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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
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
NDMN
SD
NB
KS MO
WI
IL
KY
IN
(Includes Puerto Rico,Virgin Islands)
(Includes Hawaii, Wake, Samoa, Guam)
MT
ID
WA
OR
CA
NV
AZ
UT
NM
TX
OKAR
LA
FL
GAAL
MS
TN NC
SC
VA
WV
MD
PA
NY CN
MAs
VE
ME
OH
RI
DE
AK
NH
NJMIWY IA
REGION 9 –
San Francisco, CA
REGION 6 –
Ft. Worth, TX
REGION 4 –
Atlanta, GA
REGION 5 –
Chicago, IL
REGION 1 –
Cambridge, MA
CO
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
II. D&H Construction, Inc.II. D&H Construction, Inc.Investigation TimelineInvestigation Timeline
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.
II. D&H Construction, Inc.II. D&H Construction, Inc.Investigation TimelineInvestigation Timeline
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
III. U.S. v. III. U.S. v. Minnesota Valley Landscape, Inc. Minnesota Valley Landscape, Inc.
Investigation TimelineInvestigation Timeline
2005:January – New AUSA assigned and
initiated contact with defense counsel
May – Target and company plead to information
2006:June – Target and company
sentenced
III. U.S. v. III. U.S. v. Minnesota Valley Landscape, Inc. Minnesota Valley Landscape, Inc.
Investigation TimelineInvestigation Timeline
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
Or visit OIG’s web site: www.oig.dot.gov
