energy).

Let’s review:

  • Review and Recap of Current Posture:

I have previously laid out  here out about why conditions are perfect for a renaissance in Grant Fraud and Procurement Fraud Enforcement (GFPFE). I took the Department of Energy’s enforcement temperature here, I looked at an EPA-OIG audit of laboratories here, and I noticed a NASA-OIG audit announcement of ground and ocean temperatures here. Last week there was an NPR story on case by case review of individual EPA scientists while newly minted EPA Administer Scott Pruitt made statements here questioning the connection between human activity and climate change while raising questions about the measurement of global temperatures. Then a top level EPA transition official, David Schnare, resigned, but not before acknowledging that while ” the vast majority of career staff at the EPA… are dedicated public servants,…there are a small handful “who were definitely antagonistic” to Trump and Administrator Scott Pruitt. “They’re here for some other reason. They’re here for a cause,” he was quoted as saying in The Hill.

  • Presidential Shift in Priorities Always Wins:

EPA career civil servants who think nobility of purpose protects them in the face of an overwhelming Presidential Administration shift in priorities should pay a visit to the Antitrust Division’s field offices in Atlanta, Cleveland, Dallas and Philadelphia (punch line: they no longer exist).  The Antitrust Division Criminal Program’s Senior Litigators, who woke up on 911 in the World Trade Center Marriott, eagerly supported a GFPFE initiative whose purpose was to “protect the supply chain of goods and services to the nation’s warfighter.” Their tireless work and willingness to support other components of USDOJ in GFPFE efforts became a liability when a new Presidential Administration changed the definition of success from number of cases filed to the number of cases not filed (for anyone wanting to learn about the important competition enforcement function Antitrust Division Field Offices performed can start with the dearly departed Philadelphia Field Office’s Chief Robert E Connolly’s column here). The bottom line is Presidential shift in priorities always wins over perceived nobility of purpose of career public servants.

  • Nobility of Purpose in combatting CO2 is going to be challenged

I know it will come as a shock to many, but there are many scientists–legitimate scientists–who do not come to the same conclusions about the connection between rising CO2 levels and rising temperatures.  I have no idea what the truth is, but I recognize that when you have a President and heads of the EPA and Energy who doubt the warming narrative and view expenditures in that regard to be a waste of money. It would behoove everyone in the risk assessment business to understand what they think and read what they read.  If you restrict your news to the Washington Post and the New York Times, you are flying blind.  Worse, your clients will be flying blind. It is important to recognize that the outgoing administration saw this coming and adorned future budgets with global warming money that will be hard to cut out.  That will stimulate efforts to try.

  • Let’s Look At the Proposed Budget for Department of Energy:

The preamble states:

[The Budget] reflects an increased reliance on the private sector to fund later-stage research, development, and commercialization of energy technologies and focuses resources toward early-stage research and development. It emphasizes energy technologies best positioned to enable American energy independence and domestic job-growth in the near to mid-term.

My translation: Grants for developing green technologies are drying up.  No more Solyndras.

The preamble states:

It also ensures continued progress on cleaning up sites contaminated from nuclear weapons production and energy research and includes a path forward to accelerate progress on the disposition of nuclear waste. At the same time,the Budget demonstrates the Administration’s strong support for the UnitedStates’ nuclear security enterprise and ensures that we have a nuclear force that is second to none. The President’s 2018 Budget requests $28.0 billion for DOE, a$1.7 billion or 5.6  percent decrease from the 2017 annualized CR level. The Budget would strengthen the Nation’s nuclear capability by providing a $1.4 billion increase above the 2017 annualized CR level for the National Nuclear SecurityAdministration, an 11 percent increase.

My translation: Grants for development of nuclear energy capabilities and military nuclear applications are back in vogue.  $6.5 billion in clean-up funds will be oriented towards nuclear.  The important factor to consider is that, in all likelihood, this changes the mix of responsive contractors.

