Fraud Detection Resources for Auditors

Anti-Kickback Statute: In 1986, Congress passed the Anti-Kickback Enforcement Act, contained in 41 USC 54, which makes it a crime for any person to “provide, attempt to provide, or offer any fee, compensation, gift or gratuity to a prime contractor or any higher tier subcontractor, or an employee of one of these, for the purpose of improperly obtaining favorable treatment under a Government contract.”  (Source: Air Force Office of Special Investigations) 

Fraud indicators related to the Anti-Kickback Statute include, but are not limited to:

• Complaints from vendors or subcontractors reporting they have received pressure from buyers or corporate officials to pay kickbacks and/or other gratuities. DoD employees should always be aware of the potential for violations of the anti-kickback statute when talking with sub-contractor employees. Subcontractor employees may want to divulge their employer is paying kickbacks to a prime contractor, but are fearful of losing their jobs.  
• Contractor has “Preferred Supplier Agreements” or other types of long term agreements with suppliers.  These types of agreements between prime and subcontractors can result in kickbacks being paid to the prime in order to insure their selection as a favored supplier.
• Complaints from subcontractors who unsuccessfully submitted bids to the prime contractor alleging the winning bidder received the work because they paid a kickback.
• Buyers for prime contractors who appear to be living substantially beyond their means.
• Prime contractor selects the same subcontractors for several contracts or during the entire length of a long running contract.

Base-Level Construction Contract Fraud: Occurs when contractors misrepresent costs associated with construction projects at military bases to increase their profit.  (Source: Air Force Office of Special Investigations)

Fraud indicators related to base-level construction fraud include, but are not limited to:

• Contractor has a close personal relationship with the Government quality assurance representative.
• Contractor requests Government furnished equipment that is not needed or duplicate equipment provided under another contract.
• Low bids, sometimes under the Government estimate, and/or substantially less than other contractors bidding on the project. In this situation, the contractor may be planning to make up for the low bid by substituting cheaper materials than specified by the contract.
• Customer complaints about contractor work.  For example, base housing residents complaining of poor quality work by contractors, problems discovered by tenants in a new or renovated building, etc. 
• Modifications to contracts after work on the contract begins.  Contractors sometimes bid low to insure a winning bid with the intent of obtaining modifications to the contract after work begins.
• Significant extensions to the estimated or contractually specified completion date for the project.
• Contractor performing more than would be expected work after duty hours when there is less oversight from contracting personnel.
• Contractor submits requests to contracting to use different materials than specified by the contract and the requests are denied by contracting.  This may indicate the contractor is already using materials not specified or will choose to ignore the Government's denial of their request to substitute and will substitute cheaper materials without approval.
• Inadequate documentation of contract violations by base contracting personnel. Contracting personnel are required to maintain logs, monitor work progress, and document contractor violations. If contracting personnel are not documenting violations, the contractor may not adhere to contract specifications.
• Complaints by contractors that the previous contractor used materials that did not meet contract specifications. When a new contractor is awarded a contract, they sometimes discover the previous contractor was not complying with contract specifications.

Billing Fraud: Person causes employer to issue payment by submitting invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases.   (Source: Navy Exchange Service Command, Office of Internal Audit).

Fraud indicators relating to billing fraud include, but are not limited, to:

• Employee creates a shell company and bills employer for services not actually rendered.
• Employee purchases personal items and submits invoice to employer for payment.
• Unclear reasons for particular supplies or few details concerning service provided.
• Suppliers not generally known to staff, not handled in normal way, or dealt with exclusively by a director or manager.
• Suppliers with post office box addresses, residential addresses or the same address as another supplier, or the same address as an employee or relative.
• Invoices which are soiled, incomplete (i.e. no phone number), on odd sized paper or altered in some way.
• Unfolded invoices may indicate that they have not been mailed. 
• Invoices from various suppliers on similar stationary.
• Large number of invoices for a particular supplier just beneath approval thresholds.
• Numerous entries or other adjustments on purchase ledger.
• Numerous entries in suspense accounts during the year.
• Supplier doesn't offer usual discounts or terms.
• Recurring identical amounts from same vendor that is not under contract. 
• Multiple remittance addresses for the same vendor.
• Payments to a vendor increase dramatically for no apparent reason
• Duties are not segregated between processing of invoices and updates to vendor master files, between check preparation and posting to vendor account, and between check preparation and mailing of signed checks.
• No proper documentation of additions, changes, or deletions to vendor master file.
• Excessive credit adjustments to a particular vendor and/or credit issued by unauthorized department.
• False email payment request combined with a hard copy printout with forged approval signatures.
• Employee takes advantage of the lag time which typically occurs during book closing to get false invoices approved and paid.
• Recording of false credits, rebates or refunds to customers.
• Pay and return schemes (occur when an employee creates an overpayment to a supplier and pockets the subsequent refund). 
  

Bribery: Occurs when a Government employee or contractor accepts something of value in exchange for preferential treatment.  An example of bribery is if money is accepted in exchange for the awarding of a contract.  (Source: Defense Acquisition University, “Procurement Fraud Indicators Training Module”)

Cash Larceny: Cash is stolen after it has been recorded on the books and records.  (Source: Navy Exchange Service Command, Office of Internal Audit)

Fraud indicators relating to cash larceny include, but are not limited, to:

• Stealing cash and checks from the daily receipts before they can be deposited in the bank.
• Stealing cash receipts posted to sales and receivable journals.
• Stealing cash from bank deposits.
• Stealing cash at the register. 

Change Order Abuse: A contractor, in collusion with a procurement official, can submit a low bid to insure winning a contract, and then increase its price and profits by submitting change order requests after the contract is awarded.

A dishonest contractor, acting alone or in collusion with contract personnel, can submit unjustified or inflated change order requests to increase profits, or, as the result of corruption, use the change order process to extend a contract that should be re-bid.  (Source: International Anti-Corruption Resource Center, 2014)

Fraud indicators related to change order abuse include, but are not limited to:

• Weak internal controls and procedures regarding review or need for change orders.
• Numerous, unusual or unexplained change orders for a specific contractor approved by the same employee.
• Pattern of low bid award followed by change orders that increase the price or scope of the contract, or extend the contract period.
• Vague contract specifications followed by change orders.
• Poorly documented change orders, or change order requests in round number amounts, if that is unusual for the job.
• Pattern of change orders just below upper level approval limit.
• High-level Government personnel involved in change order decisions, especially for specific contractors.
• Purchase orders of contracts extended by change order rather then re-bidding of contract. 

Check Tampering: Employer’s funds are stolen by intercepting, forging or altering a check drawn on one of the organizations bank accounts.  (Source: Navy Exchange Service Command, Office of Internal Audit)

Fraud indicators relating to check tampering include, but are not limited, to:

• Forging an authorized signature on a company check.
• Forging the payees’ signature.
• Altering the payee on the check.
• Employee steals blank company checks, makes them out to self or an accomplice.
• Employee steals outgoing check to a vendor, deposits to own bank account or uses to pay own creditors.
• Duplicating or counterfeiting of company checks.
• Paying a check to the company knowing that insufficient funds are in the account to cover it.

