‘A wink and a nod’ can’t rename high-tech government bribes

Raushi Conrad was a longtime, well-liked U.S. federal government high-tech specialist. He bucked the stereotype of the aloof, arrogant IT worker. But an anonymous email led to an investigation that showed he’d committed a one-man $1 million internal fraud scheme that involved chicken restaurants, computer viruses and “wink-and-a-nod” briberies. Here’s how to fend off similar high-tech crimes.

Raushi Conrad was a long-serving IT specialist at the U.S. Department of Commerce headquarters in Washington, D.C. Conrad, as the director of systems operation and security, supported the operations of the Bureau of Industry and Security (BIS), a high-tech organization that regulated the export of technology to other countries within the Commerce Department. It also conducted criminal investigations into illegal exports of U.S.-origin goods that could be used for terrorism, human rights violations or to develop weapons of mass destruction programs. Conrad had an easygoing style, and people liked him.

His façade began to fall in April 2011, when the Commerce Department’s Office of Inspector General hotline received an anonymous email tip indicating a conflict of interest between Conrad, who was overseeing a data migration project for BIS, and the owner of the contracted company, ironically named Team America Inc.

The tipster alleged that Conrad, who also owned two fast-food chicken restaurants, was receiving some construction work paid for by Team America’s owner. One of the chicken restaurants — the Chicken Place Express — was about two blocks from the main Commerce Department headquarters in downtown D.C. The tip noted that “Mr. Conrad is hiring associates to perform the work for BIS [through Team America and other companies] and may be receiving some sort of financial benefit.”

The tip didn’t contain specifics, or include any supporting documents, but it was enough to begin an investigation.

Ballooning IT spending attracts fraud

Information technology (IT) is a fast-evolving industry that virtually every company and government agency requires. Computers, mobile devices, software apps, networks, the cloud — all demand specific expertise to manage and implement, and fulfill, business models.

Government agencies around the globe are spending loads of capital for high-tech equipment, services and maintenance contracts, which creates a heightened risk of potential fraud and corruption plus, of course, cybersecurity and network vulnerabilities.

A January 2019 Gartner forecast put global IT spending for that year at $3.8 trillion. The U.S. government’s itdashboard.gov reports that the fiscal 2020 federal IT budget will be $87 billion, which is just down slightly from the FY 2019 figures of $88 billion.

Fraudsters continue to attack businesses via IT gaps with scams such as the business email compromise. However, internally, the triple-barreled risk of large IT expenditures, complex and technical terms, and meeting numerous business and technical standards raises the potential of employee theft and misuse of assets in all organizations.

Fraud by numbers

The 2020 ACFE Report to the Nations (RTTN) details these IT occupational frauds in stark terms. Although the survey respondents list IT departments as a lower likely risk for fraud, when it does hit them, the loss amount is significant — $200,000.

The RTTN also shows that the IT industry reported 66 fraud cases with a median loss of $150,000, and the closely related telecommunications industry had 67 cases with a median loss of $250,000.

Technology companies reported that 46% of its frauds were in the corruption area — 22 percentage points above the next most common scheme in the industry, non-cash embezzlement. So, given the high propensity for these corruption schemes to be associated with the tech sector, and the high average-loss potential, it’s imperative for anti-fraud professionals to understand the issues surrounding the IT and tech sectors. Knowing the cases can also help with proactive prevention measures plus audit, compliance and investigation to identify and stop a fraud before it becomes even larger.

Everyone's friend

Raushi Conrad’s case, reconstructed here from court records and documents, highlights IT risks. The ability for one man to steer contracts, obtain bribes and use his position to influence the course of a little more than $1 million is a warning for those charged with preventing fraud, theft and corruption. The case deserves the attention of auditors, investigators and CFEs.

Conrad, the longtime IT specialist at the U.S. Department of Commerce headquarters, was a GS-15 — the highest civil service rank for a non-executive senior manager. He earned about $140,000 in 2011.

