How to Spot Fraud in Government Contracts

How to Spot Fraud in Government Contracts

Government contracts involve big money, so it’s important to watch out for fraud. Here’s some tips on how to spot red flags and protect taxpayer dollars.

Know the Law

There are specific laws against defrauding the government that don’t apply to private contracts. The main one is the False Claims Act, which prohibits knowingly submitting false claims for payment. Violations can lead to huge fines and jail time. So it’s critical for contractors to understand these laws and avoid even unintentional violations.

Look for Common Schemes

Some types of fraud are unfortunately common with government contracts:

• Billing for work that wasn’t performed
• Charging for substandard materials or products
• Inflating costs
• Falsifying test results
• Misrepresenting qualifications

Contractors may figure the government won’t notice or care if they pad invoices or cut corners. But don’t be fooled – auditors take fraud seriously.

Scrutinize Bids

An unusually low bid can be a red flag for fraud. A contractor might bid low to win the contract, knowing they’ll make up the difference through fraudulent billing down the road. So compare all bids closely and be skeptical of those that seem too good to be true.

Review Invoices Closely

Don’t just rubber stamp contractor invoices. Review line items closely and ask questions about anything that looks suspicious or unclear. Require detailed invoices with exact dates and hours worked. Watch for things like billing at senior engineer rates for junior staff.

Conduct Site Inspections

For construction projects and the like, do periodic site inspections to verify work quality and progress matches the invoices. Are there as many workers on site as claimed? Do materials look like what was promised? Document any discrepancies.

Talk to Employees

Confidentially interview the contractor’s staff, especially those in billing and accounting roles. Ask if they’ve witnessed any concerning practices. Employees who know of fraud may be willing to anonymously report it.

Follow the Paper Trail

Request documentation like timecards, requisitions, expense reports, and subcontractor invoices. Verify that documents don’t look altered or fabricated. Watch for missing records too.

Trust Your Instincts

If something about the contractor or billing just seems “off,” investigate further. Don’t ignore red flags just because you lack hard proof. Report any concerns to auditors or investigators.

Enforce Contract Terms

Make sure the contract has strong anti-fraud provisions, like allowing audits and barring fraudulent contractors from future work. Enforce these terms consistently – no exceptions.

Provide Reporting Channels

Have anonymous fraud reporting hotlines and whistleblower policies, so employees and the public can report suspicious activity safely.

Cooperate Fully with Investigations

If auditors or law enforcement suspect fraud, provide complete cooperation. Hiding issues can compound legal exposure down the road.

Conduct Thorough Due Diligence

Vet contractors thoroughly upfront and perform background checks. Look for red flags in past government work like suspensions or legal issues. Avoid contractors with sketchy track records.

Train Employees

Educate employees involved in contracting and oversight on common fraud schemes, warning signs, and reporting procedures. Prevention through vigilance is key.

With billions spent on government contracts each year, fraud unfortunately happens. But staying alert to red flags, enforcing strong contract terms, and cooperating fully with investigations can help protect taxpayer funds.

References

False Claims Act Overview
GAO Guide for Auditing and Investigating Fraud
False Statements and False Claims