False/Inflated Invoices on Government Subcontract Leads to Fines and Jail Time for Executives

On September 9, 2009 the Department of Justice (DOJ) released a press release announcing that Delmar Spier (CEO of United States Protection and Investigations, LLC (USPI) and his wife Barbara Spier (President of USPI) had entered guilty pleas in the U.S. District Court (District of Columbia) for conspiracy, major fraud, and wire fraud in connection with USPI's subcontract with the U.S. Agency for International Development's (US AID) rebuilding efforts in Afghanistan. USPI provided security and protection services to a US AID contractor under a cost plus fixed fee contract. This contract type requires the contractor to invoice only for the actual costs it incurs, subject to the allowability criteria of FAR Part 31.2. USPI invoiced its prime contractor for "inflated expenses ... for rental vehicles, fuel and security personnel [and for] fabricate[d] invoices from fictitious companies..." over a period of four years, from June 2003 to July 2007. According to the DOJ press release, the fraud was worth $3 million, which the Spiers agreed to disgorge back to the U.S. government.

Sentencing has yet to occur, but the press release notes that "The conspiracy charge carries a maximum sentence of five years in prison and a $250,000 fine. The charge of wire fraud carries a maximum sentence of 20 years in prison and a $250,000 fine. The charge of major fraud carries a maximum sentence of 10 years and a $1 million fine." Two other USPI employees were indicted along with the Spiers; one of those employees (William Dupre) is scheduled to be tried in December 2009.

See the DOJ press release here.

This is a timely reminder that corporate executives will be held responsible for violations of Federal statutes and regulations in connection with the contracts they receive, and that compliance is almost always the less expensive option. Moreover, prime contractors are responsible for providing oversight over the activities of their subcontractors, particularly when those subcontractors have cost-reimbursement contract types.

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