Small Business Innovation Research (SBIR) Small Business Technology Transfer (STTR)
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Reporting Fraud

Report fraud, waste and abuseThe HHS OIG promotes the effective, efficient, and economical operation of HHS’ programs and operations through audits, inspections, investigations, and other reviews. The HHS OIG investigates any fraudulent acts involving HHS, its contractors or subcontractors, or any crime affecting the programs, operations, Government funds, or employees of those entities.

Please use the following if you want additional information or want to report wrongdoing:
HHS OIG Website
HHS OIG Hotline Operations

Combating Fraud

What types of fraud are found in the SBIR/STTR Programs?

  • During Application Process:
    • Submitting a plagiarized proposal
    • Providing false information regarding the company, the Principal Investigator or work to be performed
    • Seeking funding for the work that has already been completed
  • During Award:
    • Using award funds for personal use or for any use other than the proposed activities
    • Submitting plagiarized reports or reports falsely claiming work has been completed
    • Claiming results for an award that were funded by a different source
Knowing the Rules

Which SBIR rules should you be particularly familiar with?

  • Duplicate or overlapping proposals may not be submitted to multiple agencies without full disclosure to all agencies.
  • The company must meet SBA’s requirements for a small business, including being majority American owned and have 500 employees or fewer.
  • For SBIR: The Principal Investigator’s primary employment must be with the company during the grant period and he or she may not be employed full time elsewhere.
  • For SBIR: For Phase I, a minimum of two thirds of the research effort must be performed by the grantee company; for Phase II, a minimum of one-half of the research effort must be performed by the grantee company. Work performed by a university research lab is NOT work completed by the grantee company.
  • University employees participating on an SBIR award should disclose their involvement to the university as well as their use of university facilities.
  • R&D must be performed in the United States.
Consequences

What happens if you break the rules?

  • If you commit fraud or other wrongdoing in applying for or carrying out an SBIR/STTR award, HHS will investigate.
  • HHS refers violations of civil or criminal law to the Department of Justice (DOJ). If DOJ prosecutes you for fraud or false statements, you may be sentenced to prison and required to pay full restitution.
  • If DOJ pursues a civil action under the False Claims Act, you may have to pay treble (triple) damages and $11,000 for each false claim.
  • HHS may terminate your awards and debar you from receiving grants or contracts from any federal agency.
SBIR Fraud Cases

Davis Man Pays $635,000 in Civil Settlement to Resolve Allegations of False Statements to Obtain Grant Frauds
Department of Justice, U.S. Attorney’s Office, Eastern District of California Press Release
March 29, 2021

SACRAMENTO, Calif. — Owen Hughes, the sole proprietor of Eon Research Corporation in Davis, agreed to pay the United States $635,000 to resolve allegations that he knowingly submitted false statements to the National Institute of Environmental Health Sciences to secure Small Business Innovation Research grant funds, Acting U.S. Attorney Phillip A. Talbert announced.

According to court documents, in 2007, Hughes applied for and received a Small Business Innovation Research grant to conduct environmental research, certifying that he had implemented financial safeguards to ensure the proper use of grant funds.

The settlement resolves allegations that despite his certifications, Hughes had no financial policies in place. As a result, Hughes could not substantiate how he had actually used the federal funds he received. The settlement also resolves claims that Hughes commingled grant funds in his personal accounts and then used the commingled funds for his aviation hobby, by paying aircraft hangar rental fees and buying aircraft parts.

“This settlement sends a clear message that recipients of federally funded grants must strictly adhere to the regulations applicable to those grants and fully account for their use of federal funds,” Acting U.S. Attorney Talbert said. “Recipients who fail to do so risk significant consequences.”

“Establishing required financial policies is a key component to proper accounting of SBIR grants. Therefore, it is imperative that individuals and entities implement sound policies to avoid mismanagement of these limited funds,” said Steven J. Ryan, Special Agent in Charge for the Office of Inspector General of the U.S. Department of Health and Human Services. “Working with our auditors and law enforcement partners, we will continue preserving the integrity of all our grant programs.”

“It is vital that agencies work together to hold grantees accountable for the use of taxpayer funds,” said Lori Pilcher, Regional Inspector General for Audit Services at the U.S. Department of Health and Human Services. “In this case, using forensic tools, our auditors identified suspicious grant disbursements and partnered closely with investigators and the United States Attorney’s Office throughout the investigation.”

The National Institute of Environmental Health Sciences is a component of the National Institutes of Health, which is itself a component of U.S. Department of Health and Human Services.

This case was the result of an investigation by the HHS Office of the Inspector General. Assistant U.S. Attorneys Colleen Kennedy, Rachel Muoio, and Steven Tennyson handled the matter for the United States. The claims settled by this agreement are allegations only, and there has been no determination of liability.