Collusive Bidding: Collusive Bidding is defined as bidders secretly agreeing to submit complementary high bids to allow preselected contractors to win. Suppliers and contractors agree to prohibit or limit competition and manipulate prices to increase the amount of business available to each participant.  (Source: Defense Acquisition University,” Procurement Fraud Indicators Training Module”)

Fraud indicators related to collusive bidding include, but are not limited to:

• Winning bid is high compared to cost estimates, published price lists, similar jobs, or industry averages.
• Pattern of rotating winning bidders by job, type of work, or geographical area.
• Apparent connections between bidders: common addresses, personnel, phone numbers, etc.
• Fewer competitors than normal bid on a contract.  This situation may indicate a deliberate scheme to withhold bids. 
• Correspondence or other indications that contractors exchanged pricing information, divided territories, or otherwise established informal agreements.
• Joint venture bids by firms that usually bid alone.
• Qualified contractors fail to bid and become subcontractors, or low bidder withdraws and becomes a subcontractor.
• Certain contractors repeatedly win contracts at one agency or company, but not elsewhere for similar goods or services.
• Bid prices drop when a new bidder enters the competition.
• Losing bids by unqualified, inappropriate, or unknown bidders.
• Losing bids do not comply with the bid specification, or only one bid is competitive while the others are poorly prepared.
• Losing bidder cannot be located in business directories, have nonexistent address, etc.
• Unusual bid pattern which show bids are consistently too high, too close, or too far apart; or have round numbers; are incomplete; or have other anomalies.
• Losing bidders submit identical bids on different jobs.
• Losing bidder hired as subcontractor.
• Bidders who are qualified and capable of performing but who fail to bid, with no apparent reason.  A situation where fewer competitors than normal submit bids typifies this situation. 
• Certain contractors always bid against each other or, conversely, certain contractors do not bid against one another.
• The successful bidder repeatedly subcontracts work to companies that submitted higher bids, or to companies that received bid packages and could have bid as a prime contractor, but did not.
• There is an apparent pattern of low bids regularly occurring, such as corporation "X" always being the low bidder in a certain geographical area, or in a fixed rotation with other bidders.
• Failure of original bidders to re-bid, or an identical ranking of the same bidders upon re-bidding, when original bids were rejected as being too far over the Government estimate.
• A certain company appears to be bidding substantially higher on some bids than on other bids with no logical cost difference to account for the increase.
• Bidders frequently change prices at about the same time and to the same extent.
• Identical bid amounts on a contract line item by two or more contractors. Some instances of identical line item bids are explainable, as suppliers often quote the same prices to several bidders. However, a large number of identical bids on any service-related item should be viewed critically.
• Any incidents suggesting direct collusion among competitors, such as the appearance of identical calculations or spelling errors in two or more competitive bids.
• Bid prices appear to drop whenever a new or infrequent bidder submits a bid.
• Any reference by bidders to "association price schedules," "industry price schedules," "industry suggested prices," or "industry wide prices."
• Any statements by a representative of a contractor that his company "does not sell in a particular area" or that "only a particular firm sells in that area".

Conflict of Interest: Conflicts of interest can arise if personnel have undisclosed interests in a supplier or contractor by: accepting inappropriate gifts; favors; or kickbacks from vendors; and engaging in unapproved employment discussions with current or prospective contractors or suppliers. (Source: Air Force Office of Special Investigations)

Personal conflicts occur when an individual is in a position to perform his or her job and make decisions in ways that may enhance their financial standing. 

Organizational conflicts occur when a company is part of the development or specifications process for a product and another part of the company then tests or evaluates that product.  (Naval Sea Systems Command, Office of Inspector General)

Fraud indicators related to conflicts of interest include, but are not limited to:

• Vendors’ information is vague, missing, or matches employees’ address, phone number or zip code.  
• Vendor Employer Identification Number matches employee Social Security Number.
• Vendor address is a mail drop or is only a post office box with no telephone number or street address.
• Keen interest of an employee with a particular vendor.
• Unexplained or unusual favoritism of particular contractor.
• Contracting employee has a side business.
• Company receiving Government contracts is also hired by Government personnel to perform work on their personal property.  
• Government personnel responsible for awarding contracts are living beyond their personal means. 
• Government employee buys stock with the contractor they are working with.
• Government personnel providing proprietary information (company bid and proposal information) or source selection information, to one or a few competitors.
• Numerous sole source contracts awarded to the same contractor.
• Poor or incomplete performance, but contractor continues to receive payments, more contracts, and positive past performance ratings.
• Complaints from unsuccessful bidders that a particular bidder is being favored over others.
• One bidder appears to be always close to the independent Government estimate.  This may indicate that the bidder is receiving inside information relative to the Government estimate.
• Quality assurance progress reports do not match contractor invoices.  For example, quality assurance reports indicate contractor progress is greater than it actually is. 
• Inadequate documentation of contract violations by contracting personnel. 
• Payment of unjustified high prices.
• Purchase of unnecessary or inappropriate goods or services.
• Procurement official fails to file conflict of interest or financial disclosure forms.
• Lack of segregation of duties to ensure a single Government employee is not responsible for: initiation of a requirement award of a contract/order; and receipt, inspection, and acceptance of supplies and services.
• Continued acceptance of high-priced, low-quality work.

Contract Documentation Fraud: Dishonest individuals may attempt to hide evidence of fraudulent activity by omitting certain documents from a contract file or including outdated information. 

Fraud indicators relating to contract documentation include, but are not limited to:

• A pattern of missing documents or documentation with outdated information in the contract file.
• Contract documents that are altered, backdated, or modified to cover deficiencies;
• Contract awards made without adequate documentation of all pre-award and award actions.
• Invoices that do not have adequate supporting documentation or supporting documentation is incomplete.⁵

⁵ Contingency Contracting: A Framework for Reform 2012 Update, Report No. DODIG-2012-134, Department of Defense, Office of Inspector General, 2012

Contract Financial Management Fraud Indicators: Fraud indicators relating to contract financial management include, but are not limited to:

Fraud indicators related to contract oversight and surveillance include, but are not limited to:

• The contractor submitting invoices or claims without detail or supporting documentation to the Government
• Excess profits on a specific contract, product line, or division.
• Later contractor billings showing a downward adjustment in material costs as labor/overhead costs increase.
• The Government paying contractors twice for the same items or services without an attempt to recoup the overpayments.
• The Government not regularly reconciling contract payments, daily transactions, and inventory.
• The contractors’ failure to correct known system deficiencies.
• Contractors or suppliers complaining that they are not being paid in a timely manner. These situations may indicate fraudulent manipulations and diversion of Government resources through supply or finance operations.
• The Government’s failure to deobligate funds .⁸

⁸Contingency Contracting: A Framework for Reform 2012 Update, Report No. DODIG-2012-134, Department of Defense, Office of Inspector General, 2012

Contract Oversight and Surveillance Fraud: Shortages in quality assurance and surveillance staffing is a major challenge to DOD. The increasing level of contract support along with urgencies of the war efforts has spread the availability of quality assurance and surveillance staff thin.  Failure to properly monitor contract performance enables fraud.  

