Contract Fraud

USPS OIG Investigations

The U.S. Postal Service Office of Inspector General (OIG) addresses the Postal Service’s external risk to financial fraud through our investigative contract fraud program. This program is a cross-functional effort involving special agents, contract fraud attorneys, forensic examiners, and investigative analysts.

Together, OIG components are identifying ways to more aggressively investigate contract fraud schemes that range from failure of contractors to meet contract specifications to payment of bribes to postal employees; from cost irregularities of chargebacks to double and false billing. Other common schemes include kickbacks, conflict of interest, and misuse of contract modifications.

A national approach ensures that when special agents identify a scheme in one region of the country, other offices are on the look out for similar schemes. For example, after the discovery of a contract fraud scheme in Houston involving recycling contracts, investigative analysts identified and analyzed all similar contracts around the country and forwarded leads to the appropriate field offices.

The Postal Service presently manages many contracts, involving tens of billions of dollars, ranging from multimillion-dollar national contracts for services such as transportation networks and information technology (IT) infrastructures to local contracts for supplies and services at individual postal facilities. The sheer volume of contracts and their huge dollar value provide opportunities for contractors and employees to defraud the Postal Service. The OIG aids the Postal Service by assessing its management of acquisitions and contracts and investigating allegations of contract improprieties.

During the April 1, 2007, through September 30, 2007, reporting period, OIG special agents completed 96 contract fraud investigations, resulting in $1.3 million returned to the Postal Service.

Contractor Pays Postal Service $1.46 Million in Lieu of Debarment

On February 20, 2008, a government contractor guilty of defective pricing paid a lump sum of $1,462,510 to the Postal Service and $45,232 to the Department of Justice. In turn, the Postal Service agreed to drop its claim against the contractor under the False Claims Act. The Postal Service also agreed not to suspend or debar the contractor from competing for future postal contracts. Suspension or debarment usually lasts 3 to 5 years.

In 2000, the contractor submitted a proposal to the Postal Service to built 200 machines that would verify information bulk mailers provide. An OIG investigation determined during contract negotiations, the contractor’s representatives knowingly concealed from the Postal Service the fact that materials cost for the machines was steadily decreasing. By September 8, 2000, standard material cost was $35,900 per machine, compared with the proposed price of $41,000. The contractor should have disclosed this information to ensure fair price; instead, its negligence resulted in a defective pricing agreement with the Postal Service.