Masstech, Richard Lee, And Arnold Lee To Pay U.S. $1.9 Million To Settle False Claims Act Allegations Relating To Small Business Innovation Research Awards
Department of Justice, U.S. Attorney’s Office, District of Maryland Press Release
May 03, 2018

Baltimore, Maryland – Columbia-based MassTech, Inc., its former Chief Executive Officer, Arnold Lee, and its former Chief Financial Officer, Richard Lee, have agreed to pay the United States $1.9 million to resolve allegations that MassTech falsely certified it was a small business concern in order to obtain Small Business Innovation Research (“SBIR”) awards.

The settlement agreement was announced today by United States Attorney for the District of Maryland Robert K. Hur; Inspector General for the National Science Foundation, Allison Lerner; Special Agent in Charge for NASA Office of Inspector General, Michael Sonntag; and Special Agent in Charge for the Office of Inspector General for the Department of Health and Human Services, Maureen Dixon.  

“Entities that participate in government-funded research grants must truthfully report their eligibility to participate in these programs, including the SBIR program.  Companies and individuals that misrepresent their eligibility in order to obtain government funding undermine the integrity of the government grant process,” said Robert K. Hur, United States Attorney for the District of Maryland.

“The SBIR program is a valuable tool in advancing NSF’s mission to promote the progress of science by increasing opportunities for small businesses to undertake cutting-edge scientific research, and it is essential to protect the integrity of this program,” commented Allison Lerner, the Inspector General for NSF.  “The NSF Office of Inspector General is committed to vigorously pursuing oversight of these taxpayer funds and I commend the U.S. Attorney’s Office and our investigative partners for their strong support in this effort.”

“Individuals who fraudulently obtain federal research funds earmarked for small businesses deprive others of an opportunity to pursue meaningful technological discoveries,” said NASA OIG Special Agent in Charge, Michael Sonntag. “I commend the outstanding efforts of our agents and other law enforcement partners who are committed to ensuring the integrity of this program.”

 “HHS-OIG expects all companies and individuals who accept HHS research funds to be truthful on their applications,” said Maureen R. Dixon, Special Agent in Charge of the Philadelphia Regional Office of the Department of Health and Human Services, Office of the Inspector General.  “We will continue to work with our law enforcement partners to ensure the integrity of HHS grant funds.” The SBIR program is a set-aside program for small businesses.  The purpose of the SBIR program is to strengthen the role of small business concerns (“SBC”) in federally funded research and development and to increase private sector commercialization.  To receive SBIR funds, each awardee of an SBIR Phase I or II award must qualify as an SBC at the time of the award as well as throughout the duration of the award.  To be eligible, an SBC and its affiliates collectively must have fewer than 500 employees.  According to the settlement agreement, the United States alleged that MassTech, Arnold Lee, and Richard Lee falsely represented to NSF, NASA, and HHS that MassTech was an eligible small business concern at the time of the SBIR application as well as throughout the lifecycle of the award.  As a result, NSF, NASA, and HHS approved and funded SBIR awards to MassTech that MassTech otherwise would not have received.  MassTech, Arnold Lee, and Richard Lee denied the United States’ allegations.       

U.S. Attorney Robert K. Hur commended the NSF Office of Inspector General, the NASA Office of Inspector General, and the HHS Office of Inspector General for their work in the investigation.  Mr. Hur thanked Assistant United States Attorneys Thomas Corcoran and Rebecca Koch who handled the case. 

 

Lexington Couple Pleads Guilty to Grant Fraud
Department of Justice, U.S. Attorney’s Office, Eastern District of Kentucky Press Release
February 10, 2016

LEXINGTON — A Lexington couple has admitted in federal court that they submitted false claims related to federal grants from the National Institutes of Health (“NIH”) and defrauded the government out of hundreds of thousands of dollars.

Today, Jerome Hahn, 69, pleaded guilty, to conspiracy to defraud the United States with respect to claims, before U.S. District Judge Danny C. Reeves.  On December 16, 2015, Vesta Brue, 70, pleaded guilty to making a false claim against the United States.

According to court documents, Vesta Brue certified on behalf of Telehealth Holdings, LLC, a company owned by Jerome Hahn, that the company had incurred expenses totaling $222,037, relating to two federal grants Telehealth received from NIH, for the development of medical devices.  Brue falsely certified that the funds had been spent in accordance with grant rules and regulations.

Brue and Hahn waived their right to be indicted by a grand jury, were formally charged in court, and admitted to the charges.

Kerry B. Harvey, United States Attorney for the Eastern District of Kentucky; Howard S. Marshall, Special Agent in Charge, Federal Bureau of Investigation; Derrick Jackson, Special Agent in Charge, U.S. Department of Health and Human Services, Office of Inspector General, Atlanta Region; and Christopher A. Henry, Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division, jointly announced the guilty pleas.          

The investigation was conducted by the Federal Bureau of Investigation, the U.S. Department of Health and Human Services, Office of Inspector General, and the Internal Revenue Service, Criminal Investigation Division.  Assistant U.S. Attorney Kate K. Smith represents the federal government in this case.