  • Let’s look at EPA proposed budget:

The Compliance Assurance budget is lowered to $419 million, which is $129 million below the 2017 annualized CR level. It “better targets” EPA’s Office of Research and Development (ORD) at a level of approximately $250 million, which would result in a savings of $233 million from the 2017 annualized CR level. ORD would prioritize activities that support decision-making related to core environmental statutory requirements, as opposed to extramural activities, such as providing STAR grants.

It supports Categorical Grants with $597 million, a $482 million reduction below 2017 annualized CR levels. These lower levels are in line with the broader strategy of streamlining environmental protection. This funding level eliminates or substantially reduces Federal investment in State environmental activities that go beyond EPA’s statutory requirements.

It eliminates funding for specific regional efforts such as the Great Lakes Restoration Initiative, the Chesapeake Bay, and other geographic programs. These geographic program eliminations are $427 million lower than the 2017 annualized CR levels. The Budget returns the responsibility for funding local environmental efforts and programs to State and local entities, allowing EPA to focus on its highest national priorities.

It eliminates more than 50 EPA programs, saving an additional $347 million compared to the2017 annualized CR level.

My translation: Grants for development of green technologies and reducing CO2 emissions are slashed.  EPA is being oriented around traditional toxins to land, water and air.  Its administration of $100 million to fix Flint Michigan’s water problems and orientation around poisoning will help with the repositioning. 

So while Energy moves onto new contractors for a nuclear spend, EPA moves towards traditional environmental problems and even NASA will now move, happily for many, toward an ambitious space program, all three agencies move away from green and CO2 mitigation programs.  Current contractors and grantees in these areas have a dual problem.  First, the funding in these areas is drying up.  Second, any problems that are found in the award or administration of grants or contracts in these now shuttered programs have a lower risk of causing collateral damage to supporters of the new Administration and they undermine the case against shuttering those programs.  Within the investigative agent community and auditing community examining procurements and grants in these shuttered program areas, investigation carries even lower risk and even higher reward (imagine how an indictment early next week alleging a massive fraud scheme involving a company that had been administering a major grant would be received by the Administration that is looking to justify a shift in funding priorities).  Investigative agents, many of whom in the prior Administration felt professionally stunted because of managerial interference against developing fraud and corruption cases have now been unshackled.  Inquiries that could never blossom into full blown investigations using IG subpoenas and active grand juries can now be taken out from from the back of desk drawers or they can be reopened with the support of career mid-level management looking to take action that will be looked upon favorably when the permanent Inspector General arrives later in the year.

 

USDOJ Grants and Grantees now in the Crosshairs

We see continuing signs of reinvigorated grant fraud enforcement.  The latest submisison involves a long simmering dispute that has resurfaced involving corporate fines that are recovered, allocated and spent by USDOJ.  USDOJ grants have been a source of frustration for supporters of the current Administration and some believe that white collar enforcement suffered as perverse incentives encouraged the offsets of criminal cases and terms of imprisonment in favor of large recoveries of fines from corporations (Does anyone from the cartel world recall the furious whispers about this case?).  Now there seems to be Trump Administration-led push to shine a media spotlight on USDOJ grants.  Typically, this foreshadows official actions:

Last night Former Arkansas Governor Mike Huckabee was on Fox News discussing the issue speaking in bellicose terms. This accompanied various news articles that covered various aspects of the dispute.

Today on Fox News there is a lengthy piece on the subject with sub links:

“It’s clear partisan politics played a role in the illicit actions that were made,” Rep. John Ratcliffe, R-Texas, told Fox News. “The DOJ is the last place this should have occurred.

Findings spearheaded by the House Judiciary Committee point to a process shrouded in secrecy whereby monies were distributed to a labyrinth of nonprofit organizations involved with grass-roots activism.”

To see how far some have delved into this issue, check out this google search.  You have to go to less established media sources like this InfoWars article referencing State Department grants to get a sense of where this could lead (some will need to don protective suits–oh what we have to do for risk analysis!).  Since there was not as much reporting as there could have been, it is likely this issue could get significant play now. There is also likely to be a convergence effect when problems in one grant tranch from one agency  spills over into other grant programs.

