In a recent development in the field of government contracting, a group of freight carriers contracting with the US Department of Defense (DoD) has agreed to pay $6.85 million after deliberately overcharging the DoD for seven years. While this is obviously a very large, very serious example of contractor misconduct, it still serves as a good example of the importance of accuracy in bookkeeping and accounting for government contractors. Here’s what you need to know about this case, as well as what all government contractors can learn from it.

What Is the Case About?

First, let’s cover the basics of what this case is actually about. The defendants in this case come from three different companies: YRC Feight Inc., Roadway Express Inc., and Yellow Transportation Inc. Collectively, they’re referred to as the YRC defendants, and they transport industrial, commercial, and retail goods. In September 2005, the YRS defendants contracted with the DoD to ship military freight across the country. At least part of their payment was based on the shipment’s weight.

In their contract, the YRC defendants would weigh the shipments before shipping, then reweigh them again before final shipping. According to the allegations brought forth by the US government, the freight carriers billed the DoD for delivery charges based on inflated weights. When reweighing shipments before delivery, the YRC defendants would charge the DoD if the reweigh showed a higher weight; however, if the reweigh was lower than the originally recorded weight, the YRC defendants would still charge the higher weight.

In addition to concealing the lower weights from the DoD, the YRC defendants also made false statements assuring the DoD that they would comply with requirements to correct any discrepancies found during the reweigh process.

Over the course of seven years, you can imagine how drastically these inflated charges could add up, leading to a settlement amount of nearly $7 million.

How Was It Discovered?

After seven years of successfully hiding their inflated shipment weights, you might wonder how the YRC defendants were finally found out. The answer is a whistleblower, who filed an action on behalf of the US government under the whistleblower provisions of the False Claims Act. The filer, James Hannum, is an employee of Yellow Transportation and, under the whistleblower provisions, will receive a portion of the settlement amount. His share of the settlement will total $1.3 million, plus interest.

What Can Contractors Learn from This?

On its surface, the moral of this story might be a very simple “be honest in the work you do.” While that’s naturally an important lesson to learn, we know that deliberate misrepresentation of government contractor charges is far less common than accidental inaccuracies caused by poor bookkeeping practices. While mistakes are much less likely to lead to a lawsuit of this size and scope, they can be equally detrimental to your career as a government contractor.

For example, in the case of the YRC defendants, failure to properly record the reweighs could have led to just as many inaccuracies as deliberately omitting the lower reweigh amounts. The same can be said of failure to properly charge for indirect costs on a project, or failing to assign costs correctly to seprate contracts. If discovered, these inaccuracies can result in you having to repay the federal government for any amount that you overcharged.

The federal government is very thorough about their auditing process, and are likely to notice improper bookkeeping practices very quickly. And if they don’t, as with the YRC case, they have generous whistleblower provisions in place that can allow a civilian to bring those practices to light and claim a portion of the settlement amount. Ultimately, the lesson here is that incorrect numbers on your government contracts will eventually be discovered, and they can have serious consequences for your career as a government contractor.

How We Can Help

It’s incredibly important to only bill true and accurate costs on all government contracts. Even if they are not intentional, errors will be discovered by the DCAA or whistleblowers within your own organization eventually. At Peter Witts CPA, we specialize in working with government contractors like you. We can help you understand the terms of your contract, how to report your costs accurately, and provide the ongoing bookkeeping and accounting services you need to ensure that your cost reports are always accurate. Contact us today to schedule a consultation with one of our government contracting accountants and see how we can help your business.