1. AASHTO National Fraud Awareness Conference
Charles Groshens, Labor Compliance Supervisor
Minnesota Department of Transportation
Chris Smith, Special Agent USDOT, Office of Inspector General
Mark Underwood, Supervisory Investigator
USDOL, Employee Benefits Security Administration

2. Presentation Purpose
To promote working relationships between state, local, and federal agencies to help detect and deter fraud on federally funded highway projects.

3. Mn/DOT Labor Compliance Unit (LCU)

4. 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.

5. LCU Staff Administration Local (County/City) Construction Projects
Charles Groshens, Supervisor
Diane Cornjeo, Administrative Assistant
Local (County/City) Construction Projects
Clancy Finnegan, Team Leader
State Highway Construction Projects
Robert Richards, Investigator
Ward Wheeler, Investigator
Bill Segl, Field Investigator
Building Projects
Roxanne Farnham, Investigator

6. Primary Services Provided
Oversight (Ensuring Compliance)
Development of Contract Labor Provisions & Specifications
Contract Administration Support
Dispute Resolution Processes
Education and Outreach
Investigations and Enforcement

7. Mn/DOT’s Contracting Partners
Mn/DOT Offices
County, City Departments
Other State Agencies
Consulting Firms
Construction Contractors

8. Investigations

9. Compliance Partners
Project Engineers/Project Managers
Construction Workers
Contractors /Associations
Unions
Other Interested Parties
Fringe Fund Administrators
Private Sector Attorneys

10. 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)

12. Strategies to Prevent Fraud

13. 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

14. 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

15. Strategies to Uncover Fraud

16. Communicate with Construction Workers

17. 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

18. 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)

19. Collaborative Effort of 12 States Production Rollout in 2009
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

20. Enforcement

22. 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

23. 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

24. 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

25. 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

26. 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

27. Collaborative Case Investigations Mark Underwood, Supervisory Investigator U.S. Department of Labor Employee Benefits Security Administration (EBSA)

28. EBSA Field Offices

29. 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).

30. 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

31. Criminal Statutes Investigated by EBSA
29 U.S.C
18 U.S.C
Taft-Hartley - Section 4(a)(2)

32. What can EBSA Bring to the Table?
Oversight Authority
Expertise in ERISA, Retirement Plans and Health Plans
Good Publicity
Enforcement Assistance to Governmental Agencies

33. 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

34. “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

35. 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

36. 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

37. Civil Investigation 1# Non-Payment of Fringe Benefits
Dates: Early Early 1998
Issue: January 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

38. Civil Investigation 2# Non-Payment of Fringe Benefits
Dates: October 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.

39. 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

40. 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
Each received 5 months incarceration, 5 months work release, 3 years probation.

41. 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

42. What can you provide to EBSA?
Referrals
Manpower
Intelligence
Expertise
Coordinate Prosecution/Debarment

43. Email: Underwood.Mark@dol.gov
Contact Information
Mark Underwood
Phone: (816)

44. Collaborative Case Investigations Chris Smith, Special Agent U. S
Collaborative Case Investigations Chris Smith, Special Agent U.S. Department of Transportation Office of Inspector General

45. Overview OIG Mission and Priorities
Investigation timeline of D&H Construction, Inc.
Investigation timeline of U.S. v. Minnesota Valley Landscape, Inc.

46. I. 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

48. OIG Investigative Priorities
Transportation Safety
Aviation
Motor Carrier
Hazardous Material
Contract Procurement and Grant Fraud
Program and Employee Integrity

49. II. D&H Construction, Inc.
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

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

51. II. D&H Construction, Inc. Investigation 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 decline
November- SAC sent letter to USAO to reconsider

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

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

54. III. U.S. v. Minnesota Valley Landscape, Inc. Investigation Timeline
2002:
August - Case initiated and accepted at USAO
2003:
June – Executed search warrant on premises
July – December – Interviews conducted

55. III. U.S. v. Minnesota Valley Landscape, Inc. Investigation Timeline
2004:
January – March – AUSA said she was discussing plea agreement with target
June – Finalized estimated loss calculations of $400k
August – Defense attorney verbally agreed to plead to an information in lieu of indictment
September – AUSA became a Hennipin county judge
November - USAO does not want AUSA negotiating any plea agreements

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

57. III. U.S. v. Minnesota Valley Landscape, Inc. Prosecution Summary
Plea:
June 3, 2005, MVL and David Lindstrom pled to once count of Conspiracy, 18 U.S.C. § 371 for conspiring to defraud the U.S. Government and MNDOT by filing false reports for its over 150 employees over a time period of 7 years ( )
Sentence:
June 20, 2006, MVL and Lindstrom ordered to pay restitution of $396, to their employees
Lindstrom sentenced to 18 months in jail and a $4,000 fine

58. Chris Smith, Special Agent Or visit OIG’s web site:
Questions?
Chris Smith, Special Agent
(312)
Or visit OIG’s web site: