Wal-Mart and Violations of the Foreign Corrupt Practices Act
Lateral Thinking in the Job-Hunting Process

Fraud in Awarding Government Contracts to Disadvantaged Small Business Owners

NASA Contractor Pleads Guilty To Faking Minority Status 

Just when I thought I had heard it all, along comes another example of greed in business. This time it is Michael Brian Dunkel of Merritt Island, Florida who pleaded guilty on May 24, 2013, to fraudulently obtaining more than $4.4 million in government contract payments that should have gone to what the U.S. government considers a disadvantaged small business.

Congress amended the Small Business Act in 1978 to require that agency heads, in consultation with the SBA, set goals for the percentage of federal contract and subcontract dollars awarded to small businesses each year. Congress further amended the act in 1988 to require the President to set government-wide goals for the percentage of federal contract and/or subcontract dollars awarded annually to various categories of small businesses. These goals must be equal to or exceed certain percentages specified in statute (i.e., 23% of federal contract dollars awarded to small businesses; 5% of federal contract and subcontract dollars awarded to women-owned small businesses; 5% to small disadvantaged businesses; 3% to HUBZone small businesses; and 3% to service-disabled veteran-owned small businesses).

According to the SBA website, the following individuals are presumed socially disadvantaged for purposes of the SBA Section 8(a) Business Development program: Blacks, Hispanics, Native Americans, Asian Pacific, or Subcontinent Asians.

Agency performance in meeting the small business contracting and subcontracting goals is of perennial interest to Congress because it is arguably the clearest indicator of whether the stated congressional “policy” of encouraging contracting with small businesses is being implemented. In particular, the government’s failure to meet either government-wide or agency-specific goals suggests that the current government-wide goals are too low and do not adequately reflect the availability of minority-, women-, and service-disabled veteran-owned small businesses in today’s marketplace.

Back to the Dunkel case who was charged with one count of major government fraud. He faces a maximum penalty of 10 years in prison when he is sentenced on October 4.  As part of his plea agreement, Dunkel has agreed to forfeit $2.9 million.

According to court documents, Dunkel admitted that in 2005, he learned that Keith Hedman, an executive at an Arlington-based security service consulting company referred to as Company A in court records, illegally controlled Company B, another Arlington-based security service consulting company.

Company B was a participant in the SBA “Section 8(a)” program, which enables certain small businesses to receive sole-source and competitive-bid contracts set aside for minority-owned and disadvantaged small businesses. Although Hedman controlled Company B, Company B had obtained its 8(a) status based on the disadvantaged status of Dawn Hamilton, its nominal owner.

Dunkel admitted that he agreed to pay Hedman and Company B a fee in exchange for Company B allowing Dunkel to use its 8(a) status to obtain NASA and other U.S. government contracts.  In reality, Dunkel simply paid a kickback to the Arlington company so it would pass the work through to him.

Although Company B was required to perform at least 50% of the work on the contracts and had represented it would do so, no Company B employees actually performed any work. Instead, Dunkel and others did all of the work as independent contractors, but they concealed that fact from the government agencies. 

In addition, Dunkel submitted fraudulent proposals and invoices to hide their scheme, used a third-party company’s Federal Employer Identification Number to prevent reporting of his contractor income to the IRS, and did not pay any income taxes on the income he received from Company B.

The ethical shortcomings in this case are clear. Dunkel was greedy; acted from an egoistic point of view without regard for the interests of deserving minority/small business owners; and he took work away from those who depend on it for their livelihood and business success.

I also have accounting questions in this case not the least of which is: Where were the internal auditors in the various companies while the deception took place? Aren’t these contracts reviewed to determine they are awarded properly? And, what about government oversight; is this another case of the government lacking the resources to properly audit contracts?

Blog posted by Steven Mintz, aka Ethics Sage, on May 28, 2013