Special Alert – Chemonics to pay $3.1 Million to Resolve Allegations of Fraudulent Billing under Supply Chain Contract
The Department of Justice issued a press release announcing that Chemonics has agreed to pay $3,119,582 to resolve False Claims Act allegations related to fraudulent charges by its subcontractor, Zenith Carex, for logistical support in Nigeria. Chemonics disclosed the fraudulent billing under USAID’s Global Health Supply Chain-Procurement and Supply Chain Management contract in 2020.
According to the press release, Zenith fraudulently charged Chemonics for delivery services based on truck tonnage as opposed to weight per kilogram of commodity transported, as required in the subcontract. Zenith also charged Chemonics more for last-mile delivery services than the subcontract allowed. The press release states, “Chemonics failed to detect Zenith’s fraudulent overcharging for more than two years due to systematic process and personnel failures, including inadequate financial controls, monitoring and oversight and inadequate employee training, direction and support.”
The DOJ credited Chemonics for its cooperation with the investigation. Chemonics disclosed the fraudulent billing and took remedial actions, including terminating the employee involved with the fraudulent invoices, conducting a comprehensive review of subcontractor billing, and enhancing internal oversight in Nigeria.
This is an expensive lesson learned on the importance of oversight and management of subcontractors to detect and prevent fraud. As noted in the press release, “The claims resolved by the settlement are allegations only. There has been no determination of liability.”