Monday, December 1, 2014

Fraud Persists in NYC Construction Programs for Women and Minorities

A Manhattan grand jury has determined that present laws and regulations are not enough to prevent fraud in New York City and State construction contracts. Diversity programs meant to steer contracts to businesses owned by women and members of minority groups show signs of widespread deception.

The grand jury report, released by Manhattan district attorney Cyrus Vance Jr., found evidence of criminal fraud by several construction companies, spanning at least a decade and involving more than $10 million.

The schemes typically involved government contractors pretending to hire minority-owned companies that never performed the work.

“The unfortunate reality, as today’s report reveals, is that fraud within these programs is persistent,” Mr. Vance said.

The grand jury voted to indict officials of one company, but the indictment has not been unsealed, prosecutors said. For years, fraud has plagued state and city programs intended to give work to businesses owned by women and members of minority groups.

Most of the cases have ended in deferred prosecution agreements under which the company pays a large penalty and charges are eventually dismissed.

In July, for instance, the owner of DCM Erectors, Larry Davis, was charged with using fake work orders and false business records to make it seem as if the company was in compliance with the minority hiring requirements of the Port Authority of New York and New Jersey.

In January 2013, Mr. Vance said Schlesinger-Siemens Electrical had submitted false documents to the state exaggerating the role of minority-owned subcontractors on a Department of Environmental Protection project.

In the 15-page report, the grand jury made several recommendations to discourage similar frauds. It said that fines and prison sentences should be increased and that the agencies charged with certifying minority- and female-owned businesses should be given more resources.

The report also urged government agencies to start requesting that prime contractors “certify under penalty of perjury” that minority-owned subcontractors are performing work at construction sites, not just “renting” their names to other companies.

In some cases, the report said, contractors hired a minority-owned subcontractor to act as a “pass-through,” receiving payments and then handing the money on to a nonminority company that did the work.

In others, a minority-owned company allowed its name to be used in documents as the source of supplies when the goods in reality came from another, nonminority-owned company. A third scheme involved contractors who created shell companies in the name of a female relative.

The programs are managed by the Empire State Development Corporation and the city Office of Contract Services. To be eligible for certification, more than half of a company must be owned by a woman or a member of a minority group. Both the city and the state currently ask prime contractors to direct about a third of the work to minority- and female-owned companies.

Louis Coletti, president of the Building Trades Employers’ Association, said those goals were too high given the pool of available companies. He said the government had to do a better job vetting businesses on official lists to ensure they had the capacity to carry out major projects.

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