Defense Contracting Fraud: Mischarging, Substitution and Testing

Labor mischarging is the classic case

On cost-reimbursable contracts the government pays for hours worked. Booking hours to a funded contract when the work was performed on a different program, on an overrun, or on internal research is straightforward fraud and it is documented in the timekeeping system.

The pattern is usually directed rather than individual. Employees are told which charge number to use, and the instruction is the evidence.

Parts, materials and testing

Defense specifications exist for reasons that show up later, which is why the government treats substitution and testing fraud seriously.

• Counterfeit electronic parts entering the supply chain
• Materials that do not meet specification substituted for qualified ones
• Country of origin misrepresentation under the Berry Amendment or Buy American requirements
• Required qualification or acceptance testing skipped
• Test results altered to show passing values
• Certificates of conformance issued without the underlying testing

Defective pricing

Under the Truth in Negotiations Act, contractors must provide cost or pricing data that is current, accurate, and complete when negotiating certain contracts. Withholding data that would have reduced the negotiated price is defective pricing.

Estimators, pricing analysts, and contracts staff are the people who know what was in the file and what was disclosed.

Cybersecurity compliance is now part of this

Since the Department of Justice created the Civil Cyber-Fraud Initiative in 2021, misrepresenting DFARS, CMMC, or NIST 800-171 compliance has become one of the most active theories against defense contractors.

The mechanism is the same as any other false certification. The contract required a security posture, the contractor certified it had one, and it did not.