AASHTO National Fraud Awareness Conference Charles Groshens, Labor Compliance Supervisor Minnesota...

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AASHTONational Fraud Awareness

Conference

Charles Groshens, Labor Compliance SupervisorMinnesota Department of Transportation

Chris Smith, Special Agent USDOT, Office of Inspector General

Mark Underwood, Supervisory InvestigatorUSDOL, Employee Benefits Security Administration

Presentation Purpose

To promote working relationships between state, local, and federal

agencies to help detect and deter fraud on federally funded highway projects.

Mn/DOT Labor Compliance Unit (LCU)

LCU’s Purpose

Assist contracting partners and construction contractors in

administering their contracts in accordance with the Federal Davis Bacon and Related Acts, Minnesota

Prevailing Wage Law and the Contract Labor Provisions.

LCU StaffAdministrationCharles Groshens, SupervisorDiane Cornjeo, Administrative Assistant

Local (County/City) Construction ProjectsClancy Finnegan, Team Leader

State Highway Construction ProjectsRobert Richards, InvestigatorWard Wheeler, InvestigatorBill Segl, Field Investigator

Building ProjectsRoxanne Farnham, Investigator

Primary Services Provided

• Oversight (Ensuring Compliance)• Development of Contract Labor

Provisions & Specifications• Contract Administration Support• Dispute Resolution Processes• Education and Outreach • Investigations and Enforcement

Mn/DOT’s Contracting Partners

• Mn/DOT Offices

• County, City Departments

• Other State Agencies

• Consulting Firms

• Construction Contractors

Investigations

Compliance Partners • Project Engineers/Project Managers• Construction Workers• Contractors /Associations• Unions• Other Interested Parties

• Fringe Fund Administrators• Private Sector Attorneys

Types of Cases• Falsification of Records• Fringe Benefit Contribution/Plan Issues• Failure to Submit Records• Labor Classification Issues• Improper Payment of Wages/Overtime• Contract Labor Provision Discrepancies• Misclassification (Employee vs. IC)

Strategies to Prevent Fraud

Procedures • Pre-Construction Conference• Project Reviews / Employee Interviews• Daily Construction Diaries• Certified Payroll & Fringe Benefit Information• Payroll Tracking System• Subcontractor Tracking System• Educational Outreach• Certification Process/Best Value Contracting

Mn/DOT Forms and Brochures• Payroll Certification Form

(w/fringe benefit information) • Request-to-Sublet Forms (w/signatures) • Month-end Truck Reports • Employee Wage Complaint Forms • Employee Right-to-Know Cards

Strategies to Uncover Fraud

Communicate with Construction Workers

Primary Procedures

• Complaint Forms - employees, others• Employee Interviews and Follow-up• Employee Right-to-Know Cards• Certified Payroll Audit• Fringe Benefit Records Audit• Review Project Documents

• Back Pay Check Process

New Technology

• Website: www.dot.state.mn.us/const/labor• Pre-Construction DVD/Video• DOT Listserv - 50 states• LCU Case Management Database System• Electronic Project Data Collection Systems• AASHTO Civil Rights and Labor

Management System (CRLMS)

CRLMS Program

• Collaborative Effort of 12 States• Production Rollout in 2009• Labor Fraud Detection

– Level 2 Payroll Rules – Level 3 Payroll Rules

• DBE Fraud Detection– Verification of DBE/Subcontractor Work – Prompt Payment Verification– DBE Analysis

Enforcement

Mn/DOT Enforcement• Withhold Funds from Primes

• Reject Future Bids

• Default and Terminate Contract

• Suspend or Debar

• Notify Bonding Companies

• Refer Investigative Findings to Partners

State & Local Partners• Labor & Industry – Administrative Procedures,

Workers’ Comp, OSHA • Department of Administration – Defaults,

Debarments• Attorney General - Administrative Hearings,

Defaults, Prosecutions, Debarments • County Attorney – Prosecution of State Statutes • Other State Agencies – Statute Enforcement• Private Sector Attorneys - Private Right-of-

Action, Legislation

Federal Partners• FHWA – Contract Compliance Actions, Debarments

• USDOL Wage & Hour – Civil Davis Bacon & Related Acts Issues, Debarments

• USDOL Employee Benefits Security Admin. – Employee Benefit Actions

• IRS – Tax Fraud

• USDOT Office of Inspector General – Falsification of Records, Collusion, General Fraud Issues

Key Things To Remember

• Identify & develop your partnerships

• Select appropriate cases to refer• Develop preliminary investigations• Continue case development with partners

• Involvement with case until completion

• Debar after completion• Exercise state options if no prosecution

Benefits of Partnering• Increased Case Resource Allocation

• Increased Investigative Staff

• Broader Knowledge of Regulations

• Additional Enforcement Remedies

• Additional Penalties

• Develop Positive Agency Relationships

• Positive Publicity & Future Deterrents

Collaborative Case Investigations

Mark Underwood, Supervisory Investigator

U.S. Department of Labor

Employee Benefits Security Administration (EBSA)

EBSA Field Offices

EBSA Responsibilities• Responsible for administering and enforcing the

fiduciary, reporting and disclosure provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA).