This latest resurfacing of this issue by White House allies suggests a trend and it will likely add to calls for a significant realignment of DOJ on the left side of the org chart and also in its mission in terms of how it helps victims. Particularly vulnerable to significant reform are CRS, OJP, COPS, Office of Violence Against Women (grants) (biannual report) and Office of Access to Justice.  Obviously, grants and grantees will be a subject of interest as well.

I have referenced a prior DOJ IG 2016 civil case here.  Designating an enforcement priority can change whether a case is criminal or civil because criminal investigation assets redeploy and there is often a multiplier effect because the combination of criminal and civil enforcement assets allows for parallel investigations.  Overnight,  a larger swath of FBI agents start trolling for footholds in grants or procurement areas.  Not good.  When investigators expand the duration or number of grants reviewed, when they send agents to do coordinated interviews while serving grand jury and inspector general subpoenas and when AUSA’s start calling witnesses before traditional grand jury investigations, things can change fast.

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Procurement Fraud and Grant Fraud enforcement programs are likely to be revitalized by the Trump Administration.

It’s no shock that a political change in the Executive Branch leads to an increase in grant fraud and procurement fraud enforcement. The reason? There is low risk in scrutinizing grants and contracts awarded by the outgoing administration. Whatever shenanigans are discovered by a new Administration will have occurred during the term of the previous administration and any negative economic impacts from pulling a grant or imposing a fine, will only impact the grant recipient and, potentially, its subcontractors, who are often presumed by an incoming Administration to have stronger ties to its predecessor.

Imagine you are a high-level Department of Justice official in a new administration positioned to deploy resources toward matters you believe most merit investigation and possible prosecution.  You will need to work on accomplishing the new Administrations mission as well as continue to satisfy your existing management chain with positive results.  What is the best way to move forward in this environment.

The most obvious way is to go after the low-hanging fruit: to aim the enforcement initiative at situations in which there is a high risk/reward ratio. Nowhere in white collar enforcement, is this ratio more favorable than in the realm of grant fraud and procurement fraud enforcement (GFPFE). Contributing to the richness of this area from an enforcement standpoint is that since 2009 the enforcement apparatus adopted a rigid prevention model, decreased the number of federal agents developing cases, increased barriers between the investigations and audit components of the Office of Inspector Generals (OIG’s) and made it more difficult to engage in aggressive or effective GFPFE.[1] This shift away from effective GFPFE in 2009 coincided with the largest spending increase in government history so it stands to reason there will be plenty of cases worth developing.

* * * Click Here for the Rest of the #GFPFE Analysis * * *

 

Department of Energy OIG Enforcement under a Trump Administration

The United States Department of Energy (DOE) is a Cabinet-level department of the United States Government. Its responsibilities include the nation’s nuclear weapons program, nuclear reactor production for the United States Navyenergy conservation, energy-related research, radioactive waste disposal, and domestic energy production. It also directs research in genomics; the Human Genome Project originated in an iniative between DOE, NIH and international collaborators.  DOE sponsors more research in the physical sciences than any other U.S. federal agency, the majority of which is conducted through its system of National Laboratories.

Former Governor of Texas Rick Perry has been nominated as the next Secretary of Energy, and a vote is anticipated in the next few weeks.  April Stephenson currently serves as Acting Inspector General United States Secretary of Energy and will continue to head the department,  unless Secretary Perry makes a change. As a practical matter, DOE is unlikely to get a permanent Inspector General installed for many months. This means that its roughly 70 investigative agents in roughly 12 US cities will engage in enforcement that is somewhat skewed by perceptions about what a future Secretary of Energy will want.  For these reasons, I would project that investigative agents will believe they will ultimately receive more overhead support for investigations developed now.

