In October, 2011, reports emerged from Alaska, such as this one, indicating that Alaskan Native Corporation (ANC) Eyak Technology LLC (EyakTech) was a participant in a “massive kickback scheme” involving “corrupt” officials in the U.S. Army Corps of Engineers (USACE).  Reports quoted the U.S. Attorney as stating it was “one of the most brazen corruption schemes in the history of federal contracting."

Prosecutors alleged that the USACE personnel accepted $20 million in bribes and kickbacks from EyakTech employees, and used the money “for BMW's, Rolex and Cartier watches, flat-screen televisions, first-class airplane tickets and international properties.”  Reportedly—

… EyakTek subcontract[ed] work on its $1 billion federal contract to a Virginia firm that is identified in the indictment only as ‘Company A.’ Prosecutors allege the chief technology officer for ‘Company A’ would then submit fraudulently inflated invoices for the work.

One of the corrupt Army Corps of Engineers officials would approve the invoices, prosecutors say. The federal payment would go to EyakTek, which subtracted its profit margin and paid the rest to ‘Company A,’ according to the indictment.

The inflated invoices allegedly totaled about $20 million between 2007 and this year, according to the indictment. The chief technology officer of ‘Company A’ would allegedly funnel shares of the extra cash to Eyatek executive Babb and the Corps of Engineers officials who were part of the scheme.

Harold F. Babb (EyakTech Director of Contracts) was arrested, as was Michael Alexander and Kerry Khan—both employees of USACE.  In addition, Khan’s son, Lee, was also arrested.

More recently, Mr. Alexander has reportedly agreed to plead guilty to his part in the scheme.  The Washington Post (link in previous sentence) reported that Alexander “plans to plead guilty to charges of bribery and conspiracy to launder money.”  According to the WaPo—

Prosecutors said that Alexander, a program director, and Kerry F. Khan, an Army Corps program manager, received kickbacks in exchange for directing government contracts to a subcontractor specializing in software encryption devices and other information assurance technology. … The scheme, which authorities said spanned roughly four years, involved phony and inflated invoices for government contracts and millions of dollars in kickbacks that were funneled through a network of shell companies in the United States and around the world. …
The two Khans and Babb have pleaded not guilty. Two officials with an EyakTek subcontractor — Nova Datacom — have already pleaded guilty.

Recently we wrote about fraud at commercial headphone-maker Koss.  We report on Koss from time to time in support of our assertion that fraud in the government contracting sector is no more prevalent than it is in the commercial sector.  We report on corrupt government employees in the (perhaps futile) reminder that it often takes two to tango—and that too much focus on contractors without an equivalent focus on controls within the Federal government creates a gaping opportunity for corruption.

Not all ANC companies are corrupt; not all USACE personnel are crooked.  And not all contractors are out to gouge the government.  But there are enough miscreants and fraudsters to make investments in internal controls and oversight worthwhile.  This story, which has been under our radar screen for the past three or four months, reminds us that the wrongful actions of a few taint the rest of contractors and government employees—almost all of whom are focused on doing the right thing and spending taxpayer funds wisely.