• ERISA administration is divided among the U.S. Department of Labor, the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC).

EBSA Activities• Criminal and civil investigations• Public disclosure of ERISA required annual

financial reports• Assistance to participants or beneficiaries regarding

benefits• Education, technical and compliance assistance• Issuing regulations under Title 1 of ERISA• Issuing interpretations under Title 1 of ERISA• Granting class or individual exemptions

Criminal Statutes Investigated by EBSA

• 29 U.S.C• 18 U.S.C• Taft-Hartley - Section 4(a)(2)

What can EBSA Bring to the Table?• Oversight Authority

• Expertise in ERISA, Retirement Plans and Health Plans

• Good Publicity

• Enforcement Assistance to Governmental Agencies

EBSA New Initiative• Collaborate with governmental contracting

authorities to ensure compliance with the Davis Bacon Act’s Fringe Benefit Regulations under Title 29 CFR Part 5 on federally funded construction projects

• The Act’s provisions require all contractors to pay workers employed directly upon the site of the work no less than the local prevailing wages and fringe benefits paid either in cash or cash & contributions to “bona fide” fringe benefit programs

“Bona Fide” Fringe Benefits• Benefits that are common to the

construction industry• Irrevocably paid directly into a fund,

plan, or program• Legally enforceable• Communicated in writing to the

employee • Available to employee upon meeting

plan eligibility requirements

Timely Deposit Fringe Benefits

• Davis-Bacon Act requires that contributions to fringe benefit plans made by a contractor must be made on a regular basis, and not less than quarterly.

• For Collectively Bargained Plans, Plan Language may dictate sooner

Jay Bros., Inc. Investigations

• A construction company owned by 2 brothers located in Forrest Lake, Minnesota

• Contracted with federal, state and local government entities

• Sponsored a 401k Plan funded by employee contributions and employer fringe contributions. Brothers were Co-trustees

Civil Investigation 1#Non-Payment of Fringe Benefits

• Dates: Early 1997 - Early 1998

• Issue: January 1997 - Third Party Administrator sends letter to Contractor about timely contributions to the 401(k) pension fund account on behalf of its employees.

– The TPA refers the issue to EBSA

– Employees filed claims with EBSA

• Outcome: Through voluntary compliance, contractor paid more than $28,521 to the Plan for delinquent employee contributions

Civil Investigation 2#Non-Payment of Fringe Benefits

• Dates: October 1999 - Mid 2000

• Issue: Employees began issuing complaints to EBSA that the company had returned to their old scheme

• Outcome: Through voluntary compliance, Jay Bros. paid $291,600 for delinquent contributions to the Plan.

EBSA/MnDOT Criminal Investigation

Non-Payment of Fringe Benefits• Dates: December 2002 – December 2006• Issue: Contractor’s payroll certification statement

indicated contributions were being made to a 401(k) pension fund account on behalf of its employees.

– Employees filed claims with both EBSA and Mn/DOT stating their online accounts showed no contributions and that the contractor once again had returned to old scheme

– A cooperative investigation was conducted by EBSA and Mn/DOT

Investigation Outcomes • On December 6, 2006 Mark and Mike Jay, along

with Jay Bros., Inc. were indicted on charges of 18 U.S.C. §2, §371, §664, §1027, and §1341.

• Facing 10 years of potential jail time and millions in restitution, each brother pled to 18 U.S.C. 1027.

• Each received 5 months incarceration, 5 months work release, 3 years probation.

Investigation Outcomes – Jay Bros

• With the felony convictions, Jay Bros., Inc., Michael Jay, and Mark Jay are now barred from being a party to any state or federal contracts

• In addition, the Court ordered Jay Bros. to pay for an independent outside monitor for the employee benefit plans to ensure compliance for 3 years

What can you provide to EBSA?