Based on basic familiarity with DOE contracts and DOE-OIG investigative activity in the past as well as reasonable assumptions about how agents will interpret statements made by Trump Administration officials, I see three primary areas where agents will likely focus current efforts to develop cases:

1) Clean-up Sites.

Clean-up sites are viewed as cash cows with poor oversight.  I have lost track of how many there are, but there are  more than half a dozen prime ones including Hanford, Idaho Falls and Savanah River.  The Hanford site is an example of a site that has had longstanding troubles.  CH2MHill took a hit back in 2013 for an $18.5 million qui tam and, just recently, at the same site, BNI and URS agreed to  pay $125 Million for false claims regarding deficient nuclear quality procurements and improper payments to lobby Congress.  Internal conjecture is that there are more false claims being made at these and at other clean-up sites and it would behoove any companies involved at these sites to brush up on compliance and internally investigate around vulnerabilities or weaknesses.

2) Management and Operational (M&O) Contracts

Management Operations Contractors, whether deserved or not, are a source of frustration to enforcers.  These are huge, large dollar volume contracts that are viewed by enforcers as having poor oversight.  Other sources of frustration is that enforcers believe that they have no visibility with indirect contractors.  This feeling is even generally held in regard to direct contractors where transparency is lacking and contractors are perceived as foot dragging.  Because of lack of appetite in some US Attorney’s Offices for these complex investigations, there was less support in the past few years than perhaps there could have been, but I believe this will begin to change as the Trump Administrations enforcement priorities becomes more clear.

3) Green Grants

Although these are smaller dollar volume contracts, legal theories are easier to fashion around bite-sized grants and the story around each is usually more accessible to prosecutors and potential juries.  There is lingering resentment that politics adversely affected investigations that adversely impacted potential prosecutions (see Solyndra as an often cited example in the opinion of some) and there is a view among enforcers that investigations involving more than $2 billion in green grants and associated loans guaranteed by the government were never pursued appropriately.

* * * * * Here for the Rest of the Story * * * * * 

 

Bradford Geyer explains we need to keep an eye on #OIG audits

Bradford Geyer has seen an enforcement agency storm forming around government grants and government procurement and he argues that contractors and grantees would be well served to keep an eye on OIG audit reports that often telegraph enforcement activity.  He provides a quick primer regarding a Department of State Office of Inspector General Audit Report regarding Armored Vehicles below:

For reasons I hope to explain more fully in a future column,  there could be a perfect storm forming for reinvigorated grant fraud and procurement fraud enforcement (GFPFE) in a Trump Adminisitration. Assuming that is the case, and we wont know for sure for at least another six months, it becomes very important to keep an eye on OIG audits like this one (DOS-OIG Armored Car Audit Report) because audit reports can signal the deployment of investigative resources.  Audits can also become a platform for an expanded enforcement initiative or provide a low cost basis for new investigative activity even by other agencies.  Armored vehicles is a product market where the government has found procurement problems for close to 15 years and government enforcement agencies have had success at bringing cases in these areas.  This is a toxic mix for contractors who should consider doing internal investigations and brushing up on their compliance programs.  If they find a problem they should carefully consider a voluntary disclsoure to the appropriate agency(ies).

Click Here for the Rest of the Story

Compliance: it starts at the top

GeyerGorey LLP draws upon Janet Labuda’s contacts and experience to understand trade enforcement trends.  Here she is with her latest on the importance of compliance. Janet can be reached at the FormerFedsGroup.

By Janet.Labuda@FormerFedsGroup.Com

Whether you are a small to medium sized enterprise, or a large multinational corporation, creating a culture of compliance starts at the top. This compliance culture should permeate your entire organization starting with the Chief Executive, the Chief Financial Officer, and the corporate counsel.

Compliance is not something that can be compartmentalized, rather, it must be ingrained in the consciousness of every employee from the executive suite to the shop floor. This is one area where a top down driven process is vital. The compliance officer is responsible for implementing the compliance focused program that is established by the corporate ownership and top management.

