An Iowa landscaping subcontractor and its former vice president, who submitted false invoices to a general contractor and to the Iowa Dept. of Transportation, have been barred from federal procurement and non-procurement transactions for three years.
The debarment, which is retroactive and allows the subcontractor to work for the state again, is tied to a well-known trick: billing for more work or material than has actually been provided. Using Wite-Out to alter material supplier invoices, K&L Construction, Inc., of Sergeant Bluff, Iowa, gave itself an interest-free loan.
A state transportation official said the agency reviewed its practices following discovery of the fraud.
The Federal Highway Administration (FWHA) debarred K&L Construction and its vice president, Jenna Wilson, on Aug. 25, according to a news release issued by the U.S. Department of Transportation. The debarment is retroactive to Sept. 22, 2017, the date FHWA suspended the company and Wilson from participating in federally funded projects.
According to the U.S. Attorney’s Office for the Northern District of Iowa, Wilson admitted in a guilty plea in 2017 to knowingly making false representations, false reports, and false claims regarding the work on the Interstate 29 Sioux Interchange project.
Between January 28 and July 28 2016, Wilson, while vice president of K&L, submitted false expanded polystyrene fill (EPS) invoices to general contractor, Godbersen-Smith Co., and ultimately, the Iowa Dept. of Transportation for stockpiled materials on the major interchange project. By inflating the amounts on the invoice, Wilson saved her company approximately $34,000, the U.S. Attorney’s Office said in a news release.
The U.S. Attorney’s Office estimates that Wilson increased the amounts on invoices by $807,637.
“This was the most egregious incident in anyone’s memory at the Iowa Dept. of Transportation,” said Wes Musgrove, director of the construction and materials bureau for the transportation department.
The fraud took advantage of a system in Iowa that allows contractors and subcontractors to request in advance and be paid up to 90% of the material needed for their work, which is intended to help them maintain cash flow and have materials on hand in advance for projects.
As work is completed and payment to the contractor is processed, the amount previously paid under stockpiled materials is deducted. The scheme did not alter the total amount paid under the contract.
Tony Morfitt, a spokesperson for the U.S. Attorney’s Office, said the company also misrepresented when work was completed, which was detrimental to taxpayers. “In fact, the goods and services were not provided until much later."
Unpaid Supplier Led to Discovery
Musgrove said the fraud was uncovered when the company didn’t pay one of its suppliers.
“They weren’t paying their foam supplier,” he said. “Their supplier complained to our resident engineer. We compared invoices and everything looked the same, except the price,” he said. “Basically, they used White-Out and altered the font.”
He credits transportation department staff with detecting the fraud.
“It’s thanks to our project staff in the field who were diligent about identifying the issue, got to the bottom of it, notified the proper authorities and put an end to it,” he said.
Wilson was sentenced in 2018 in Sioux City by United States District Court Chief Judge Leonard T. Strand. Wilson was personally fined $34,432 and required to pay a special assessment of $100. She also was required to serve a two-year term of supervised release which, today, will have expired if she complied with the terms.
The U.S. Department of Transportation investigated the case.
Musgrove said the incident has had an impact on how the transportation department operates.
“It caused us to look at our processes,” he said. “We feel like our processes are pretty watertight. But we’re much more in sync with the federal highway administration.”
He said the federal highway department is now proactive about informing DOTs about companies that have been debarred, and transportation department staff regularly checks a federal website that lists debarred companies.
Since the federal debarment is retroactive to 2017 K&L can now bid on federal projects again.
“Yes. They’d be allowed to bid again,” Musgrove said. “I don’t know if they will or what the status of their company is. We’ve been down a road here and we’ve got our eyes a little more open.”
A call for comment to K&L was not immediately returned.