Disadvantaged Business Enterprise Program (DBE) Fraud - PowerPoint PPT Presentation

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Disadvantaged Business Enterprise Program (DBE) Fraud

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Disadvantaged Business Enterprise Program (DBE) Fraud & Abuse 2004 AASHTO DBE Fraud Conference Presented By: Charles Klemstine Federal Highway Administration – PowerPoint PPT presentation

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Title: Disadvantaged Business Enterprise Program (DBE) Fraud


1
Disadvantaged Business Enterprise Program (DBE)
Fraud Abuse
  • 2004 AASHTO DBE Fraud Conference
  • Presented By Charles Klemstine
  • Federal Highway Administration
  • Office of Civil Rights
  • Washington, DC

2
Counting DBE Participation
  • Count only the value of the work actually
    performed by the DBE
  • Preamble adds Actually being performed by DBEs
    themselves
  • Count entire amount that is performed by the
    DBEs own forces
  • One exception Supplies bought by and equipment
    leased from a prime contractor

3
Commercially Useful Function
  • A DBE Firm Must Be Responsible for Execution of a
    Contract or a Distinct Element of the Work by
    Actually Performing, Managing, and Supervising
    the Work Involved.

4
Commercially Useful Function
  • DBE Performs a CUF Only When in the Execution of
    the Work of the Contract its uses its own
    workforce, equipment and material
  • DBE Must Be Responsible for Negotiating Price,
    Determining Quality Quantity, Paying for
    Ordering Material

5
Commercially Useful Function
  • DBE Does Not Perform a CUF If Role Is Limited to
    That of an Extra Participant in a Transaction
    Through Which Funds Are Passed in Order to Obtain
    the Appearance of DBE Participation

6
Commercially Useful Function
  • Count expenditures to a DBE contractor toward the
    goal only if DBE performs a commercially useful
    function (CUF) on that contract
  • To determine whether a DBE is performing a CUF,
    you must evaluate the amount of work
    subcontracted, industry practices, amount to be
    paid is commensurate with work it is actually
    performing and to be credited towards the goal

7
Commercially Useful Function
  • A DBE is presumed not to be performing a CUF if
    the DBE does not perform at least 30 of the
    total cost with its own forces or subcontracts a
    greater portion of the work than expected on the
    basis of normal industry practice
  • Preamble clearly states If such work goes to
    another firm, it counts only if the other firm is
    a DBE

8
Commercially Useful Function
  • DBE trucker to be certified is only required to
    have one fully licensed, insured and operational
    truck. That truck must be used in the contract
    using drivers it employs
  • DBE may lease from another DBE firm for full
    credit
  • DBE may use owner operators for credit if
    certified DBEs

9
Commercially Useful Function
  • DBE must be responsible for the management and
    supervision of the entire trucking operation
  • DBE may lease from an established equipment
    leasing business open to the general public and
    receive full credit but only if DBE has use of
    and control over the truck

10
Commercially Useful Function
  • DBE leasing and hiring truckers that are non-DBEs
    receive only fee and commission
  • Is this consistent with standard industry
    practice?
  • Only allows leasing under controlled conditions
    with varying consequences for crediting

11
Commercially Useful Function
  • DBE regular dealers in materials and supplies
  • Owns, operates or maintains a store, warehouse,
    or other establishment in which materials and
    supplies are bought, kept in stock and regularly
    sold or leased to the public in the usual course
    of business
  • An established, regular business that engages, as
    its principal business and under its own name, in
    the purchase and sale of the product in question

12
Commercially Useful Function
  • In bulk items such as petroleum products, steel,
    cement, gravel, stone, or asphalt the DBE does
    not need to maintain a place of business as noted
    in the first bullet if it owns and operates
    distribution equipment
  • If need to supplement equipment, long term lease
    is required not on an ad hoc basis
  • Regulations allow a DBE to present evidence to
    rebut this presumption that it failed to perform
    a CUF. This evidence can rebut this presumption
    given the type of work involved and normal
    industry practice

13
Industry Practices Probability Indicators
  • DBEs working in high volume dollar contract
    items Structural steel
  • Non-DBE minority owner of the DBE firm involved
    in other industry related business Equipment
    rental
  • Husband/wife, non-DBE/DBE business in the same
    line of work Trucking

14
Industry Practices Probability Indicators
  • Exclusive use of one DBE by a prime contractor
  • DBE performing partial bid items reinforcing
    Steel
  • Reliance on another source for essential
    equipment needs Cranes

15
Industry Practices Probability Indicators
  • Joint checks and its application to the DBE
    Program
  • This practice has become very prevalent in one
    State
  • 1999 rule preamble does not object to practice if
    commonly recognized way of doing business and if
    non-DBE acts as guarantor if funds come from DBE

