Kickbacks to VA official aided firm claiming disabled veterans' preference

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A Department of Veterans Affairs contracting officer accepted nearly $1.3 million in kickbacks to steer construction work to a company falsely claiming a bidding preference reserved for service-disabled veterans, court records show.

Jarod Machinga, a supervisory engineer at the veterans hospital in East Orange, N.J., took the payoffs over a five-year period in which he directed about $6.8 million of work to the company. Machinga pleaded guilty this week to multiple fraud charges.

The jobs involved maintenance, repairs and some new construction at the VA hospital, according to the complaint filed simultaneously with Machinga’s plea.

About $3.4 million was awarded in a contract connected to the company’s status as a Service-Disabled Veteran-Owned Small Business, initially approved in 2009.

The company’s owner, who is not identified in the complaint, is not a veteran, according to the U.S. Attorney’s Office, which prosecuted the case.

The rest of the money was paid through purchasing cards that Machinga had the authority to use on smaller jobs.

The preference program for SDVOSBs is meant to give an edge in federal contracting to companies owned and operated by veterans with a service-connected disability. Agencies can limit bidding on contracts reserved for those firms or award sole-source contracts that bypass normal bidding rules.

The Washington Examiner reported last month that lax verification requirements make the program vulnerable to fraud that is potentially costing taxpayers billions of dollars a year.

The Veterans Affairs Department is the only agency that checks the qualifications of applicants for the SDVOSB program. Other agencies allow firms to “self-certify,” meaning they rely on representations from company owners in determining eligibility.

“When trusted with the important work of serving and honoring our nation’s veterans, Jarod Machinga took the opportunity to serve himself,” said Paul Fishman, U.S. Attorney for New Jersey.

“Taking more than $1 million in kickbacks – including money meant for service-disabled, veteran-owned businesses – not only violates the law, it violates our sense of decency,” Fishman said.

Machinga was deep in debt through several businesses and real estate entities he owned outside of his job at VA, according to the complaint. His job at VA gave him authority to determine what repairs were needed at the hospital and to hire contractors.

About 2007, he hatched a scheme with the owner of a New Jersey construction company to rig VA awards in exchange for kickbacks. Initially, he used purchasing cards to steer the work, which allowed him to sign off on jobs worth $25,000 or less. The cap was decreased to $2,500 in October 2011.

About $3.4 million in work was paid for through the purchasing cards, which are unrelated to the SDVOSB program.

Another $3.4 million was paid through a contract awarded by Machinga in 2009 using the SDVOSB preference, according to the complaint. The construction contract did not have a fixed cap, meaning it could be used to issue additional jobs to the company without rebidding.

Because of his position, Machinga was able to hide the fact that the company was controlled by an owner who did not qualify for the program.

Neither the business owner nor the company is identified by name in the criminal complaint. The plea agreement identifies the firm as Tyro General Construction, but provides no additional details.

Phone calls to Tyro went to an answering machine and were not returned. A spokeswoman for Fishman refused to comment beyond what is in the court documents.

James O’Neill, assistant inspector general for investigations at VA, said the kickback scheme was identified through ongoing anti-fraud investigations done by the IG.

During regular monitoring, a series of red flags were identified at the New Jersey veterans hospital. Further investigation led to Machinga, and ultimately to the company paying the kickbacks.

The firm, which O’Neill would not identify, had been allowed to self-certify its qualifications and used the name of a legitimately disabled veteran to obtain SDVOSB status.

Firms seeking thepreference in VA contracts were allowed to self-certify prior to 2010, when a new law required the agency to check the qualifications of applicants. Those rules do not apply to other agencies.

O’Neill said the firm was not recertified under the newer standards, but said he was uncertain whether it had received SDVOSB status under the old rules.

Companies that lose their certification can be allowed to finish previous contracts.

O’Neill said the investigation is continuing, but would not say if it involves other VA officials or additional companies that paid bribes to Machinga.

“Congress intended to create a benefit for those who served the country honorably and suffered a disability as a result,” O’Neill said. “They are the real victims in cases where contracts go to companies that commit fraud. These contracts could have gone to truly service-disabled veteran entrepreneurs.”

Machinga’s lawyer did not respond to requests for comment.

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