Fraud indicators related to contract oversight and surveillance include, but are not limited to:

• Contractors awarding subcontracts to unsuccessful bidders.
• The Government providing materials or services to contractors even though contractors are being paid to provide the materials or services.
• The administrative contracting officer approving modifications.
• Contractors failing to meet terms but no compliance efforts are undertaken.
• The Government certifying receipt of goods without performing inspections.
• The user frequently complaining of poor quality of supplies or services provided under a contract - this may indicate that contractors are delivering something less than what you are paying for.
• Untimely and inappropriate closeout of contracts.⁷

⁷ Contingency Contracting: A Framework for Reform 2012 Update, Report No. DODIG-2012-134, Department of Defense, Office of Inspector General, 2012

Contract Pricing Fraud: Contracting officers must purchase supplies and services at fair and reasonable prices. Failure to implement procedures to obtain fair and reasonable prices may create opportunities for fraudulent activities, including kickbacks, bribes, and gratuities, that may be unknowingly included in the contract price. 

Fraud indicators relating to contract pricing include, but are not limited to:

• The Government not preparing estimates or preparing estimates after solicitations are requested.
• The Government and contractor utilizing unqualified personnel to develop cost or pricing data used in estimates.
• Government estimates and contract award prices are consistently very close.
• The Government approves items that are of lesser value but the contract cost is not reduced.
• The contractor issuing an engineering change proposal soon after the award of a contract. ⁶

⁶ Contingency Contracting: A Framework for Reform 2012 Update, Report No. DODIG-2012-134, Department of Defense, Office of Inspector General, 2012

Contract Requirements Fraud: The potential for fraud is created when the needs assessment is not adequately or accurately developed.  Sloppy or carelessly written specifications make it easy for a contractor to overcharge or deliver less than expected.

Fraud indicators related to requirements fraud include, but are not limited to:

• Failing to state requirements functionally to the maximum extent possible (specifications that are vague make it difficult to reasonably compare estimates).
• Defining statements of work and specifications to fit products or capabilities of a single contractor, which effectively excludes competition.
• Splitting requirements to use simplified acquisition procedures in order to avoid review and approval.
• Modifying the contract shortly after award in order to make material changes in the requirements or statement of work.⁴

⁴Contingency Contracting: A Framework for Reform 2012 Update, Report No. DODIG-2012-134, Department of Defense, Office of Inspector General, 2012

Cost Mischarging: Cost mischarging is defined as improper allocation of cost contracts or charging at higher than allowed rates, charging to indirect accounts those charges that should be direct, or vice versa.  The result of cost mischarging is an improper overcharge to the Government for goods and services.  (Source: Defense Acquisition University,” Procurement Fraud Indicators Training Module”)

Fraud indicators related to cost mischarging include, but are not limited to:

• No reporting of residual or excess materials by the contractor.
• Significant transfers to scrap accounts or inventory write-off accounts.
• Outdated standard prices for materials.
• Very low variation between standard and actual material costs and quantities.
• Contractor has simultaneous similar cost-type and fixed price contracts.
• Transfers material costs from one contract to another, particularly from a fixed price or commercial contract to cost-type or Government contract.
• Cost still charged to the original job order, but no physical inventory is left on the job.
• Initial billings for actual material costs is in excess of negotiated costs.
• Later billings show a downward adjustment in material costs as labor/overhead costs increase.
• Significant increases in charging to cost type contracts.
• Large, complex, pricing proposals with a minimum number of labor hours charged to them.
• Reclassification of employees from indirect to direct or direct to indirect.
• Posted notices that certain work order numbers may no longer be charged.
• Actual hours and dollars consistently at, or near, budgeted amounts.
• Frequent adjusting of journal entries with descriptions such as charged wrong “work order” or “contract number.”
• Numerous cost transfers at beginning and end of contract.
• New cost centers appearing on supporting documentation.
• Sudden changes, or unusual patterns, in charges to overhead or general and administrative accounts.
• Invoices cannot be traced to shipments.
• Multiple payments to a single vendor on the same date.

Credit Card Fraud: Employees use an organization’s credit card to make unauthorized purchases for themselves. (Source: Navy Exchange Service Command, Office of Internal Audit)

Fraud indicators relating to credit card fraud include, but are not limited, to:

• Unreasonable or unexplained high volume of purchases from a particular vendor.
• Goods or services are purchased beyond legitimate need of the organization, often in exchange for kickbacks, to stock a side business, or divert items for personal use.
• Split purchases without purchase order to avoid upper-level review or to circumvent the contracting process.
• Duplicate purchases/invoices (e.g., purchase same item twice and keep one item for the organization and return the other with receipt for in-store credit for personal use.)
• Receipts or invoices supporting purchases are missing or photocopied, which may indicate they were altered.
• Receipts or invoices are not sufficiently detailed to document actual purchases.
• Lack of proper approvals and/or separation of functions such as requiring manager approval prior to purchase, cardholder makes the purchase, and an independent person receives the purchase.
• Vendor used excessively by only one cardholder.
• Purchases made during weekends or holidays which are outside of cardholder’s or organization’s work schedule period.
• Inflated prices or price not reasonable based on items purchased.

Cross Charging (Comingling of Contracts): Dishonest contractors can submit multiple bills on different contracts or work orders for work performed or expense incurred only once.   A contracting official can facilitate the scheme and share in the profits by writing similar work orders under different contracts and accepting the multiple billings.  (Source: International Anti-Corruption Resource Center, 2014)

Fraud indicators related to cross charging (comingling of contracts) include, but are not limited to:

• Multiple awards for similar work are given to the same contractor.
• The contractor submits several invoices for the same or similar expense or work under different jobs or contracts.
• The contractor submits the same or similar documentation to support billings on different contracts.
• Similar work orders are issued to the same contractor under more than one contract.
• Contractor receives multiple awards for similar work.
• Frequent errors/corrections of errors on invoices and other documents.
• Contractor costs on fixed priced contract are unusually low.
• Costs on the cost plus contract are considerably higher than those expected or budgeted.
• Same employee billed to more than one job for the same time period.