That anonymous April 2011 email tip to the Commerce Department’s Office of Inspector General hotline was going to shed light on the conflict of interest between Conrad, who was overseeing a data migration project for BIS, and the owner of the contracted company, Team America Inc. The tipster said that Conrad, who owned two fast-food chicken restaurants, was receiving some construction work paid for by Team America’s owner.

Back in 2009, an employee relations specialist from the department had interviewed Conrad during an administrative inquiry about his operation of Chicken Place Express — one of the two restaurants he owned. Conrad said he and his father-in-law had opened it in the fall of 2008. He’d told the investigator that before he’d opened the business, he’d disclosed all the details to his supervisor. Conrad ultimately received a favorable ethics review. So, he wasn’t a stranger to chicken-business questions when special agents from the Office of Inspector General came knocking again in October 2011.

During the first interview, Conrad denied having any conflict of interest or improper arrangement with Team America or its main owner. Prosecutors later noted in court filings that the case progressed slowly because at first the allegations appeared to be administrative in nature — not criminal. Investigators were still waiting for bank records and other documents, which limited their interview. But the investigators kept digging. And they executed multiple search warrants. They finally received thousands of pages of bank records, and they also reviewed 40 electronic devices. By 2013, the investigators had uncovered the complex truth.

Scheme's backdrop

Court filings revealed that several years before the scheme began, a computer virus had infected the entire BIS network. Because the computers had to be taken offline to stop the infection, the entirety of the work produced by the licensing officers, agents, policy staff and intelligence analysts up to that point was sitting on hard drives in a closet. However, they still needed access to their information. So, BIS began a data migration project with Conrad as the lead.

The project began to help reconstruct the old work with funds from a Department of the Navy contract “vehicle” (an umbrella contract in which multiple projects can be funded).

Conrad was closely managing every aspect of the process. He was the contact with line staff who requested documents. He authored the mitigation process specifications. He even worked to ensure a specific company was awarded the contract — Bedford’s Images Inc. (BI), owned by James Bedford. Conrad also had an in. His brother’s father-in-law, Glenn Bertrand, was Bedford’s business partner. Bedford also owned Team America Inc., and Bertrand had a stake in it too.

Conrad worked secretly to deviate from the standard government contracting process by defining what work would be done. According to the government’s brief on appeal, Conrad told others about BI’s capabilities — to the exclusion of all other qualified contractors. “He was very emphatic that Bedford’s Images could perform [the work] and that’s who he wanted to do the work,” one colleague testified at the eventual trial. Conrad didn’t even conduct a basic market analysis to identify any other possible vendors.

Bribery by any other name

Following Conrad’s secret efforts to direct the ultimate contract to BI, he began his quest to quietly profit from his efforts.

Bedford later testified that Conrad appeared suddenly one day at the Team America offices and met in private to ask Team America for a “loan” of $180,000. After being told they didn’t have the money for a transaction that size, Conrad then launched into a bid to “re-cast” the loan idea as a “investment loan” or just a straight capital investment into the Chicken Place Express restaurants.

They never discussed or used the word “bribe.” Bedford later testified that he immediately recognized Conrad’s request as a bribe, testifying that it was “a classic wink and nod” — referring to an unspoken mutual understanding. If Bedford paid the money, Conrad would ensure the BIS work would continue to go to BI. No agreements, investment notes, promissory agreements or other written loan documentation of any kind were ever prepared or executed. They never even discussed interest rates, repayment terms, ownership structure, or any of the other regular parameters a legitimate loan or investment would require. But Bedford agreed to pay Conrad the money. They both knew the “loan” was a bribe.

Shoddy work

The real scam began when BIS awarded BI the subcontract on the data migration project. Conrad, in authoring and managing the work-flow process, told BIS employees to identify those documents they wanted migrated, place them in a specially designated location and then he’d copy the documents onto hard drives or laptops and personally deliver them to BI’s offices.

