Supply Side
Fraud in the USA – Chicken Restaurants and IT Supplier “Bribes”

Last week, we featured a recent court case in the UK connected with an Academy school and talked about how money spent by governments that is not conventional procurement spend seems to be vulnerable to fraud and corruption.

However, there are more traditional procurement frauds too, as we see in the case from the USA government sector reported recently. As such cases usually do, it raises several interesting points that are applicable to many other countries and indeed to the public and private sectors. The Washington Post reported that a government employee, Raushi J. Conrad, 42, was arrested and charged in Alexandria federal court.

“According to prosecutors, Conrad used his position as head of operational systems at the Bureau of Industry and Security to steer a contract to a particular businessman in exchange for bribes”.

Conrad was in charge of getting files transferred from an old computer network that had become infected by a virus to a new system. According to the charges, he got valuable contracts directed to a local firm run by James C Bedford. In return, he received $208,000 in payment – we’ll come back to that. Bedford is also accused of arranging for various subcontractors to perform over $7,000 worth of free renovation work at Conrad’s home.  According to the Post, the work for the bureau was not carried out well either.

“The data migration work that Bedford’s contractors did, according to the indictment, was shoddy. But Conrad allegedly used pressure and subterfuge to keep Commerce Department officials from switching to a different contractor, concealing complaints and claiming he was told not to get other quotes, prosecutors say”.

In another report, the suggestion is that the contracts were not awarded directly to Bedford’s firm but via a prime contractor. That’s one interesting angle here – how did that “prime” feel about being instructed to use a particular firm and how did Conrad persuade them to do that?

The other point to note is that the payments to Conrad were not made directly. Most of the money went to his chicken restaurants; it looks like he owned two of those, although both are now closed. So he claimed that the payments were legitimate fees paid by Bedford for events at the restaurant. $208,000 – that certainly is a lot of chicken! The court argues that these were fake invoices, in effect, to disguise the payment of a bribe.

Anyway, whatever comes of this particular case, here are four points that occur to us and have wider implications:

  1. Any time an individual can choose a supplier – or indeed channel work to a sub-contractor via a prime – there is the danger of fraud. Were other people involved here? Making sure we have “separation of duties” and multiple people involved in supplier choice decisions is a good protection against fraud.
  2. In our experience, budget holders seem to commit fraud more often than professional procurement people. That is a generalisation but my observation over many years is it is more often a line manager rather than a procurement pro in cases like this. That is perhaps down to the budget issue – having ultimate control of the money gives the easiest opportunity for fraud and corruption. But maybe the processional ethics aspect does help in terms of keeping procurement people honest.
  3. When you have a complex or bespoke service, fraud is more likely because it is hard to know if a “fair price” is being paid. Presumably Bedford charged more than the real market price in order to find his payments to Conrad – but as it was a fairly unusual service, it may not have been clear that this was the case. So we should be especially vigilant in terms of this type of contract.
  4. Finally, when I worked as a practitioner, I was often nervous when colleagues or staff had other business interests. It doesn’t necessarily mean fraud is likely of course, but it can also lead to conflicts of interest. That isn’t always the case – being in government procurement and writing for a music website as a hobby, maybe even a paid one, would not be a concern. But being involved in significant businesses just raises a few alarm bells for me, both in terms of focus on the core job and also the scope for this sort of bad behaviour.

We will also keep an eye on the Conrad case too and report back on any other interesting outputs from that.