Defective Pricing: Defective pricing is defined as contractors inflating their costs in order to increase profits or limit losses.  (Source: Defense Acquisition University,” Procurement Fraud Indicators Training Module”)

Fraud indicators related to defective pricing include, but are not limited to:

• Indications of falsification or alteration of supporting data.
• Failure to update cost or pricing data even though it is known that past activity showed that costs or prices have decreased.
• Specific knowledge not disclosed to Government regarding significant cost issues that will reduce contractor’s proposed costs.
• Contractor refuses, delays, or is unable to provide supporting documentation for costs.
• Apparent high prices compared to similar contracts, price lists, or industry averages.
• Materials, supplies, or components used in production are different than those listed in the proposal or contract.
• Contractor fails to record rebates, discounts, etc.
• Unrealistically high profit margins on completed work
• Failure to correct known system deficiencies which lead to defective pricing.

Excluding Qualified Bidders: A dishonest procurement employee, probably in collusion with a corrupt bidder, can use a variety of tactics to exclude other qualified bidders, including arranging narrow or unduly burdensome pre-qualification criteria, establishing unreasonable bid specifications, splitting purchases to avoid competitive bidding, making unjustified sole source awards, and so on.  (Source: International Anti-Corruption Resource Center, 2014)

Fraud indicators related to excluding qualified bidders include, but are not limited to:

• A significant number of qualified bidders failing to bid.
• Fewer than normal or required minimum number of bidders responding to request for bids.
• Allowing an unreasonably short time limit to bid.
• Adopting unreasonable “pre-qualification” procedures.
• Splitting purchases or otherwise limiting contract amounts.
• Unreasonably narrow contract specifications or short time limit to bid.
• Failing to adequately publicize requests for bids.
• Indications of unjustified source awards.

Expense Reimbursement Schemes: Employee makes a claim for reimbursement for fictitious or inflated business expenses.  (Source: Navy Exchange Service Command, Office of Internal Audit)

Fraud indicators relating to expense reimbursement schemes include, but are not limited, to:

• Requests reimbursement for personal expense by claiming it is business related.
• Overstates cost of actual expense and seeks reimbursement.
• Applying for multiple reimbursements of the same expenses.
• Employee invents a purchase and seeks reimbursement.

Failure to Meet Contract Specifications: A contractor that knowingly delivers works, goods or services that do not meet contract specifications may be guilty of fraud if it falsely represents that it has complied with the contract or deliberately conceals its failure to do so.  If it has not made fraudulent representations or concealed its acts, the contractor would be liable for breach of contract rather than fraud.  (Source: International Anti-Corruption Resource Center, 2014)

Fraud indicators related to failure to meet contract specifications include, but are not limited to:

• Discrepancy between test and inspection results or contract and actual product. 
• Absence of test or inspection documentation.
• Low quality, poor performance, or high volume of user complaints.
• Pattern of failed tests or inspections.
• Absent or inadequate test or inspection reports.
• Inspectors socialize with or accept gifts or favors from contracting personnel.
• Contractor resists audit or audit clause provision in the contract or purchase order.  
• Indications from contractor's expense records, payroll, or other records that it did not comply with contract specifications.  For example, the contractor did not:
• Purchase materials required under the contract.
• Own or lease equipment required to do work.
• Have necessary labor on job site.

False, Inflated, or Duplicate Invoices: A contractor or supplier can commit fraud by knowingly submitting false, inflated or duplicate invoices, acting alone or in collusion with contracting personnel as the result of corruption.

“False invoices” refer to invoices for goods or services not rendered.  “Duplicate invoices” are fraudulent if issued knowingly with the intent to defraud.
“Knowingly” typically is defined as:

• Actual knowledge of falsity
• Deliberate ignorance of truth or falsity (“willful blindness”)
• Reckless disregard of truth or falsity

(Source: International Anti-Corruption Resource Center, 2014)

Fraud indicators related to false, inflated, or duplicate invoices include, but are not limited to:

• Missing or copied purchase order or receiving documentation for invoiced goods/services.
• Submission of other than original or verified invoices.
• Invoice payment is a round number or is unusual in its circumstances.
• Total payment to vendor exceeds total purchase order or contract amounts.
• Unusually high volume of purchases from one vendor.
• Invoiced goods or services cannot be located in inventory or accounted for.
• Multiple payments invoiced in the same timeframe: same/similar goods or services.
• Multiple invoices with the same description of goods or services (amount, invoice or purchase order number, date) or submission at the same time of more than one invoice for the same work.
• Weak or not enforced internal controls in the receipt of goods and payment of invoices.
• Questionable or missing purchase order for invoiced goods or services.
• Inadequate, copied or apparently altered supporting documents. 
• Missing or questionable receiving or purchasing documentation for invoiced goods/services
• Contractor’s records do not show work was done or costs incurred.
• Invoice information does not agree to contract terms, purchase order, receiving records, or inventory/usage records.
• Multiple invoices with the same description of goods or services (amount, invoice or purchase order number, date) or submission at the same time of more than one invoice for the same work.

False Statements and Claims: False statements and claims are defined as a contractor who:

• knowingly and willfully falsifies, conceals, or covers up by any trick, scheme, or device a material fact or,
• makes any materially false, fictitious, or fraudulent statement or representation or,
• makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry.  (Source: Defense Acquisition University,” Procurement Fraud Indicators Training Module”)

Fraud indicators related to false statements and claims include, but are not limited to:

• Site inspection reports reveal less progress than previously reported by a contactor.
• Frequent complaints from end user about finished product.
• Inadequate or apparently altered supporting documentation.
• Contractor attempts to explain discrepancies as simple errors.
• Discrepancies between reported facts, observed data, and supporting documentation.
• Discrepancies between reported facts and test and inspection results.
• Discrepancies between specifications and inspection results.
• Inability or refusal of the contractor to provide supporting documentation.
• Repeated acknowledged errors by a contractor.
• Unreasonable claims or statements compared to prior performance or industry standards.
• High rate of test rejections, returns or failures.
• Contractor pledges individual securities in lieu of a performance bond like cash or property. That same asset could be pledged to multiple projects rendering them useless in the event of default.
• Contractor’s expense records do not comply with contract specifications.
• Submitted claims are missing supporting documentation.
• Supporting documentation contains errors or missing information. For example, receipts from vendors which contain mathematical errors or missing information such as delivery dates.
• Supporting documentation that contains vendor receipts and/or other supporting documentation which appear to have been altered. The documents may have areas which white-out was used or there are obvious erasures.
• Contractor fails to pay subcontractors as required. This may indicate a cash flow problem and make a contractor prone to submitting inflated vouchers.
• Contractor defaults on other commercial or Government contracts. Cash flow problems can make contractors prone to submitting false claims.
• Modifications to a contract after work on the contract begins. For example, contractors sometimes bid low to ensure a winning bid with the intent of obtaining modifications to the contract after work begins. The contractor may submit claims for the modification work which was not actually done.
• Low bids, sometimes under the Government estimate, and/or substantially less than other contractors bidding on the project. In these situations, the contractor may be intending to take shortcuts to save money and then billing the Government for work not performed.
• Contracts Terminated for Convenience of Government.³ The Contractor will submit a final claim to the Terminating Contracting Officer. These claims are highly prone to containing false claims. The contractor will attempt to throw everything possible into the final claim.
• Contractor is significantly behind schedule relative to completing high priority Government contract, such as those involving major weapons systems. In these situations, contracting personnel are pressured to increase production and may certify testing and other work that was not performed.
• Contractor has experienced labor problems and employees may not perform all testing required. This may result in false certifications and the contractor submitting a false claim.