However, all aspects of the company, whether sourcing, transportation, production, marketing, or sales must work together to support the compliance operation. Leaving just the compliance office to establish the ethic and carry the entire company is an accident waiting to happen.

I often hear that various departments in a company do not understand the compliance aspect of the operation, which sometimes leads them to negate the guidance of the compliance department.  This can lead a company down a slippery slope.

The corporate culture must embrace compliance across the entire company and all must understand the risk of potential regulatory violations.  A once a year training program is not going to cut it.  Compliance is something that everyone must  live, day in and day out.  Workplace evaluations should include a compliance segment for each and every employee. Every department head needs to understand and communicate compliance procedures to their direct reports.

The compliance department must keep a finger on the pulse of risk.  The compliance officer should be responsible for communicating these risks throughout the organization and information should be refreshed and disseminated as often as necessary.  To this end, the CEO must make time for compliance officers, and not leave this critical function on auto-pilot.

Once a vibrant internal compliance driven operation is rooted in the day-to-day operation, companies must push their ethic out to their entire supply chain.  This includes interaction with foreign suppliers, agents, and transporters.  Everyone in the supply chain needs to understand that by doing business with your company, they accept the strict standards that support adherence to the laws and regulations governing trade and all aspects of how the business conducts itself.  This should be reflected in all corporate negotiations, contracts, and purchasing agreements.

By taking this position, senior corporate management supports the highest levels of business ethics and integrity throughout the supply chain.  Compliance is not a skate on thin ice, or a fly by the seat of your pants exercise.  A culture of compliance provides that  sure footing needed when regul

Trade compliance–why bother?

by Janet Labuda

I worked in Customs for over thirty years and met regularly with importers to discuss trade risk, compliance, and enforcement. Often, companies would express their concerns about the cost of compliance–the proverbial cost benefit analysis. If money is spent to create a compliance department, what will the benefits be? Do the risks of possibly getting caught by Customs outweigh the investment in corporate trade compliance? How can there be an effective response to risk without the associated high costs?

Just as with most things, there are rules that govern our behavior. When we drive to work there are lane markings on major thoroughfares, and traffic light systems, and posted speed limits to guide us in an orderly fashion. The same can be said for international trade rules. They are meant to make order out of potential chaos. No person or company can operate successfully in an atmosphere of chaos. Business seeks out predictability, and stability. The rules and regulations governing trade provide a needed stable structure that can help companies weather shifts in the global economy or changes to the legal or regulatory framework.

More importantly, the rules help to level the playing field, and enhance and improve the competitive business dynamic. When companies fail to operate using these rules the underpinnings of trade policy collapse. Trade preference program become endangered, national economies become threatened, sourcing models get upended, business relationships are uprooted.

In addition, companies can get swept up in enforcement actions. Customs assesses risk using somewhat broad parameters. It could be driven by product, country of origin, manufacturer, preferential trade program usage, or combinations of these elements. There are also those instances when very specific information reaches the agency.

The better question to ask is what price is paid if my company does not invest in a culture of compliance? Getting enmeshed in Customs or other regulatory enforcement actions can tarnish your brand, lead to expensive law suits and penalty actions, and divert your resources away from your corporate mission and goals.

Ensuring a strong compliance structure in your organization ensures greater facilitation of product entering the commerce which supports just in time inventory practices. Costs are reduced for both government and business by focusing limited resources to enhancing productivity. A compliance driven operation is a win-win.

Latest GrantFraud.Com post involves a $200 million credit card fraud scheme

Bradford L. Geyer is reading enforcement agency tea leaves and he is seeing signs of enhanced enforcement involving grant fraud and procurement fraud at grantfraud.com.  His latest note regarding an extensive credit card fraud scheme can be found here.

Who’s driving your trade compliance bus?

We are including a column by Janet Labuda of the FormerFedsGroup which has supported GeyerGorey LLP with investigative and compliance resources and helps FormerFedsGroup clients on compliance issues involving international trade and Customs matters. I will oversee FormerFedsGroup trade compliance training programs and set the protocols of the PerfectShield (TM) certification process.

