Contractor Jailed for Cheating the Disadvantaged Small Businesses Program
March 20, 2014
By: Lindsay Simmons
Michael Dunkel was sentenced recently to a 5-year prison term, followed by 2 years of supervised release, for fraudulently obtaining more than $4.4 million in government funds that should have gone to disadvantaged small businesses contractors.
Dunkel’s scheme, as set forth in the court documents, was fairly straightforward. According to those documents, Dunkel learned that Keith Hedman illegally controlled Company B, a participant in the Small Business Administration (SBA) Section 8(a) program. Although Hedman, an individual who did not qualify for 8(a) status, controlled Company B, he managed to obtain 8(a) status for his company based on the disadvantaged standing of another person –Dawn Hamilton – Company B’s ostensible (but not real) owner.
The SBA helps disadvantaged small businesses gain access to federal contracting opportunities through its 8(a) program. To participate, firms must be (i) small and (ii) at least 51 percent owned and controlled by an individual who meets SBA's socially and economically disadvantaged criteria. Once certified, 8(a) firms can receive sole-source and set-aside contracts. Every year millions of dollars in set-aside and sole-source contracts are given to firms that are not eligible for the 8(a) program – typically because of fraudulent schemes such as the one here.
How was Dunkel able to use Company B’s 8(a) status? Although Company B was required to perform at least 50 percent of the work on all set-aside contracts, and had represented to the government that it would do so, no one at Company B performed any of the work. Instead, the work was performed entirely by Dunkel and his colleagues, as independent contractors, a fact well-hidden from the government by, among other things, the submissions of fraudulent proposals and invoices.
Why did Hedman allow Dunkel to use Company B’s 8(a) status? Dunkel admitted he paid Hedman and Company B a fee in exchange for Company B allowing Dunkel to fraudulently use its 8(a) status to obtain federal government contracts.
Dunkel was not alone in suffering the consequences of his actions. Seven other defendants, including Hedman and Hamilton, previously received sentences in connection with this fraud scheme.
The NASA Office of the Inspector General (OIG), the SBA OIG, the Defense Criminal Investigative Service, the General Services Administration OIG and the Department of Homeland Security OIG all played roles in developing this case. Since GAO’s 2010 searing report regarding rampant fraud in the 8(a) program, much has been done to ferret out schemes such as Dunkel’s.
Lindsay Simmons is the attorney responsible for the content of this article.
© Jackson Kelly PLLC 2014