Ibis Tek LLC: An Unethical Family Dynamic = a $6 million Fraud

There are all kinds of reasons why unethical people commit fraud, but when we boil it all down, they see an opportunity and if there are no checks and balances in place, they will seize that opportunity – just ask the folks at Ibis Tek LLC.

The outrageous expenses for defense are legendary. It is one thing to charge for an item fairly but it is quite another when a contractor chooses to defraud.

In Pennsylvania, there is a small company outside of Butler named Ibis Tek LLC. The company makes, among other things, window assembly kits for the Humvee. It may not sound like much, and maybe that’s what the former executives of the company figured, but former owners (and brothers!) Thomas Buckner and John Buckner, along with the company’s former CFO Harry Kramer, put together a scheme to overcharge the government by $6 million.

They did further damage when it was revealed that the company had been sold to an unwitting investment group last month. This means that the newly acquired company may be suspect whenever they attempt to bid on a government contract in the future. The defrauding was done to the U.S. Army Tank-Automotive and Armaments Command, also known as TACOM.

Pleading Guilty

The brothers and former CFO have already pled guilty to the charges. They were caught, as they say, dead-to-rights. Ibis Tek LLC, in reviewing the books, noted some strange activities dating back to before 2009. It was quite an ingenious piece of unethical fakery.

The scheme to defraud the government was hardly accidental. According to Federal prosecutors the brothers created a bogus company called Alloy America. Rather than produce the frames in Pennsylvania as was specified in the contract, Alloy America bought the frames for $20 each from a Chinese firm, and then they made phony transactions to make it look as though Ibis Tek LLC was paying Alloy America $70 a frame.

The $50 difference was pocketed. Apparently, the firm also sold the scrap aluminum produced from manufacturing the cheap frames and kept that money as well. As was outlined in the initial contract, the money from the scrap was to go back to the government to help control the costs of manufacturing.

As crooked as the brothers may have been, they could not have carried out the scheme without the help of the CFO who was presumably a CPA and obviously bound by ethical considerations of his license. He will obviously lose his license in addition to any other penalties. Of all of them, he knew better. He chose poor ethics over honesty.

 Ibis Tek LLC – Rich for a “Day”

For a while, the three executives of this 250-person company must have been riding fairly high. In addition to their salaries, they were pocketing the $50 difference for the frames plus the scrap metal money. They were overcome with their greedy choices. Now they may be facing jail time, shame and loss of prestige. It is just not worth it. They were not acting out of ignorance, but from intentionally making bad choices that would lead to the consequences they now face.

While manufacturers of military equipment must comply with the ethical expectations that are well-established, there are no guarantees that unscrupulous organizations will comply. The government is all too often viewed as a giant piggy bank. I am sure that the million or two these executives were skimming each year must have been viewed as loose change. As a taxpayer, I would kind of like that money to be placed into the pockets of me and a thousand of my closest friends! They had no right to take that money.

All light-heartedness aside, unless the government and its myriad of contractors get serious about ethics training, this sort of abuse will keep happening again and again. I would not be at all surprised to learn of other companies getting caught in similar schemes.

The government is us. The onus of ethical behavior is on the contractors such as Ibis Tek LLC. The government is massive, but the Ibis Tec’s of the world are not. Ethical training should not be an option, but a requirement.

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Posted by Chuck Gallagher in business ethics and tagged , , , , , .

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