Presentation on theme: "AASHTO National Fraud Awareness Conference"— Presentation transcript:
1 AASHTO National Fraud Awareness Conference Charles Groshens, Labor Compliance SupervisorMinnesota Department of TransportationChris Smith, Special Agent USDOT, Office of Inspector GeneralMark Underwood, Supervisory InvestigatorUSDOL, Employee Benefits Security Administration
2 Presentation PurposeTo promote working relationships between state, local, and federal agencies to help detect and deter fraud on federally funded highway projects.
4 LCU’s PurposeAssist 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, SupervisorDiane Cornjeo, Administrative AssistantLocal (County/City) Construction ProjectsClancy Finnegan, Team LeaderState Highway Construction ProjectsRobert Richards, InvestigatorWard Wheeler, InvestigatorBill Segl, Field InvestigatorBuilding ProjectsRoxanne Farnham, Investigator
6 Primary Services Provided Oversight (Ensuring Compliance)Development of Contract Labor Provisions & SpecificationsContract Administration SupportDispute Resolution ProcessesEducation and OutreachInvestigations and Enforcement
7 Mn/DOT’s Contracting Partners Mn/DOT OfficesCounty, City DepartmentsOther State AgenciesConsulting FirmsConstruction Contractors
10 Types of CasesFalsification of RecordsFringe Benefit Contribution/Plan IssuesFailure to Submit RecordsLabor Classification IssuesImproper Payment of Wages/OvertimeContract Labor Provision DiscrepanciesMisclassification (Employee vs. IC)
14 Mn/DOT Forms and Brochures Payroll Certification Form (w/fringe benefit information)Request-to-Sublet Forms (w/signatures)Month-end Truck ReportsEmployee Wage Complaint FormsEmployee Right-to-Know Cards
17 Primary ProceduresComplaint Forms - employees, othersEmployee Interviews and Follow-upEmployee Right-to-Know CardsCertified Payroll AuditFringe Benefit Records AuditReview Project DocumentsBack Pay Check Process
18 New Technology Website: www.dot.state.mn.us/const/labor Pre-Construction DVD/VideoDOT Listserv - 50 statesLCU Case Management Database SystemElectronic Project Data Collection SystemsAASHTO Civil Rights and Labor Management System (CRLMS)
19 Collaborative Effort of 12 States Production Rollout in 2009 CRLMS ProgramCollaborative Effort of 12 StatesProduction Rollout in 2009Labor Fraud DetectionLevel 2 Payroll RulesLevel 3 Payroll RulesDBE Fraud DetectionVerification of DBE/Subcontractor WorkPrompt Payment VerificationDBE Analysis
22 Mn/DOT EnforcementWithhold Funds from PrimesReject Future BidsDefault and Terminate ContractSuspend or DebarNotify Bonding CompaniesRefer Investigative Findings to Partners
23 State & Local PartnersLabor & Industry – Administrative Procedures, Workers’ Comp, OSHADepartment of Administration – Defaults, DebarmentsAttorney General - Administrative Hearings, Defaults, Prosecutions, DebarmentsCounty Attorney – Prosecution of State StatutesOther State Agencies – Statute EnforcementPrivate Sector Attorneys - Private Right-of-Action, Legislation
24 Federal Partners FHWA – Contract Compliance Actions, Debarments USDOL Wage & Hour – Civil Davis Bacon & Related Acts Issues, DebarmentsUSDOL Employee Benefits Security Admin. – Employee Benefit ActionsIRS – Tax FraudUSDOT Office of Inspector General – Falsification of Records, Collusion, General Fraud Issues
25 Key Things To RememberIdentify & develop your partnershipsSelect appropriate cases to referDevelop preliminary investigationsContinue case development with partnersInvolvement with case until completionDebar after completionExercise state options if no prosecution
26 Benefits of Partnering Increased Case Resource AllocationIncreased Investigative StaffBroader Knowledge of RegulationsAdditional Enforcement RemediesAdditional PenaltiesDevelop Positive Agency RelationshipsPositive Publicity & Future Deterrents
27 Collaborative Case Investigations Mark Underwood, Supervisory Investigator U.S. Department of Labor Employee Benefits Security Administration (EBSA)
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 reportsAssistance to participants or beneficiaries regarding benefitsEducation, technical and compliance assistanceIssuing regulations under Title 1 of ERISAIssuing interpretations under Title 1 of ERISAGranting class or individual exemptions
32 What can EBSA Bring to the Table? Oversight AuthorityExpertise in ERISA, Retirement Plans and Health PlansGood PublicityEnforcement Assistance to Governmental Agencies
33 EBSA New InitiativeCollaborate 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 projectsThe 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 industryIrrevocably paid directly into a fund, plan, or programLegally enforceableCommunicated in writing to the employeeAvailable 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, MinnesotaContracted with federal, state and local government entitiesSponsored 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 1998Issue: 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 EBSAEmployees filed claims with EBSAOutcome: 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 2000Issue: Employees began issuing complaints to EBSA that the company had returned to their old schemeOutcome: 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 2006Issue: 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 schemeA 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.CEach 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 contractsIn 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? ReferralsManpowerIntelligenceExpertiseCoordinate Prosecution/Debarment
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 MissionTo conduct objective audits and investigations of DOT’s programs and operationsTo promote economy, effectiveness, and efficiency within DOTTo prevent and detect fraud, waste, and abuse in the Department’s programsTo review existing and proposed laws or regulations affecting the Department and make recommendations about themTo keep the Secretary of Transportation and Congress fully informed about problems in departmental programs and operations
48 OIG Investigative Priorities Transportation SafetyAviationMotor CarrierHazardous MaterialContract Procurement and Grant FraudProgram and Employee Integrity
49 II. D&H Construction, Inc. Company Background:Subcontractor on appr. $2M of Federal-aid-highway jobs since 1998Exhibited a pattern of false certified payrollsInitial 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 okFebruary – Search warrant conducted on foreclosed D&H propertyMarch – Target admitted in interview that he is ultimately responsible for any wrongdoingJune – 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” rangeJune – Final loss calculations of $105,000 less then the now $150,000 threshold at the U.S. Attorneys OfficeOctober – AUSA stated he is inclined to declineNovember- 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/ownerOne of the biggest landscaping contractors and subcontractors on MNDOT projectsPrime contractor on $4.7 million in contracts from 1998 – 2003Subcontractor 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 USAO2003:June – Executed search warrant on premisesJuly – 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 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
56 III. U.S. v. Minnesota Valley Landscape, Inc. Investigation Timeline 2005:January – New AUSA assigned and initiated contact with defense counselMay – Target and company plead to information2006: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 employeesLindstrom 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: