Fraud and Abuse Schemes in the Disadvantaged Business Enterprise Program

Abstract

The Office of Inspector General has recently investigated many fraud cases in the disadvantaged business enterprise (DBE) program of the USDOT. The DBE program was established by the USDOT in 1983 to provide an equal opportunity for those who would normally be at a disadvantage and ensure nondiscrimination for DBEs. A DBE is a small, for-profit business that is at least 51% owned and controlled by both socially and economically disadvantaged individuals such as women or minorities. Pervasive fraud and abuse cases have serious consequences, such as diminishing opportunities for legitimate DBEs, increasing resources spent on fraud investigations, and diverting federal funds from intended purposes. This paper describes an analysis of DBE fraud and abuse cases. The authors find that the most common DBE fraud schemes include DBE fronts for non-DBE businesses and pass-through schemes. They suggest mechanisms for improving existing DBE fraud prevention and enhancement mechanisms through the use of combined databases and educating project participants and enforcement personnel with fraud detection and prevention training programs.