South Dakota Loggers Settle False Claims Act Allegations of Illegal Employment Practices

In one of the few False Claims Act cases to come out of South Dakota, two contractors related to the logging industry have agreed to pay $1.2 million to settle claims that they violated the terms of their agreement with the U.S. Forest Service and billed for the work nonetheless.

The two contractors, Black Hills Thinning of Rapid City and SM Logging & Services of Hermosa, are accused of submitting fraudulent bids based on undocumented labor to the U.S. Forest Service to work in the Black Hill Forest. According to the allegations, both companies knowingly projected government bids based on the costs of undocumented workers, a clear violation of the government’s employment requirements as outlined in contracts within virtually any industry.

Today’s settlement is a classic case of breach-of-contract. Contractors are required by law to offer their services to the government at the lowest possible cost, however, they must adhere to labor and employment standards in the process. Of course, not all contractors follow the rules — by submitting fraudulent bids, companies like today’s logging contractors undercut competition and win contract work based on dishonest premises.

Details of the Allegations

According to the complaint, the companies prevailed in a competitive bidding process to work on several federal projects within the Black Hills Forest. The contractors allegedly knew at the time of the bidding that they would employ undocumented immigrants to work on the projects, which allowed the contractors to submit attractively low bids and ultimately win the contract over competitors.

Following an in-depth investigation by the U.S. Immigration and Customs Enforcement’s Homeland Security in cooperation with the U.S. Forest Service, authorities unraveled the scheme, revealing a disappointing misuse of taxpayer dollars. The companies created fictitious employee names on their payroll and then employed illegal labor. By splitting one check issued to a non-existent employee among several undocumented workers, the companies were able to submit a lower bid cost than competitors. The plan was implemented to help ensure that, in the event of an audit, the payroll accounting would appear legitimate. Fraud like this hurts not just the government and taxpayers, but also the individual logging workers who deserve fair pay.

The companies settled 44 separate claims of wrongdoing, and the case has hopefully sent a message to other logging outfits in the area considering similar employment practices. Just last year, several other area logging companies settled similar claims, including Munoz Logging and Construction and Escalante Logging and Services, both of whom settled for a combined $1.67 million.

Contract Fraud: Difficult to Detect

Fraud under a government contract can be exceedingly difficult to detect, particularly for multifaceted projects that employ hundreds of workers. However, those employed in companies funded by lucrative government contracts should be on the lookout for some of these common signs of fraud:

-Double-billing for parts or service

-Suspicious or blatantly unlawful hiring practices

-Hiring unqualified workers

-Acquiring components from overseas

-Excessive spending

-Offering discounts and incentives to private sector clients and not the government