³Standard clause in government contracts which gives the government the right to unilaterally terminate the contract at any time with or without giving any reason. The contractor is generally entitled to a negotiated settlement for an equitable recovery of costs and losses incurred. Source: BusinessDictionary.com

Federal Employees Compensation Act Fraud: Employees’ falsely claim injury or illness, making them unable to work, and receive monetary compensation from the Government.  (Source: Navy Exchange Service Command, Office of Internal Audit)

Fraud indicators relating to Federal Employees Compensation Act Fraud include, but are not limited, to:

• Claimant has history of leave abuse.
• Temporary employee claims injury near end of employment.
• Injury reported in first pay period of employment.
• Injury claimed on Monday or immediately following a holiday.
• Employee submits multiple claims, returns to work near 45th day.
• Employee claims disability for easily feigned injury.
• Recovery time appears excessive for type of injury claimed.
• Concealed employment while receiving compensation.

Fictitious Vendor: In a weakly controlled environment, an employee with procurement responsibilities, or in accounts payable, or an outsider, can submit bills from a non-existent vendor.  Normally fictitious vendors claim to provide services or consumables, rather than goods or works that can be verified.  Dishonest bidders also can submit “bids” from fictitious bidders as part of bid rigging schemes.  (Source: International Anti-Corruption Resource Center, 2014)

Fraud indicators related to fictitious vendors include, but are not limited to:

• Paid vendors are not on the approved vendor list or listed in business or telephone directories.
• Invoiced goods or services cannot be located or verified.
• Inadequate vendor identification information.
• Incorrect or non-existent address or phone number.
• Vendor address or telephone number is the same as an employee’s.
• Small initial purchase from vendor, followed by much larger purchases.
• Payment provided without an invoice.
• Copied or unusual supporting documents, such as purchase order or receiving document submitted with invoice.
• No other Government organization is involved in business with the company.
• Multiple companies that have the same address/telephone numbers.
• Purchases unrelated to the Government organization’s mission.

Government Furnished Equipment Fraud: Investigations have disclosed instances where contractors falsified records showing non-use of Government furnished equipment when, in fact the equipment was being used on commercial work and no rental fees were paid to the DoD.  There have also been instances where the Government-furnished equipment was no longer needed by the contractor, and had not been properly disposed of.  (Source: Air Force Office of Special Investigations)

Fraud indicators related to government furnished equipment fraud include, but are not limited to:

• Poor controls over Government furnished equipment.  
• Contractor records relating to use of Government furnished equipment/stock are not complete.
• Contractor has commercial contracts closely related to Government contracts. For example, parts for military aircraft and vehicles are interchangeable with parts used on commercial aircraft and vehicles produced by the contractor.
• Contractor unable to account for Government furnished equipment when contract is terminated. In some instances, the contractor may say equipment is at a subcontractor's location or another facility to delay accountability and turn-in of equipment.
• Contractor requests Government furnished equipment not needed or duplicate equipment already furnished by the Government under another contract.
• Government-furnished equipment not disposed of in accordance with the contract. Contractor disposes of Government furnished property without obtaining authorization from the Terminating Contracting Officer.

Labor Substitution/Labor Cost Mischarging: Occurs when a contractor misrepresents the cost of labor charged to a Government contract. 

Fraud indicators related to labor substitution/labor cost mischarging include, but are not limited to:

• Fixed-price contracts that are always completed with actual labor hours, or costs equal to, or slightly less, than budgeted labor costs.
• Weak internal controls allowing opportunities to adjust labor charges or lack of an audit trail to verify propriety of labor charges.
• Employees conducting work outside the scope of the contract; however, they continue charging hours to the contract.
• Transfer of labor costs from one contract to another.
• Time and charges do not agree with contractor billing to the Government.
• Original time cards are destroyed or lost.
• Increased labor hours with no corresponding increases in material used or units produced.
• Abrupt changes in labor charge levels for no apparent reason.
• Labor time and charges inconsistent with project progress.
• Inability of contractor to immediately produce time cards on demand.
• Time cards completed by management and not by the individual employee.
• Low level work charged to high level wage earners.
• Indications that Government personnel influenced hiring of specific individuals on the contract.
• Contractor experiences high personnel turnover.
• Contractor must hire large numbers of personnel quickly.
• Contractor personnel work on different contracts/task orders in different labor categories.
• Contract employee's salary is substantially less than the labor rate charged by the vendor for that individual.
• Contract employees charge time to multiple contracts/task orders which are monitored by different Government employees.
• Timecards are:
  • Completed in advance,
  • Appear to have changes,
  • Are not signed by employees,
  • Are often prepared by supervisors, or
  • Cannot be found.
• Unexplained fluctuations between direct and indirect labor charges.
• Different personnel charged to contract than originally proposed.
• Contractor executives charge direct labor versus indirect cost categories.
• Contractor personnel rarely charge leave or vacation.
• Overtime charges are not justified or appear unnecessary.

Employee Qualifications

• Incomplete or non-existent employee personnel files.
• Education, credential, and experience qualification requirements for labor hour contracts are vague, or appear minimal for the position needed.
• Government personnel do not review or challenge qualifications of key contractor employees.
• Contractor has no internal control system in place to verify qualifications of subcontractor personnel.
• Contractor cannot provide employee resumes when requested.
• Resumes are not current, validated, or specific.
• Contractor personnel leave the company, and are quickly replaced with personnel who are less qualified or experienced

Leaking Bid Data: Leaking bid data is defined as contracting or other personnel involved in the process, sharing information to help a favored bidder formulate a proposal.  (Source: Defense Acquisition University, “Procurement Fraud Indicators Training Module”)

• Poor internal controls on bidding procedures.
• Failure to enforce deadlines.
• Non-public opening of bids.
• Winning contractors participated in drafting specifications.
• Losing bidders submit identical bids on different jobs.
• Winning bid is just under the next lowest bid or at/just below the Government estimate.
• Acceptance of late bids.
• Bid due dates unnecessarily extended.
• Late bidder is the winning low bidder.
• Contract is unnecessarily re-bid.
• A consultant or middleman is involved in the procurement process.
• Suspect bid contains data based on information in a procurement Official File but not available to the general public.
• Government employee socializes or accepts gifts and favors from the suspect bidder.

