Prime Contractor Disadvantaged Business Enterprise (DBE) Fraud
OIG’s Construction Fraud unit initiated an investigation into disadvantaged business enterprise fraud by a prime contractor on eight major projects involving MTA agencies, including Capital Construction, NYC Transit, and Metro-North. As a result of this investigation, the OIG determined that the prime contractor and various co-conspirators fraudulently applied for and received $19.6 million in DBE credit for subcontracts covering a variety of services. The scheme used the supposed DBE firms as “pass-through” companies that purported to provide these goods and services that were actually provided by non-DBE firms.
CFU brought the matter to the United States Attorney for the Southern District of New York to continue the investigation jointly. The prime contractor subsequently entered into a non-prosecution agreement and agreed to make penalty payments totaling $19.6 million. Of that, $9.8 million was paid to the MTA and $9.8 million to the federal government. The two principals of one pass-through DBE company used by the prime contractor pled guilty to mail fraud in connection with this scheme. Their plea agreements provide for a civil forfeiture of $188,000.
The MTA sought the OIG’s advice on the most appropriate use of this $9.8 million recovery. After consultation with MTA senior management, it was mutually agreed that approximately one-third of this money would be re-invested in the MTA’s Small Business Mentoring Program. Many of the small construction firms participating in that program could qualify as DBEs (as well as Minority and/or Women-Owned business enterprises), and thus this investment should deepen the pool of qualified firms available for MTA projects. The remaining two-thirds of the recovery will be used by the MTA to retain private monitoring firms on the MTA’s largest projects. It was through the use of such monitoring firms that the initial evidence of DBE fraud was uncovered in this case and brought to our attention, resulting in an in-depth OIG investigation. The oversight of monitoring firms, in conjunction with the OIG’s efforts, will help deter and detect future frauds against the MTA.