Firms Redirected Money Meant For Native Alaskans, Audit Finds
Wednesday, August 13, 2008
Two government contractors designated as small, Alaska-native-owned firms directed millions of dollars in fees to other companies owned by managers who were not Alaska natives and should not have received the payments, according to an audit report by the Office of Inspector General at the Small Business Administration.
The findings are part of an ongoing review by the inspector general's office of the status of Alaska native corporations, or ANCs, which are eligible to receive sole-source contracts of any size from federal agencies. Congress three decades ago permitted the creation of ANCs as a means to settle land claims and to spur economic development.
In this case, the firms, established by ANC parents, hired managers who soon gained ownership in the companies. These managers then hired other companies they personally owned and paid them with money from the set-aside contracts, according to the report. The financial arrangements allowed those other companies to take advantage of the set-aside programs without the SBA's approval, auditors found.
The audit report recommended that the two companies -- APM, a construction management company from Yorba Linda, Calif., and Goldbelt Raven, a Chantilly firm that provides acquisitions support, program management and technology services -- be terminated from the agency's 8(a) small business set-aside program.
From 2003 to 2006, the firms secured federal contracts worth up to $833 million.
"We believe these concerns merit your immediate attention as APM and Goldbelt entered into unapproved agreements that resulted in millions of dollars in 8(a) revenues being paid to companies owned by their two managers," the audit report said.
Government agencies have awarded billions of dollars in contracts without any competition to ANCs in recent years, outsourcing work for security, intelligence, logistics and a wide array of technology. In many cases, the ANCs have teamed up with long-established government contractors. Some members of Congress and government auditors have raised concerns that ANCs sometimes serve primarily as pass-through operations.
"Based on concerns raised by the Government Accountability Office and Congress that ANC-owned firms may be serving as conduits for large businesses, the audit is examining the percentage of 8(a) contract revenues reaching Alaska natives," the audit report said.
People speaking for APM and Goldbelt Raven said they only recently learned about the allegations. William Walker, the lawyer for government contracts at APM and its parent company, said APM would make any changes needed to come into compliance. "We will investigate and respond," Walker said.
Goldbelt Raven officials said they were cooperating with the auditors. J. Gary Droubay, chief executive of the parent company, Goldbelt Inc., said he had not had time to digest the audit report.
The two firms repeatedly violated the small-business rules by entering into arrangements that were not reviewed by the SBA, as is required, and which obscured their activity from SBA oversight, the auditors found.
In early 2004, four months after APM was allowed to participate in the SBA's 8(a) program, the firm appointed a new manager, who arranged for a management services agreement between APM and another company he owned.
Under the arrangement, his other company was to provide financial services for a share of all APM's 8(a) billings. By the end of 2006, that arrangement was worth about $1 million, the audit report said.
The manager also arranged to buy a 45 percent ownership share in APM, in violation of SBA rules that would have limited his ownership to 20 percent. The manager later transferred his ownership share to a second company he owned. That company immediately sold that share to APM's parent company, Cape Fox, in exchange for a potentially lucrative management services agreement.
Over three years, APM paid the manager's other companies about $7.5 million in fees.
Goldbelt Raven was started in 2002 with a non-Alaska native as its manager. That manager also arranged for another company he owned to have a financial and business relationship with Goldbelt Raven.
Under the agreement, the manager's other company provided business leads for a fee and received payments for management and support services, among other things. That company also had the "right of first refusal for work subcontracted by Goldbelt," according to the audit report.
From 2003 to 2006, the manager's company received more than $16 million in revenue from Goldbelt.