Manipulation of Bids: A procurement employee, probably as the result of corruption, can manipulate the bidding process in a number of ways to benefit a favored contractor or supplier.  These include leaking information regarding competing bids, accepting late bids, changing bids, re-bidding work and so on.  A contractor can also submit a “low” bid with the understanding that the corrupt procurement official will approve later contract amendments and price increases.  (Source: International Anti-Corruption Resource Center, 2014)

• Poor internal controls and inadequate bidding procedures.
• Winning bid voided for errors and job is re-bid or awarded to somebody else.
• Acceptance of late bids or award to a non-responsive bidder.
• Contracts are changed after receipt of bids and the contract is re-bid and awarded to a different contractor.
• A qualified bidder disqualified for questionable reasons.
• Indications of changes to bids after received.
• Bids are "lost."
• Contract is not re-bid even though fewer than the minimum number of bids are received.
• Requests for bids sent to unqualified vendors or vendors that previously declined to bid.

Medical Facility Fraud: There are a wide range of fraud schemes that can occur at medical facilities.  The list below summarizes some of the more common fraud indicators. (Source: Navy Exchange Service Command, Office of Internal Audit)

Fraud indicators relating to medical facility fraud include, but are not limited, to:

• Unauthorized use of military identification for medical benefits.
• Pharmacy short-filling controlled substances.
• Loose controls on medical supplies.
• Loose controls on drugs in flight surgeon bags/medics kits.
• Missing controlled drugs from pharmacy and other areas of medical facility.

Payroll: Employee causes their employer to issue payment by making false claims for compensation.  (Source: Navy Exchange Service Command, Office of Internal Audit)

Fraud indicators relating to payroll fraud include, but are not limited, to:

• Employee adds ghost employee(s) to the payroll.
• Employee pay based on falsified hours or rates.
• Commissions paid on inflated sales or commission rate.
• Improper changes in salary levels.
• Abuse of holiday leave or time off entitlements.
• False workers’ compensation claims.
• Theft of employee contributions to benefit plans.

Product Substitution Fraud: Product substitution is defined as contractors delivering goods to the Government which do not conform to contract requirements without informing the Government.  (Source: Defense Acquisition University,” Procurement Fraud Indicators Training Module”)

Fraud indicators related to product substitution include, but are not limited to:

• Frequent complaints by users of supplies or services.
• A pattern of malfunctions with “new” equipment.
• Old, un-calibrated, or improperly calibrated equipment used for acceptance testing.
• Work performed shows early signs of aging and wear. Contractor may plan to increase contract profits by substituting cheaper materials than specified in the contract. For example, paint that shows sooner than expected fading, concrete that chips and shows wear, aircraft components that have a shorter life expectancy, etc.
• Unusual or generic packaging.
• Products represented as new appear to be used.
• Higher than expected maintenance rates.
• Contractor delays or fails to provide required product specifications to contracting personnel.
• Contractor has significant amount of materials left after contract is completed.
• Supporting documentation contains errors or missing information (i.e. delivery dates).
• Supporting documentation contains vendor receipts and/or other supporting documentation appears to have been altered.
• Contractor performing more than expected work after duty hours when there is less oversight from the quality assurance representative and contracting personnel.
• Contractor submits requests for value engineering changes or requests to use different materials than specified by the contract and the requests are denied by contracting personnel. This may indicate the contractor is already using materials not specified or will choose to ignore the Government’s denial of their request to substitute, and will substitute cheaper materials without approval.
• Contract has been Terminated for Convenience of Government. ²
• Contractor has experienced labor problems or is significantly behind schedule which can cause employees to certify testing was done, when it wasn’t.
• Discrepancy between product’s contract description appearance vs. actual appearance.
• Materials submitted to the contracting officer for approval are not the same materials used at the construction site.
• Winning bid was significantly lower than bids submitted by other contractors, and in some cases, may be lower than the Government estimate. In these situations, the contractor may plan to increase profits by substituting cheaper materials than specified by the contract.
• Contractor defaults on other commercial or Government contracts. Cash flow problems are the major reason contractors try to save money by substituting cheaper materials.
• Contractor selects testing company or performs tests itself.
• Test records reflect no failures, or have been altered or destroyed, or cannot be found.
• Complaints by contractors that the previous contractor used materials that did not meet contract specifications. When a new contractor is awarded a contract, they sometimes discover the previous contractor was not complying with contract specifications.
• Contractor fails to pay subcontractors as required. This may indicate a cash flow problem and make a contractor prone to cutting costs on materials.
• Contractor is behind schedule, but quickly catches up.
• Close socialization between the supplier and contracting personnel.

²Standard clause in government contracts which gives the government the right to unilaterally terminate the contract at any time with or without giving any reason. The contractor is generally entitled to a negotiated settlement for an equitable recovery of costs and losses incurred. (Source: BusinessDictionary.com)

Progress Payment Fraud: Submission of contract progress payment requests based on falsified direct labor charges, material costs for items not purchased, or a falsified certification of a stage of completion attained, or work accomplished.  (Source: DOD OIG, “Indicators of Fraud in Defense Procurement”)

Fraud indicators related to progress payment fraud include, but are not limited to:

• Contractor submits documentation to support higher progress payments than justified.
• Contractor submits false/altered documentation with the progress payment request.
• Submitted claims are missing supporting documentation or contain errors or missing information. For example, receipts from vendors which contain mathematical errors or missing information such as delivery dates.
• Progress payment request reflects costs for work not yet completed.
• Subcontractors/vendors complaint they were not paid by the prime contractor for work/items delivered on the contract. Frequently, when a prime contractor authorizes progress payments and has cash flow problems, the prime will attempt to use progress payments as a financial bailout. The prime contractor will submit a request for progress payments and when payment is received, will not pay subcontractors for the work they have done.
• Contractor submits documentation to support higher progress payments than justified by actual contract progress. When reviewing contract files where progress payments are authorized, it is important to look for documentation to ensure the quality assurance representative has verified contract progress before progress payment is authorized by the contracting officer. In some instances this task is not completed, or the contractor is able to falsely mislead the quality assurance representative into believing the work has reached a completion stage.
• Contractor is significantly behind schedule relative to completing the Government contract.

Property Accountability Fraud: DoD continues to face ongoing challenges with its ability to accurately account for, monitor, and report inventory amounts.  

Fraud indicators relating to property accountability include, but are not limited, to:

• Inadequate management oversight and physical inventory control.
• Unreliable property inventory data.
• Inventory records disclose unusual patterns when compared to physical inventory reviews hat cannot be reasonably explained.
• Inventory items marked with incorrect disposal condition codes, such as repairable or scrap, when they should be labeled excellent.
• Failure to return Government-furnished equipment.⁹

⁹Contingency Contracting: A Framework for Reform 2012 Update, Report No. DODIG-2012-134, Department of Defense, Office of Inspector General, 2012

Purchasing and Billing Fraud: Employer’s funds are stolen by intercepting, forging or altering a check drawn on one of the organizations bank accounts.  (Source: Navy Exchange Service Command, Office of Internal Audit)

Fraud indicators relating to purchasing and billing fraud include, but are not limited, to:

• Employee submits invoices for payment from a fictitious company.
• Employee arranges for overpayment of vendor and pockets overpayment when returned to company.
• Employee submits invoices or uses company credit card for personal purchases.
• Vendor makes undisclosed payments to employees of purchasing companies in order to aid in overbilling schemes.
• Overbilling of a company for goods or services by a vendor in which an employee has a financial interest.
• No segregation of duties between processing accounts receivable invoices and posting to the sub ledger.
• Lack of policies and procedures regarding write-offs.
• Frequent, undocumented and/or unapproved adjustments, credits, and write-offs to accounts receivable sub ledger.
• No reconciliation of accounts receivable sub ledger to general ledger control account.
• Insufficient supervisory review of accounts receivable aging schedule.
• Unrestricted access to sub and general ledgers.