However, BI didn’t have offices or a staff. Bedford would bring in family members and friends to do the work. Prosecutors said at trial that almost everyone at Bedford’s Images didn’t have computer experience or formal training. In fact, the only true cost to set up the work was an off-the-shelf PDF conversion software from Office Depot that cost $209. Conrad, as project manager, was responsible for monitoring BI’s work product. He didn’t.

Prosecutors wrote in court papers, “Throughout the project, BIS employees complained nearly every day about missing files, corrupted data, poor formatting, invalid optical character recognition, or the fact that the migrated files no longer contained the formulas or functionality … rendering them useless. These complaints were communicated to [Conrad] over and over again, and yet he never sought to stop [BI’s] continued involvement … and the quality of the work never improved.” It was a certain recipe for disaster.

Fake invoice, ‘in-kind’ services

Once the contract award to BI began, Conrad concocted a fake invoice and gave it to Bedford. The invoice — purportedly from his Chicken Place Express restaurant — billed Team America Inc. for things like “support services,” “engineering services” or similarly vague phrases. Conrad, who knew Bedford and Team America never did these for Chicken Place Express, sought to obtain the payments he wanted. Over nine months, Bedford and his company paid Conrad a total of $208,000.

Bedford also provided Conrad with “in-kind” services of value. Over the spring and summer of 2011, Team America provided more than $15,000 worth of renovation services at Conrad’s home. These included free labor and supplies to upgrade his basement, including plumbing, electrical work and drywalling.

Interviews uncover lies and crimes

The agents who came calling on Conrad in October 2011 thought that this was probably just a simple administrative or ethics violation case, but they hadn’t yet had the benefit of the thousands of pages of bank records, invoices and communications between Conrad and Bedford.

In 2011, the investigators asked Conrad about his “outside relationship” with Team America, and he replied, “I don’t really have one with Team America other than, hey, they do work and I send them files that they do for us and I say okay here’s the files and do whatever for Team America. So I don’t really have one specifically with [them].” Conrad failed to mention the payments, free labor and supplies that Bedford and his companies had been providing in exchange for the continued contract work.

But that all changed during the second interview in 2013. Armed with considerable documentary evidence, the agents confronted Conrad about his lies, half-truths and omissions following the execution of search warrants at his residence, Bedford’s residence and at the offices of Bedford’s company.

Conrad finally admitted that he’d steered the contract to Bedford, he’d received payments from Bedford’s company and he’d created false invoices to cover up those payments. However, he was adamant that he never took a bribe. Conrad characterized the payments as  a true loan, but he never provided any documents or evidence to support his claim. Bedford reaffirmed Conrad’s “loan” claim and then kept mum.

End draws near

After multiple attorneys, negotiations and more evidence collection, a federal grand jury indicted Conrad in August 2016. Bedford, faced with his own mounting problems, was “charged by information” and later pleaded guilty for his role in the scheme. Less than a year later, Conrad was convicted after a 3½-day trial on June 15, 2017. The jury took less than three hours to deliver the guilty verdict. He was sentenced to 48 months of confinement in federal prison and ordered to repay more than $1 million in restitution.

Conrad appealed the verdict to the Fourth Circuit Court of Appeals, which issued its ruling in late January 2019. The court denied all three of Conrad’s arguments on appeal and stated that there was substantial evidence for the jury to infer his guilt by his actions. The court affirmed his conviction and cited the volume of testimony and evidence admitted at trial, which included bank records, invoices, tax returns, contracting documents, work orders, checks, accounting records, public records, audio recordings of interviews and emails.

Lessons for anti-fraud professionals

This case has a plethora of lessons for public agency auditors, inspectors general and contracting personnel. It has even more for private-sector compliance officers, management and attorneys. But for this article, the lessons of persistence, analysis and details are most applicable.