16
Question
  • How does this discussion relate to allegations of
    fraud and abuse?
  • It is the heart of the non-DBE program culture
    that all that is being done is not against the
    rule but just the way the industry operates
  • Industry practice is a consideration which cannot
    be ignored but when in conflict the DBE program
    requirements e.g., independence and CUF prevail

17
Red Flags
  • Management
  • Equipment
  • Workforce
  • Materials
  • Performance

18
Management
  • The DBE Must Manage the Work
  • Management Includes, but Is Not Limited To
  • Scheduling Work Operations
  • Receive Quotes Order Equipment and Materials
  • Preparing and Submitting Certified Payrolls
  • Hiring and Firing Employees
  • Make All Operational and Managerial Decisions
  • Supervise Daily Operations, Either Personally or
    With a Full Time, Skilled, and Knowledgeable
    Superintendent Who Is Under the DBE Owners
    Direct Supervision
  • Mere Performance of Administrative Duties Is Not
    Supervision of Daily Operations

19
Management Red Flags
  • Supervision of DBE Employees by Other Contractor
  • DBE Provides Little or No Supervision of Work
  • DBEs Superintendent Is Not a Regular Employee
  • Supervision Is Performed by Personnel Associated
    With the Prime Contractor or Any Other Firm or
    Business
  • DBE Firm's Owner Is Not Aware of the Status of
    the Work or the Performance of the Business
  • Inquiries by Recipient Are Answered by the Prime
    Contractor

20
Equipment
  • DBE Firm May Lease Equipment If Consistent With
    Industry Practices and at Competitive Rates
  • A Lease Agreement Is Required and Should Be on
    Long Term Basis
  • A DBE Firm May Lease Equipment on an Ad Hoc Basis
    From Another Contractor, Excluding the Prime
    Contractor or Affiliate, With Approval of the
    State
  • Equipment Leased and Used by the DBE Firm With
    Payment Deducted From the Prime Contractor's
    Payment (s) to the DBE Is Not Allowed

21
Equipment
  • Operation of the Equipment Must Be Subject to the
    Full Control of the DBE
  • DBE Is Expected to Provide the Operator for
    Equipment and Responsible for All Payroll and
    Labor Compliance Requirements
  • An Operator May Be Provided If the Equipment Is
    Specialized, Part of the Lease and Subject to
    Approval by State

22
Equipment Red Flags
  • Equipment Used by DBE Firm Belongs to the Prime
    Contractor or Another Contractor With No Formal
    Lease Agreement
  • Equipment Signs and Markings Cover Another
    Owner's Identity, Usually Through the Use of
    Magnetic Signs
  • A DBE Trucking Business Utilizes Trucks Owned by
    the Prime Contractor

23
Workforce
  • DBE Firms Must Keep a Regular Workforce
  • DBE Firms Cannot "Share" Employees With Non-DBE
    Contractors, Particularly the Prime Contractor or
    Subsidiary
  • DBE Firm Responsible for All Payroll and Labor
    Compliance Requirements for All Employees Within
    the Control of the Company
  • Direct or Indirect Payments by Any Other
    Contractor Will Not Be Allowed

24
Workforce Red Flags
  • Movement of Employees Between Contractors
  • Employee Paid by DBE and Prime
  • Employee Working for Prime in Morning and DBE in
    Afternoon

25
Materials
  • The DBE Must Negotiate the Price, Arrange
    Delivery, Take Ownership and Pay for the
    Materials and Supplies for the Project
  • The DBE Must Prepare the Estimate, Quantity of
    Material, and Be Responsible for the Quality of
    Materials

26
Materials Red Flags
  • Materials for the DBE Ordered, or Paid For, by
    the Prime Contractor
  • 2 Party Checks From Prime to DBE Subcontractor
    and Supplier or Manufacturer, With State Approved
    Exceptions
  • Materials or Supplies Necessary for the DBE
    Firm's Performance Are Delivered To, Billed to or
    Paid by Another Business
  • A DBE Prime Contractor Only Purchases Materials
    While Performing Little or No Work

27
Performance
  • The DBE Must Be Responsible for the Performance,
    Management and Supervision of a Distinct Element
    of the Work, in Accordance With Normal Industry
    Practice.
  • Exception When Practices Inconsistent With DBE
    Regulations
  • At Least 30 of the Work Must Be Performed by the
    DBE With Its Own Workforce

28
Performance Red Flags
  • Agreement Between the Prime and DBE Artificially
    Inflates the DBE Participation
  • Agreement That Erodes the Ownership, Control or
    Independence of the DBE Subcontractor

29
Performance Red Flags
  • DBE Works for Only One Prime Contractor or a
    Large Portion of the Firms Contracts Are With
    One Contractor
  • The Volume of Work Is Beyond the Capacity of the
    DBE Firm
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