Thursday, September 4, 2014

If you provide a financial incentive, people will try to get it (the paper SDVOSBs)

Have you ever heard of a rewards structure that ended up going haywire?

For example, if you provide incentives to computer programmers to fix software bugs, the programmers will have a financial incentive to create software bugs so that they can fix them.

Well, something similar has happened with SDVOSBs (incidentally, my new favorite acronym). If you're not familiar with this particular acronym, it stands for "Service-Disabled, Veteran-Owned Small Business." The U.S. federal government, like any government, wants to encourage certain behaviors, and as a thank you to former military people who were injured while on duty, the government has created "set-asides" for businesses owned by these people.

Sounds like a wonderful idea - until all of a sudden all of these SDVOSBs start popping up that aren't SDVOSBs.

Rent-a-vet schemes are common. These involve the creation of a shell company, owned and controlled on paper by a qualifying veteran, but in reality run by another individual or firm....

Midwest Contracting Inc. was supposedly created in 2007 by Ronald Waugh, a service-disabled Vietnam veteran and employee of one of [Ram] Hingorani’s other firms.

In reality, Hingorani controlled MCI....

“The investigation revealed MCI was a pass-through and/or front company for Hingorani’s other businesses and that Waugh was simply a figurehead or ‘rent-a-vet’ who was being used for his SDV status,” according to the U.S. attorney’s office for the Southern District of Iowa. The guilty plea was made public Tuesday by the VA inspector general.

Those contracts were valued at $23.5 million. Federal agents previously seized about $3.9 million from 14 separate financial accounts linked to the scheme.

And Hingorani got $23.5 million worth of SDVOSB contracts through the shell company. He was caught, entered a guilty plea, and will receive a sentence of up to two years and possible forfeiture of all profits.

Is a two year sentence enough? That's another question.
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