We’re on TDY so were going to have to make this quick. Here are a couple of stories that our readers might find to be of interest.

Small Business Fraud

Our steady fountain of news stories, the Department of Justice, comes through again for us, with the announcement that “Maryland contractors and their president to pay United States for falsely obtaining Hubzone and SBA 8(a) contracts.” What’s the beef? According to the DOJ—

The United States alleged that Platinum One and Anthony Wright falsely represented to the SBA, the Navy and the Army that Platinum was controlled by a socially and economically disadvantaged individual. The government’s investigation found that Platinum One was actually controlled by Vernon J. Smith III, who is not socially or economically disadvantaged. The government alleged that Smith used Platinum’s 8(a) status to continue Capitol Contractor’s business operations after Capitol’s own 8(a) status expired in 2002. As a result of these false representations, Platinum obtained contracts from the Navy and the Army.

The United States also alleged that Platinum One and Anthony Wright falsely represented to the SBA and other government agencies that Platinum maintained its principal office in a designated HUBZone location. In fact, Platinum actually operated out of offices owned by Capitol that were not located in a HUBZone. Platinum One did not qualify for the HUBZone program, yet because of its false statements to the SBA and the Air Force, it obtained contracts that had been set aside by the Air Force for qualified HUBZone companies.

That little faux pas cost the companies and their President $200,000 “to settle claims that they used false statements to obtain contracts from the Department of Defense.”

BAE Systems Auditor is Audited

We previously reported about BAE Systems’ settlement(s) with UK and USA government entities for, among other things, false statements related to internal control adequacy and management’s commitment to ethical business conduct. At the time, we noted the statement of the BAE Systems CEO that the wrongdoing all took place “nearly a decade ago.” So that’s all water under the bridge, right?

Nope. The other shoe has dropped, and it’s dropped right on the head(s) of BAE Systems’ external auditors, KPMG. As one of our favorite sites, GoingConcern.com reported—

Yesterday, the Accountancy and Actuarial Discipline Board (AADB) in the UK announced that they would be reviewing a decade’s worth of audits performed by KPMG for BAE Systems, the British Defense Contractor. … So now, presumably because they thought it would be fun, the AADB is curious about what KPMG knew about these ‘commissions’ and ‘third parties’ … Well! The prospect for unlimited fine is interesting, to say the least. For their part, KPMG is cooperating with the investigation because, well, what else are they going to do? A spokesman told Reuters, ‘[T]he firm does not believe there has been any act of misconduct [and that] it will be cooperating fully with the AADB to ensure that the matter is brought to a swift conclusion,’ which, as we all know, runs on an audio loop on the firm’s automated press inquiries line. … The thing is, KPMG’s (or any accounting firm) involvement with BAE (or any defense contractor) has to be one of mixed feelings.

On the one hand, you’ve got extremely profitable international businesses that build all these cool toys that fly, blow things up and go into space. On the other, a lot of their customers are the shifty type, they probably keep lots of secrets and – OH YEAH – their products are designed to kill people. But once you get passed all that, you realize it’s simply a business needing professional services and who better to provide it than a Big 4 firm, amiright?

Taking what many might consider a less casual approach to reporting the story, Reuters had this to say—

Audits covering the 10 years between 1997 and 2007 will be investigated, as well as ‘commission payments paid by BAE’, Britain's Accountancy and Actuarial Discipline Board (AADB) said in a statement posted on its website on Monday.

‘The AADB has begun an investigation under its accountancy scheme into the conduct of KPMG Audit plc as auditors to BAE Systems plc,’ the regulator said. …

AADB said it would investigate KPMG's advice to BAE on the operations of three of its offshore companies, Red Diamond Trading, Poseidon Trading Investments and Novelmight. ‘The regulator is looking specifically at the audit of commissions paid by BAE to outside agents, any tax advice given by KPMG on commission payments and the status of three offshore companies linked to BAE ... penalties could include an unlimited fine for KPMG,’ said Credit Agricole analyst Thomas Mesmin.

And as you ponder the idea of the auditor being audited, we wish you good day.