Fraud, Waste & Abuse SPECIAL AGENT ERIK SARACINO

2Disclaimer

The NASA SBIR/STTR subtopic workshop was held for informational purposes only and was an opportunity for the small businesses community to explore and share ideas related to the general technical topic areas.

In the event of any inconsistency between data provided in this presentation and the Final Solicitation, the language in the Final Solicitation, including any amendments, will govern.

2Presentation Overview

OIG Mission Investigation Statistics Common Fraud Indicators University Connection Case Example – Arklight OIG Final Thoughts Questions?

4OIG Mission

The Office of Investigations (OI) investigates allegations of crime, cyber-crime, fraud, abuse or misconduct having an impact on NASA programs,

personnel and resources.

OI refers its findings to either the Department of Justice for prosecutionor to NASA management for action. Through its investigations, OI identifies crime indicators and recommends effective measures for NASA management, designed to reduce NASA’s vulnerability to criminal activity.

4Investigation Statistics

Since 2010: Over 100 SBIR/STTR fraud investigations have been initiated

At least 40 involve multiple agencies

45+ accepted for civil or criminal investigation or prosecution

10 indictments

5 guilty verdicts

5 guilty pleas

4 pre-trial diversion agreements

Over $25 million in criminal restitution, civil settlements, termination of funding

Suspension/debarment of 30 individuals/companies

6Common Fraud Indicators Listed below are common fraud indicators we will look at more closely:

Duplicate proposals/awards from same or multiple agencies for same work. Too many awards to same PI. Exaggerating capabilities/Geographical improbabilities

- P.O. Box/Residential Homes. - SBC/Subcontractor “TEAM” (very common).

Fraud in inducement of awards – e.g. fake investment, falsified letters of support, Phantom Labor.

COI, Involvement of multiple family members Disallowed subcontracting (Example: students doing all the work) Google Finds - Sham websites, e-mails (Hotmail, Yahoo, or Gmail)

7Duplication Issues

There is identical wording in many instances throughoutboth reports; indeed both reports are documenting the same results for the overwhelming majority of the effort.

Of the approximately 20+figures and Tables in both reports, the majority are identical, with identical descriptions in most cases.

8Too Many Awards to the Same PI

Only so much one person can do If the same person is PI or budgeted to work

too many hours in the same timeframe there may be a problem

9Geographical Improbabilities Facilities & Equipment

Compare a company’s description in its proposal to its website, and its actual physical location

10Geographical Improbabilities Facilities & Equipment

Not likely to find in a single familyhome:

If the proposal says “Suite 106” andGoogle asks “Did you mean: P.O. Box 106?” you may have a problem

11Fraud in the Inducement

Obtaining an award under false pretenses, using false or fabricated information.

Recent cases include companies using: Altered or fabricated letters of support

Fake investments

Sham employees

Overstated rent and materials to inflate budgets – questionable if only company facility you see is a home address

“I invested $1M in this company, and you should too.”

Signed ­

11Fraud in the Inducement

- False statements regarding equipment/personnel.

- Falsifying the principal investigator’s identity or duties.

- Artificially inflating total anticipated labor costs.

- Inflating/misrepresenting the hours/effort expended on the project.

- Characterizing part-time employees as full-time employees.

13Labor Mischarging Example

13The Budgetary “Menu”

15Exaggerating Capabilities Example - Proposed work-2012 Army SBIR

“The objective of this SBIR Phase II effort is to grow larger size (50 mm diameter x 25 mm thick or larger) single crystals of aluminum oxynitride (AlON) and aluminum nitride (AlN) by refining and optimizing the rapid andcontamination free growth methoddeveloped at the Phase I stage. ”

=

What would you need for equip/facilities?

15Example - Continued

17Business Address

17Example #2

18This is a Clue for us…

Testing facility?

19Testing Facility --- Legit???

20

Sham Websites/Lack of Website/Unusual Email Addresses

Check the company website: Does it look like it was created in 1997? (Angelfire, Geocities)

Does it give you a way to contact anybody?

Check the email addresses: Does the company have its own domain name?

Does the PI have a .edu address?

21Legit Company Website?

We've happened upon a bit of a problem...

23“It’s All in the Family” Other Conflict of Interests

Subawards to entities with which they have a conflict. SBIR/STTR Grantees who pay family members without

disclosing payments to agency

ABC Corporation Org Chart

My Dog

Me

My College Roommate My Spouse

Person Actually

Doing Work

24The University Connection

The number of foreign students on F-1 visas in U.S. colleges and universities grew dramatically from 110,000 in 2001 to 524,000 in 2012. The sharpest increases occurred among students from emerging economies such as China and Saudi Arabia.

Foreign students disproportionately study STEM and business fields. Two-thirds of foreign students pursuing a bachelor’s or higher degree are technology, engineering, mathematics (STEM) or busmarketing fields.

in science, iness management and

SBIR PROGRAM TARGETED BY FOREIGN NATIONALS!

25Foreign Nationals: Why it matters?

What’s the big deal if foreigners work on SBIR/STTR Research?

1st of all – It’s not a “show stopper” BUT…..

Proposals must clearly indicate if any work will be performed outside theUnited States, including subcontractor performance.

Certifications – a lie to get a contract is a false representation (integrity is foundation). Is any work occurring outside the U.S.? Are we funding research of foreign

governments or companies?

ARKLIGHT 26

Ding and Zotova's company, ArkLight, applied in 2010 -2012 for funding through NASA's small business innovation program to research and develop a cutting-edge sensor to help track climate change.

27ARKLIGHT

Ding and Zotova used ArkLight as a front to funnel federal grant money to themselves for research performed bystudents and others working in Ding’s university lab who were not supervised by Zotova.

Under their proposals, Zotova was to oversee the project and supervise researchers in Ding's lab at Lehigh, where no more than half the work was to be subcontracted.

The defendants sent invoices to NASA, via interstate electronic transmissions, for research in which the jury found that ArkLight had not participated.

28ARKLIGHT

Lehigh University Professor/Wife - CONVICTED

Yujie Ding, a professor at Lehigh, and his wife Yuliya Zotova, owner of Arklight, were convicted of six counts of wire fraud.

The fraud was perpetrated during the award and performance of approximately $700 thousand Small Business Innovation Research contracts with NASA. (Since 2002 - 10 for $2.2M)

29ARKLIGHT Appeal - DENIED:

The Judge wrote that it did not matter that the technical requirements of the project were fulfilled. The NASA money "was not available for professors to fund their research, while keeping some portion for themselves. The funding was meant to encourage the development of small businesses. The purpose and goals of the [program] were thwarted here.”

30OIG - Final Thoughts

NASA OIG fully supports this program – Passionate-”Protect the little guy” Be Truthful – we rely on the “integrity” of your representations.

You don’t have to lie to give yourself an unfair advantage. As more dollars are being allocated to this program, it is important that

legitimate small business concerns have a fair and equitable opportunity to win the award.

Let the OIG Community know – the more we weed out the SBIR mills; will help fund legitimate scientific breakthroughs!

You, the small business, are the first line of defense in protecting our nation’s most new and innovative technology.

This is YOUR prized work. Together, we want to make sure it stays that way.

One More Thing… 31

What’s important?

PROTECT RESEARCH & Develop New & Innovative Technology

31Questions

Special Agent Erik J. Saracino Office of the Inspector General National Aeronautics and Space Administration (NASA)

Federal Courthouse 402 E. State Street, Suite 3036 Trenton, NJ 08608 (w) (609) 656-2543 (c) (301) 821-2958 erik.j.saracino@nasa.gov