Federal contract fraud crackdown has loophole

Meanwhile, the number of companies reporting internal fraud in their handling of government contracts has declined sharply. In 1987, contractors voluntarily reported 44 instances of fraud or abuse to the Justice Department. By 2002, the number had dropped to eight. Last year, contractors reported three instances of fraud.

The more notorious recent cases of overseas contract fraud involve:

• Bribes of jewelry, computers, cigars and sexual favors for military personnel by Philip H. Bloom, a U.S. businessman living in Romania whose companies made more than $8 million in Iraqi reconstruction money. Three U.S. Army Reserve officers were later indicted or accused of steering contracts to Bloom between 2003 and 2005 in return for an estimated $1 million in cash and gifts.
• Anthony J. Martin of Houston, a former manager for Kellogg, Brown & Root Services Inc., who pleaded guilty to accepting $10,000 in kickbacks for awarding a $4.67 million project to a Kuwaiti subcontractor in 2003.
• John Allen Rivard, a retired U.S. Army Reserve officer from central Texas who pleaded guilty to conspiracy and bribery after helping steer $21 million worth of contracts for tractor-trailers in Iraq to a government contractor. He admitted taking $220,000 in bribes.
• Terry Hall, a caterer from Rex, Ga., who has been charged with bribing an Army major to help secure contracts worth $20 million for supplies, including bottled water, to military forces in Kuwait.

'A complete revamping'
Contractors oppose the stricter regulations, saying they will have to spend tens of thousands of dollars — if not hundreds of thousands — to hire auditors and conduct additional internal reviews in search of fraud.

"We're talking a complete revamping of their internal systems," said Chris Braddock, director of procurement policy for the U.S. Chamber of Commerce. "The more companies hear about this, the more worried they get. Any company doing business with the government is going to be affected by this."

Braddock said the voluntary system in place has "been fairly successful."

Steve Linick, director of the National Procurement Fraud Task Force, said he had been told the exemption for overseas contracts was a mistake and would be dropped.

Overseas contracts must be included, Linick said, adding that otherwise "it doesn't make any sense."

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