• Referrals• Manpower• Intelligence• Expertise• Coordinate Prosecution/Debarment

Contact Information

Mark UnderwoodPhone: (816) 285-1860

Email: Underwood.Mark@dol.gov

Collaborative Case Investigations

Chris Smith, Special Agent

U.S. Department of Transportation

Office of Inspector General

I. OIG Mission and Priorities

II. Investigation timeline of D&H Construction, Inc.

III. Investigation timeline of U.S. v. Minnesota Valley Landscape, Inc.

OverviewOverview

I. OIG MissionI. OIG Mission

To conduct objective audits and investigations of DOT’s programs and operations

To promote economy, effectiveness, and efficiency within DOT

To prevent and detect fraud, waste, and abuse in the Department’s programs

To review existing and proposed laws or regulations affecting the Department and make recommendations about them

To keep the Secretary of Transportation and Congress fully informed about problems in departmental programs and operations

REGION 3 –

Washington, DC

REGION 2 –

New York, NY

(Includes Puerto Rico,Virgin Islands)

(Includes Hawaii, Wake, Samoa, Guam)

NJMIWY IA

REGION 9 –

San Francisco, CA

REGION 6 –

Ft. Worth, TX

REGION 4 –

Atlanta, GA

REGION 5 –

Chicago, IL

REGION 1 –

Cambridge, MA

U.S. DOT OIGInvestigations

Regional Offices

Transportation Safety Aviation

Motor Carrier

Hazardous Material

Contract Procurement and Grant Fraud

Program and Employee Integrity

OIG Investigative OIG Investigative PrioritiesPriorities

Company Background:

Subcontractor on appr. $2M of Federal-aid-highway jobs since 1998

Exhibited a pattern of false certified payrolls

Initial estimated losses were approximately $80,000

II. D&H Construction, Inc.II. D&H Construction, Inc.

2004:February – AUSA said case looks good, do

search warrant and estimated $80,000 loss ok

February – Search warrant conducted on foreclosed D&H property

March – Target admitted in interview that he is ultimately responsible for any wrongdoing

June – Case agent was told the $90,000 estimated loss does not meet U. S. Attorneys Office (USAO) guidelines of $100K

II. D&H Construction, Inc.II. D&H Construction, Inc.Investigation TimelineInvestigation Timeline

2005:March – New estimated loss calculations of

$96,000. still not close to the newer USDOJ threshold which is “significantly into the $100,000” range

June – Final loss calculations of $105,000 less then the now $150,000 threshold at the U.S. Attorneys Office

October – AUSA stated he is inclined to declineNovember- SAC sent letter to USAO to

reconsider

2006:January – Letter of declination received citing,

among other things, that: 1) The company was no longer in business,2) The defendant did not divert substantial assets to his own personal use,3) The business records were disorganized which make the dollar loss and intent hard to prove,4) The defendant could blame misconduct on another employee.

Company Background:

Family owned landscaping company in Minnesota, David Lindstrom, Vice-President/owner

One of the biggest landscaping contractors and subcontractors on MNDOT projects

Prime contractor on $4.7 million in contracts from 1998 – 2003

Subcontractor on many other Federal and

State funded contracts

III. U.S. v. III. U.S. v. Minnesota Valley Landscape, Inc.Minnesota Valley Landscape, Inc.

2002:August - Case initiated and accepted

at USAO

2003:June – Executed search warrant on

premisesJuly – December – Interviews

conducted

III. U.S. v. III. U.S. v. Minnesota Valley Landscape, Inc. Minnesota Valley Landscape, Inc.

Investigation TimelineInvestigation Timeline

2004:January – March – AUSA said she was

discussing plea agreement with targetJune – Finalized estimated loss calculations of

$400kAugust – Defense attorney verbally agreed to

plead to an information in lieu of indictmentSeptember – AUSA became a Hennipin county

judgeNovember - USAO does not want AUSA

negotiating any plea agreements

2005:January – New AUSA assigned and

initiated contact with defense counsel

May – Target and company plead to information

2006:June – Target and company

sentenced

Plea:Plea: June 3, 2005, MVL and David Lindstrom pled to June 3, 2005, MVL and David Lindstrom pled to

once count of Conspiracy, 18 U.S.C. § 371 for once count of Conspiracy, 18 U.S.C. § 371 for conspiring to defraud the U.S. Government and conspiring to defraud the U.S. Government and MNDOT by filing false reports for its over 150 MNDOT by filing false reports for its over 150 employees over a time period of 7 years (1996-employees over a time period of 7 years (1996-2002)2002)

Sentence:Sentence: June 20, 2006, MVL and Lindstrom ordered to pay June 20, 2006, MVL and Lindstrom ordered to pay

restitution of $396, 257.62 to their employeesrestitution of $396, 257.62 to their employees Lindstrom sentenced to 18 months in jail and a Lindstrom sentenced to 18 months in jail and a

$4,000 fine$4,000 fine

III. U.S. v. III. U.S. v. Minnesota Valley Landscape, Inc.Minnesota Valley Landscape, Inc.

Prosecution SummaryProsecution Summary

Questions?Questions?

Chris Smith, Special Agent(312) 353-0106

Chris.R.Smith@oig.dot.gov

Or visit OIG’s web site: www.oig.dot.gov