The investigators in this case were dogged. They examined what they first believed to be a single administrative violation, but they eventually uncovered a much more significant one. They didn’t know it at the time, but it would become a major case for the Department of Commerce Office of Inspector General. Their professionalism and persistence paid off. The initial tipster made a clear allegation, but they didn’t document it or provide any proof or other leads. The tip was also dated prior to the main payments. However, sometimes, cases actually get better with time.

Thoroughly organizing and analyzing the volume of evidence, especially in the digital age, is critical. Court records show that the three search warrants executed at Conrad’s residence, Bedford’s home and his company, yielded more than 7,000 physical pages of paper and 40 electronic devices, including laptops, hard drives, servers and cell phones.

During the course of the entire case, investigators gathered more than 3.6 terabytes of data. Conrad’s steadfast denials and obfuscating complicated investigators reviewing, searching and understanding the data. Investigators must work to effectively catalogue, organize and use available technologies. Paper file folders for casework is really no longer an effective option. If the main suspect is an IT professional, it also makes sense to plan for a much bigger volume of electronic data than average users.

Attention to the details is still critical. Sifting through volumes of data to help understand and corroborate (or, in this case, refute) a story can be difficult. But identifying the red flags that make a fraudster conspicuous are vital. That’s why CFEs are usually looking for those deviations from the norm. The details and understanding of a document or message, its place in the investigation, the time and date it was written and who wrote it (and who received it) are all important to help put the pieces of the puzzle together.

Beware of rogue, entitled employees

Any public agency — or any organization — is susceptible to these types of schemes. Rogue employees with a sense of entitlement or with mounting financial pressures, or even those who are just greedy, can take advantage of their positions of trust to steer information, money and resources to their preferred vendors.

Likewise, vendors without significant controls over their business practices can put themselves and their companies at increased risk if they don’t have a culture of compliance and ethics. The risks can be catastrophic, including reputational damage, suspension or debarment from obtaining future contracts, termination of existing work and financial penalties — not to mention prison time.

See "Even more IT and computer contract fraud cases" at the end of this article.

Colin May, CFE, an originator of the “Starting Out” column in Fraud Magazine, is a former federal investigator and is an adjunct professor in the Stevenson University Forensic Studies program. The views in this article are his own. Contact him at cmay3231@stevenson.edu.

Even more IT and computer contract fraud cases

Several federal investigations of corrupt employees dealing with IT and computer contracts have surfaced in recent years. They run the gamut from small-time cash-for-information schemes all the way to sophisticated, multi-layered, global laundering conspiracies. Management, auditors, CFEs and investigators are well advised to continuously review these and other cases to help understand the risk factors and bolster potential weaknesses in their own compliance and monitoring systems.

In March 2019, a former contracting oversight specialist for the U.S. Department of Housing and Urban Development (HUD) pleaded guilty to accepting bribes for nearly eight years. The contracting specialist provided non-public information to a contractor about pending HUD contracts in exchange for tickets to sporting events, travel expense payments and cash. The contractor’s bribes ensured that he had an unfair competitive advantage in obtaining HUD technology contracts valued at more than $4.5 million.

An Internal Revenue Service-led investigation concluded in January 2015 when two men from Michigan were sentenced to more than two years each in prison for their roles in a scheme to deprive the Detroit Public Library of honest services. Both men, former contractors for the library, paid the former chief administrative officer (CAO) more than $1.4 million in kickbacks for non-public contract information, which they used to successfully bid on IT contracts at the library. The CAO was ultimately sentenced to 10 years in prison and ordered to pay $3,913,890 in restitution.

In 2017, the last of nine defendants pleaded guilty — or were convicted — in connection with a massive bribery scandal involving the state-owned Haiti telecommunications company. The conspirators paid bribes to Haitian officials to obtain lucrative contracts with the company. They used shell companies, false invoices and intermediaries — including friends and relatives of the government officials — to disguise the bribes. One defendant was even extradited from Panama. (See the case documents and information.)