Government Contractor Indictments Provide Reminder of Importance of Strong Workplace Policies, Training and Enforcement

by Saul Ewing Arnstein & Lehr LLP

A series of indictments, the most recent in August, remind government contractors of the increased scrutiny on the industry and the very real risk of employee fraud and abuse. Government contractors are encouraged to heed the warning and to make sure they have effective compliance programs in place and that those programs are strictly enforced.

The Indictments

On August 23, 2012, the United States District Court for the Southern District of California unsealed an indictment charging Robert Ehnow, the owner and President of L&N Industrial Tool & Supply, Inc. (“L&N”); Joanne Loehr, the owner and operator of Centerline Industrial Inc. (“Centerline”); and Centerline itself with conspiring with Navy officials to commit bribery, wire fraud, and money laundering at the Naval Air Station North Island (“NAS North Island”), in Coronado, California. L&N and Centerline are both defense contractors.

According to the indictment, L&N and Centerline provided certain civil Navy officials with over $1 million in personal benefits, including cash, checks, retail gift cards, flat screen television sets, luxury massage chairs, home furniture and appliances, bicycles, model airplanes, and home remodeling services. In return, the Navy officials placed millions of dollars in government orders with the defense contractors. The indictment alleges that Ehnow and Loehr conspired with their sales managers, with Navy officials, and with others, to engage in this conspiracy. Both contractors allegedly prepared and submitted fraudulent invoices to the Department of Defense, making it appear that they were billing the Department for goods and services within the scope of legitimate government contracts. In reality, the Defense Department was allegedly unknowingly paying for, among other things, the cost of the bribes to the Navy officials. During the course of the alleged conspiracy, the Department paid L&N over $3 million, while Centerline received over $1 million.

In March 2012, seven individuals admitted their involvement in the fraudulent scheme, pleading guilty to all charges in an indictment. Of the seven defendants, four were Navy officials who admitted to receiving a collective total of more than $1 million in cash, goods and services, all fraudulently charged to and paid for by the Department of Defense. The remaining three defendants who pled guilty were owners or employees of various defense contractors, including L&N and Centerline, that provided goods or services for NAS North Island.

According to the United States Attorney for the Southern District of California, the investigation and eventual indictments were initiated on the basis of citizen complaints. Following a July 2009 indictment of six individuals on fraud and corruption charges centered at the Space and Naval Warfare Systems Command (SPAWAR), the government announced a hotline dedicated to the reporting of possible waste, fraud and abuse related to government and military contracts. Calls to the hotline provided information related to the alleged NAS North Island fraudulent scheme, directly resulting in the two indictments.

Representatives of the FBI, Defense Criminal Investigative Service, IRS-Criminal Investigation and NCIS have all commented that putting an end to fraud by government officials and defense contractors is a “number one criminal priority” and that law enforcement will continue to encourage, and rely upon, information provided by the public.

What Government Contractors Can, And Should, Do

Given the rising cost of fraud to the government, it is not surprising that government contractors are more heavily scrutinized now than ever before. The risk to government contractors of employee fraud is significant: criminal liability and suspension or disbarment from government contracting are all possibilities. The combined reality of increasing fraud and heightened scrutiny make it critical that even the smallest of companies create, implement and enforce an effective ethics and compliance program.

The first step in developing an ethics and compliance program is to understand the rules and regulations that govern the company’s business and to determine the areas within the company facing the highest compliance risks. After identifying high-risk areas, a company should implement a training program targeted at employees whose job responsibilities intersect with those risks. Training should be repeated and reiterated to remind employees of the rules governing their, and the company’s, conduct. Finally, because misconduct can rarely be completely eliminated, companies must establish effective means to monitor compliance, including, for example, establishing a system for reporting suspected abuse and assigning a high-level employee to oversee and examine compliance issues. If misconduct does occur, immediate disciplinary action should be taken and corrective measures implemented to prevent recurrence.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Saul Ewing Arnstein & Lehr LLP | Attorney Advertising

Written by:

Saul Ewing Arnstein & Lehr LLP

Saul Ewing Arnstein & Lehr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.