Purchases for Personal Use or Resale: Employees’ purchase items through their organization that are intended for personal use, such as tools, personal computers, or automobile parts.  In other situations, the employee intends to resell the items as part of a side business.  (Source: International Anti-Corruption Resource Center, 2014)

Fraud indicators relating to purchases for personal use or resale include, but are not limited, to:

• High volume/unusual purchases of consumer items or items suitable for personal use or resale.
• Items are missing from inventory or unaccounted for.
• Purchases in question are from vendors that sell consumer products.
• Purchased item returned to vendor without vendor credit or refund.
• Questionable scrap or surplus sales of suspected items.
• Inadequate analysis or documentation to support need to acquire goods in the quantities purchased.
• Missing or altered documentation.
• Excessive materials orders.
• Excessive inventory shortages.
• Purchased items to be drop shipped or delivered to another location.
• Suspect employee conducts an outside business.
• Employee is living beyond their means.
• Employee never/rarely takes leave.

Retail Environment Fraud: Occurs when retail employees manipulate cash register transactions or retail operations to steal cash, inventory items, or non-cash assets. 

Fraud indicators relating to the retail environment include, but are not limited, to:

Cashier Operations

• Insufficient supervisory review of cashiers’ daily activities.
• Employees’ neglecting to ring up sales and pocketing money.
• Cashiers working out of open cash drawers.
• Cashiers have access to register Read and Reset keys. Cashier can then clear registers, determine sales figures for the day, and accumulate/remove overages at the end of day.
• Cash register "Read Window" blocked from patron's view allowing cashier to not ring or under-ring sales.
• Unauthorized items, such as personal checks, predated/postdated checks, and employee IOU's commingled with cash.
• Advance approval for voided transactions, refunds, and over-rings are not required.
• Excessive use of the "no sale" key.
• Weak cash handling procedures and cash accounting records.
• Failure of the retail operation to separate key functions to ensure adequate separation of duties.  For example, when a cashier and person accomplishing verification of sales receipts are the same person, there are not adequate checks and balances.
• Cash deposits not received by the bank. 
• No shortages or overages on the daily cashier record. This may indicate the existence of a slush fund. Employees can place daily overages into the fund and use them to cover shortages (thus they always balance at the end of the day), or use the slush fund for personal use.
• Intentionally under-ringing purchases and keeping the difference. 
• Consistently short-changing customers and pocketing the difference at the end of a shift.
• Voiding transactions and pocketing cash.
• Ringing up items at discounted prices using coupon fraud (ringing non-existent coupons). 
• Coupons for non-stocked items or goods not purchased are accepted by cashiers.

Retail Employees

• Employee steals or misuses confidential customer financial information.
• Giving away good merchandise to friends.
• Saving a discarded customer’s receipt and giving it to another person as proof of purchase for actual stolen goods.
• Financial statements that show large inventory shortages offset by large overages or activities that never show inventory shortages. Employees may steal items and then manipulate records to cover the shortages/overages.
• A store clerk buys merchandise, later returns to work with the receipt, then goes to the sales floor and grabs like merchandise and does a phony refund, receiving cash.
  • Stealing money directly from the register or right out of the daily deposit.
  • Damaging merchandise or property on purpose in order to take it home free or purchase it at a reduced cost.
  • Writing “good” merchandise off as “bad” and taking it home.
  • Writing merchandise off as “store use” and taking it home.
  • Concealing good merchandise or equipment in trash bins or dumpsters and retrieving it after hours.
  • Consuming food and beverage without paying for them.
• Walking a bag of unpaid for merchandise to a personal car during the day when there is no supervision present.
• Pocketing payments on customer accounts by issuing receipts from unauthorized receipt books.
• Failing to make required bank deposits.
• Altering dates on deposit slips to cover stealing.
• Carrying “ghost” employees on payroll.
• Using petty cash for personal reasons.

Other Fraud Indicators

• Failure to provide adequate security for electronic scanner operations. If access is not limited to management personnel, an employee can change the prices of merchandise.
• Large variances in a specific department’s sales percentages.
• Scales are not available to weigh bulk items.
• Empty boxes are observed with delivered items.
• Inferior food items are not documented.
• Charging personal purchases to the company (such as filling a personal car using a company credit card).
• Selling waste and scrap materials for personal gain.
• Infrequent deposits.
• Consistent shortages of cash on hand.
• Consistent fluctuations in bank account balances.
• Missing copies of pre-numbered receipts.
• Not balancing cash receipts to accounts receivable sub ledger.

Vendors and Inventory Operations

• Receiving documents signed and a copy provided to the vendor before received merchandise is counted by store personnel. When store personnel sign for merchandise before it is counted, vendors have an opportunity to short the store. 
• Vendors providing store employees with free merchandise.  This activity can lead to collusion between employees and vendors for theft. 
• Inventory personnel not assigned in writing or rotated periodically. Employees can become friendly with vendors and conspire with them to short deliveries.
• Receiving documents are not sent for review/verification daily.  This allows receiving documents to accumulate at the receiving point and provides an opportunity for employees to alter documents.
• Vendors remove goods but do not credit the store.
• Colluding with vendors and deliverymen by falsifying invoices for personal gain. 
• Over ordering/overstocking of merchandise. Employees may act in collusion with vendors to over order certain items in return for cash, gifts, and other gratuities.
• Falsifying inventories to cover thefts.

Retail Supply Fraud: Occurs when employees steal supplies and/or divert Government owned supplies for personal gain. 

Fraud indicators relating to retail supply fraud include, but are not limited, to:

• Evidence of transactions processed when a computer is non-operational.  For example, a false document can be created to obtain supplies, then destroyed, and not entered into the computer when it becomes operational.
• Changing the location of property in the computer without changing its physical location in the warehouse, making it appear the property is "lost."
• Numerous "Due-Out" Cancellations within the same organization.  For example, when an organization cancels a requirement for an item, base supply should contact the source supplying the item and cancel shipment. A person with access to the computer could also cancel the "Due-In" detail without notifying the warehouse and divert the property when it arrives.
• Presence of large quantities of record alterations.
• Ordering hardware, spare parts, and other items not usually required by the organization can be an attempt to obtain items for personal use.  
• Excessive number of "Billed-Not-Received" records can indicate items are being stolen from shipments.
• Delinquent and lost documents.
• Charges for items not requested or received.
• Actual expenses approaching or exceeding budget limits faster than expected.
• Failure to count palletized items.
• Absence of physical environment security facilitates diversion of Government property.
• Many inventory adjustments under $100.  For many organizations, inventory adjustments over $100 require an internal review and are subject to more scrutiny.