By Janet Labuda

The short answer to the question who’s driving the compliance bus is your corporate compliance department. The driver’s seat, should not be filled with personnel from your transportation and logistics operation, the sourcing, or import management groups. All parts of your organization need to be involved in your culture of compliance, but the compliance department is where the rubber meets the road, so it should be staffed with highly focused compliance experts. Companies also should ensure that Customs is not in your driver’s seat.

In 1993, the U.S. Congress amended the Tariff Act of 1930 by enacting, as part of the North American Free Trade Agreement, the Customs Modernization Act (Mod Act). Inherent in the legislation was a shift of responsibility, to the importer, to ensure that imports are compliant. In addition, a series of recordkeeping requirements with tough penalty provisions were established. The Mod Act also introduced the two concepts of informed compliance and reasonable care into the legal and trade lexicon. Customs must explain the rules, and importers, and others in the trade community, must take care to understand and follow the rules.

The legislation gave the bus key to the importers. But, an important thing to remember is that although, the importers are driving the compliance bus, the route is dictated by Customs. Most times importers find that they do not travel on the most direct route. Often, there are bumps in the road and unexpected detours. You must be prepared for these inevitabilities.

Over the last few weeks, it has become obvious that international trade will be a priority for U.S. policy makers. The trade community can expect a greater emphasis on the enforcement of laws and regulations, and possible changes to current trade legislation, especially as it relates to preferential access to U.S. markets. Our traditional trade relationships will be tried and tested, and may see unexpected changes to the current norm.

From past experience, the federal government pendulum tends to swing in wide and sweeping arcs. Establishing a predictable balance can be difficult to achieve as guidance and focus shift. Often, the importing community gets caught in the middle.

The time for doing some critical introspection is now. Do not allow your company to be caught off guard. The following recommendations are ways your company can engage in upgrading your bus’s safety and navigation systems:

  1. Put yourself in Customs shoes and do a complete review of your operations and document how you believe your company is meeting a reasonable care standard.
  1. Enhance your corporate internal controls, as needed.
  1. Ensure a transparent and understandable supply chain for all phases of your overseas production.
  1. Don’t fly under the radar screen. Develop a regular outreach to Customs and other federal regulatory agencies.
  1. Review your business relationships to guarantee that there is an understanding that compliance is key to working with your company.
  1. Become a CTPAT tier three partner or an Authorized Economic Operator, and keep abreast of Customs Trusted Trader programs.
  1. Work closely with a professional broker to navigate complex trade issues. A broker dedicated to compliance is a force multiplier for your company.
  1. Understand the nature of any perceived risk, e.g., forced labor, anti-dumping circumvention, trade preference non-compliance, and how your products and partners might be affected by such risk.
  1. Review your sourcing strategies in light of the potential risk you identify.
  1. If you uncover a problem seek legal advice on the best way to move forward to mitigate any potential downstream penalties.
  1. Ensure that all corporate departments are pulling in the compliance direction.
  1. Provide regular compliance training throughout the company.
  1. Work through industry associations to have your voice heard when changes in government policies and procedures affect your business model.

Start your engines, buckle up, and try to enjoy the ride.

GrantFraud.Com: Former DOD Employee Sentenced for GSA Advantage thefts

As part of our effort to track white collar enforcement trends with the new Administration we will be tracking developments in grant fraud enforcement and procurement fraud enforcement over at GrantFraud.Com that is under construction and open.  You may click the title below to see a new grant fraud case filing involving GSA Advantage theft.  As is often the case between election and inauguration, career employees under “acting” top managers start to react to perceptions about what the new Administration’s enforcemenet priorities will be.  For a variety of reasons that Brad Geyer will be blogging about, we are projecting emboldened grant fraud and procurement fraud enforcement moving forward

Former DOD Employee Sentenced for GSA Advantage thefts