Vesta Brue is scheduled to be sentenced on March 30, 2016.  She faces a maximum prison sentence of 5 years and a maximum fine of $250,000.  Jerome Hahn is scheduled to be sentenced on May 18, 2016.  He faces a maximum prison sentence of 10 years and a maximum fine of $250,000.  Any sentence will be imposed by the Court after consideration of the U.S. Sentencing Guidelines and the federal statutes.

 

Dr. Dong, GenPhar Inc., and Vaxima, Inc., Convicted of Fraud in Retrial Before U.S. District Court Judge David Norton
USAO, District of South Carolina, Press Release
August 4, 2015

Columbia, South Carolina ---- United States Attorney William N. Nettles stated today that Dr. Jian Yun Dong, aka John Dong, and the companies which he founded, GenPhar Inc. and Vaxima Inc., were convicted of multiple fraud-based charges following a five day trial in Federal Court that took place June 22 through 25, 2015. The case was submitted for decision to Judge David C. Norton, who issued the verdicts and a written decision today. The case was retried before Judge Norton after a jury hearing the case last November could not reach unanimous verdicts on all counts, although it did find the two corporate defendants guilty of most of the charges. After the two trials, all three defendants have been found guilty of one count of Conspiracy to Commit Grant Fraud, Wire Fraud, Theft of Government Property and Providing False Statements; one count of Theft of Government Funds; and 22 counts of Wire Fraud.

The trial began on November 5, 2014, and concluded on November 14, 2014. Testimony at trial established that federal grant money was obtained by GenPhar and Vaxima for purposes of biodefense research and vaccine development, but was used for other purposes, specifically to construct a commercial office building and pay lobbyists and others who were seeking to secure federal funding for the defendants. Testimony further established that a total of approximately six million dollars were spent on the construction, which included approximately at least three million dollars of improperly diverted grant money.

Mr. Nettles stated, “The real tragedy in this case is that millions of dollars intended for desperately needed vaccine research was diverted into a commercial real estate project. Most of the dedicated and accomplished scientists receiving these grants can be trusted to spend the funds on research, but those that seek to divert the funds to their own benefit need to know that we will pursue charges against them like any other fraudsters.”

The convictions are the result of an investigation conducted by the Department of Health and Human Services Office of Inspector General, the Defense Criminal Investigative Service, the Federal Bureau of Investigation, the U.S. Army Criminal Investigation Command, and the Naval Criminal Investigative Service. Assistant United States Attorneys Eric Klumb and Nathan Williams of the Charleston office prosecuted the case.

 

CT's Nano Group OKs $430K Contract Settlement
December 11, 2012

A Manchester technology firm must repay $430,050 over the next five years to settle government claims of misbilling and obfuscation on more than $4 million in federal research grants and contracts, authorities say.

The Nano Group and its affiliates – U.S. Nanocorp Inc., Inframat Corp. and Inframat Advanced Materials – agreed to the civil settlement, the Connecticut U.S. Attorney's Office said Tuesday.

Meanwhile, $10,739 of the settlement sum is earmarked to cover 401(k) contributions never remitted to employees' retiremement accounts, officials said.

Nano, which deals in specialty metals and coatings, among other technology, didn't respond to a phone call for comment.

According to investigators, the misbilling covered a series of U.S. research contracts issued to the companies between 2000 and 2009.

One was a $1.5 million Air Force contract in 2004 in which Inframat billed taxpayers for unrelated work on a separate job and billed for subcontractor costs never paid to a subcontractor, authorities said.

From 2000 to 2006, Inframat also won four National Institutes of Health (NIH) research grants totaling some $2 million. In addition, from 2002 through 2005, U.S. Nanocorp got a NIH research grant of approximately $650,000.

In handling proceeds of the five grants, the companies improperly co-mingled funds in a corporate bank account that was used to pay the companies' expenses, whether those expenses were related to the contracts or not, federal investigators said.

In February 2009, Inframat applied for a grant in an unspecified sum with the National Science Foundation. However, this was not long after the U.S. Army had flagged Nano Group that it and its affiliates were no longer welcome as bidders.

But Inframat failed to share that with NSF, which four months later ultimately awarded it the grant, authorities said. Inframat went on collect money under the contract until authorities finally caught up with its omission about being on the federal "excluded parties list.''

NSF has since terminated the grant award and the settlement will resolve all issues between the companies and NSF as to the disbursed funds, authorities said.

Regarding the 401(k) settlement, authorities said the companies agreed to replace the individual who was the trustee of the plan during the time period in question, and a new trustee was named in March 2011.

The companies didn't admit or deny doing anything wrong with the retirement-plan contributions, authorities said.

Despite the contract dustup, authorities said Nano Group and affiliates have taken significant steps to shore up management of federal grants and contracts, and are thus re-eligible to pursue Army contracts.