Source: Navy Exchange Command, Internal Review

Rigged Specifications: An employee with procurement responsibilities, probably in collusion with a supplier or contractor, drafts a request for bids or proposals that contain specifications that are either too narrow or too broad.  Unduly narrow specifications allow only a favored contractor to qualify, and unduly broad specifications can be used to qualify an otherwise unqualified contractor to bid.   Broad specificiations can also be used in connection with later contract amendments and change orders to facilitate a corruption scheme.  (Source: International Anti-Corruption Resource Center, 2014)

Fraud indicators related to rigged specifications include, but are not limited to:

• Similarity between specifications and winning contractor’s product or services.
• Specifications are significantly narrower or broader than similar previous requests for bids.
• Unusual or unreasonable specifications for the type of goods or services being procured.
• Unexplained changes in contract specifications from prior request for proposals or similar items.
• High number of change orders with one contractor.
• Splitting requirement into two or more purchase orders or contracts, each below upper level review or competitive bidding thresholds, to avoid review or competitive selection. 
• Only one or a few bidders respond to request for bids.
• Requirement specifies brand name rather than generic description.
• Including items or services in requests for bids that will not actually be required.
• Inadequate analysis or documentation to support the need to acquire goods in the quantities purchased.

Skimming: Cash is stolen before it is recorded on the books and records.  (Source: Navy Exchange Service Command, Office of Internal Audit)

Fraud indicators relating to skimming include, but are not limited, to:

• Collecting cash, but not recording the sale.
• Collecting cash, keeping a portion of cash, and underreporting the sale amount.
• Collecting a customer's payment, but not crediting the amount to the customer's account.
• Collecting cash and holding it in a personal interest-bearing account before depositing it into the company account.
• Stealing incoming cash or checks through an account set up to look like a bona fide payee.
• Skimming of cash before recording revenues or receivables (understating sales or receivables)

Source Selection Fraud: The contracting officer is required to select the proposal that represents the best value to the Government.  While the contract award process has been designed to efficiently ensure the delivery of goods and services, the complex procedures involved in source selection may provide an opportunity for fraud to exist. 

Fraud indicators relating to source selection include, but are not limited to:

• Improper relationships between Government and contractor personnel.
• The Government’s failure to perform market research to determine evaluation factors, contracting method, or whether commercial items or nondevelopmental items would meet the Government's needs.
• The Government restricting procurement to exclude or hamper any qualified contractor.
• The Government revealing information about procurements to one contractor that is not revealed to another.
• The Government accepting late or nonresponsive proposals, or accepting proposals from nonresponsible offerors.
• The Government improperly disqualifying offerors.
• The Government exercising favoritism towards a particular contractor during the evaluation process.
• The Government awarding contracts to contractors with poor records of performance.
• The Government awarding contracts that include items other than those contained in the bid specifications.
• The Government’s approval of a justification for less than full and open competition based on improper reasons or inaccurate facts. ¹

Split Purchases: A single procurement can be split into two or more purchase orders or contracts, each below upper level review or competitive bidding thresholds, to avoid review or competitive selection. Repetition of this scheme, favoring the same parties, can be a strong indicator of corruption.  (Source: International Anti-Corruption Resource Center, 2014)

Fraud indicators related to split purchases include, but are not limited to:

• Two or more similar procurements from the same supplier in amounts just under competitive bidding or upper level review limits.
• Unjustified separation of purchases, e.g. separate contracts for labor and materials, each of which is below competitive bidding limits, but when combined is over such limits.
• Sequential purchase orders or invoices under upper level review or competitive bidding limits.
• Contracts under the competitive bid limit followed by change orders that increase amounts of the contract

Truth In Negotiations Act: In 1962 Congress passed the Truth in Negotiations Act which requires, among other things, submission of complete and current cost and pricing data to the Government during pre-award negotiations for contracts valued over $100,000.  The Cost and Pricing Data Provisions of the Act are contained in 10 USC 2306 (a).  A key document in the contract file relating to disclosure of Cost and Pricing Data is the Price Negotiation Memorandum.  (Source: Air Force Office of Special Investigations)

Fraud indicators related to the Truth In Negotiations Act include, but are not limited to:

• Failure to update cost or pricing data even though it is known that past activity showed that costs or prices have decreased.
• Repeated denial by the responsible contractor employees of the existence of historical records that are subsequently found.
• Indications of falsification or alteration of supporting data.
• Distortion of overhead account balances.
• Failure to correct known system deficiencies which lead to defective pricing,
• Continual delays in releasing data to the Government to preclude price reductions This may indicate that the contractor is receiving discounts, experiencing lower operating costs/labor costs, and is delaying passing the information to the Government because of fears that the contract price will be reduced. 
• Contractor has "Preferred Supplier Agreements" or other types of long term agreements with suppliers.  These agreements frequently lead to the prime contractor receiving discounts which are not passed to the Government, as required.  The prime contractor is aware of these discounts at time of negotiations, but fails to disclose the information.

Unbalanced Bidding: Unbalanced bidding is defined as contracting personnel advising a favored bidder that specific line items in a bid request will not be included in the contract and/or contracting personnel providing a favored bidder with information to meet vague or ambiguous terms in the bid request within the estimated budget.  (Source: Defense Acquisition University, “Procurement Fraud Indicators Training Module”)

Fraud indicators related to unbalanced bidding include, but are not limited to:

• Particular line item bids appear to be unreasonably low.
• Line items on request for bids are different than the actual contract.
• Subsequent change orders reducing requirements for low bid line items.
• Particular line item bids do not appear to have been performed or purchased as specified in the contract.
• Similar contract awards do not contain line items for similar tasks or do not require line item bids.
• Change orders issued soon after the contract award deleting, or modifying line item requirements.
• Bidder is close to procurement official, or participated in drafting contract specifications

Unjustified Sole Source: Unjustified sole source is defined as a fraudulent act involving procurement personnel who, in collusion with a supplier, improperly award a contract without competition or prior review.  (Source: Defense Acquisition University,” Procurement Fraud Indicators Training Module”)

Fraud indicators related to unjustified sole source include, but are not limited to:

• Sole source award above or just below competitive bidding limit.
• Request for bids is mailed to only one vendor.
• Previously competitive procurements become non-competitive.
• Vague justification or documentation requesting a non-competitive award.
• Split purchases to avoid competitive bidding limits.
• Awards made below the competitive bid limits that are followed by change orders that exceed such limits.
• Contract requirements were not reviewed and validated by management.
• Contract requirements appear to be tailored to a specific contractor.