News Analysis:

WOSB fraud case may have wider impact

The recent federal court case involving a defense contractor that agreed to pay a $20 million fine for posing as a Woman-Owned-Small Business (WOSB) is likely to bring more scrutiny to other WOSBs in federal contracting in the coming months, owners and advocates say.

The Office of the U.S. Attorney for the Southern District of New York recently settled a civil fraud lawsuit it had brought against UFC Aerospace LLC of Holtsville, NY, and its former president, Douglas Davis. The lawsuit charged them with violating the False Claims Act by fraudulently representing the company as a WOSB at various times from 2001 to 2011 in order to secure millions of dollars in federal subcontracts.

In the settlement, UFC agreed to pay the government $20 million and to admit that it never qualified as a WOSB. “At no point did UFC meet the statutory requirements for claiming WOSB status,” the Justice Department’s said in a news release (http://goo.gl/yOg5iO).

Because of that case, and because several other reports also have shown potential fraud in the WOSB program, some women owners and advocates anticipate a heightened level of oversight for the WOSB program this year.

In May 2015, the Small Business Administration’s Inspector General identified WOSB set-asides awards totaling $7.1 million that may have been improper. In October 2014, the Government Accountability Office reported that 40% of WOSBs examined did not meet eligibility at the time of examination.

Set-Aside Alert, in an independent investigation in 2015, identified $69 million worth of WOSB set-asides that appeared to have been awarded improperly.

The cumulative effect of the reports is that WOSBs will face “growing scrutiny under the FCA,” according to Bradley Wine and Sandeep Nandivada of Morrison & Foerster LLP.

The attorneys urge small business owners to be vigilant in what they and others communicate about their status. “Small businesses should understand that a company can violate the FCA even if it does not have actual knowledge that a certification submitted to the federal government is false,” they wrote in a recent white paper (http://goo.gl/GlSRZp).

Meanwhile, a woman business owner is taking matters into her own hands. Judy LaSpada, chief executive of Virtuoso Sourcing Group LLC of Glendale, CO, issued a press release on Jan. 12 saying she would provide primes with access to company documents to validate her firm’s WOSB status.

“The offer is in response to the proliferation of firms recently asserting WOSB status,” the press release ( http://goo.gl/Z0utYU) said.

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