Employee of a “8(a) Native Hawaiian Organization” security firm sentenced for embezzlement

The Honolulu Star Advertiser reported “Woman sentenced for pocketing salaries of ‘phantom’ employees” (June 7, 2012):

A former employee of a Native Hawaiian organization that provides security guards at Pearl Harbor and other Navy facilities on Oahu is going to prison for nearly two years for putting “phantom” employees on the payroll and pocketing their salaries.

A federal judge sentenced Corinne Haunani Cabral Thursday to 21 months in prison for wire and mail fraud.

U.S. District Judge J. Michael Seabright also ordered Cabral, 57, of Kaneohe, to repay the Hana Group the $223,572 she stole from the company from June 2008 to July last year.

According to the Pacific Business News, a Hana Group subsidiary Hui O Ka Koa received the Pearl Harbor and NCTMS security contracts in 2005:

The U.S. Navy has outsourced the security of its Hawaii bases to a private company for the first time.

The contract marks a major shift in policy by the Navy as it moves to privatize some duties that are performed by sailors. Starting Feb. 1, sailors at Pearl Harbor, the naval magazine at West Loch and a communications center in Wahiawa were replaced at guard posts by officers from the private security firm.

Hui O Ka Koa Security of Honolulu, a Native Hawaiian-owned firm that is a joint venture of a local engineering firm and a Mainland conglomerate, was awarded the five-year deal worth $83 million.

The contract pays the company to guard five Navy bases: three in Hawaii, one in Maine and another in Connecticut, said Alvin H. Pauole, general manager of Hui O Ka Koa, which means “team of warriors.”

The two partners in the venture are Hana Engineering, an 8-year-old Native Hawaiian-owned firm in Honolulu, and Day & Zimmermann, a Philadelphia-based company whose subsidiaries include a large security services division that specializes in guarding nuclear, defense and power facilities.

Hana is the managing partner in the Hawaii portion of the contract, which was awarded without competitive bidding.

“It’s a single/sole-source contract,” Pauole said. “We marketed our team to the Navy, they were convinced we can do the job and they gave us the contract.”

Take note that one of the “experienced” partners in the venture is a company based in Philadelphia.  This has been a component of the Special 8(a) program, framed as “mentoring” for the native-owned company, but in many cases it has become a convenient way for military contractors to bypass competitive procurement by riding the Special 8(a) coattails of a native-owned company:

To qualify for bigger contracts, small firms like Hana are required to have an established company as a mentor. Day & Zimmermann is privately held, has annual revenue of $1.3 billion and employs 20,000, including about 3,000 in its security division.

Along with the two contracts to guard Navy bases, a $17.6 million contract was awarded to Hui O Hawaii Hale LLC on Wednesday for family housing maintenance.

Hui O Hawaii Hale LLC is a separate partnership of Day & Zimmermann and Hana Engineering.

“We needed them to go after larger military contracts, and they have been helpful to us,” Pauole said.

The Hana Group is one of a number of so-called Native Hawaiian Organizations (NHO), a federal definition under the Small Business Administration 8(a) minority and women owned business development programs.   For normal 8(a) set-aside programs, the federal contracts are competitively procured  and limited to maximum awards of $5.5 million for manufacturing contracts and $3.5 million for all other acquisitions. But there’s a special provision created for native-owned companies on the rationale that native governments and corporations have responsibility for economic development and have unique needs and challenges.

The Special 8(a) program allows sole-source (i.e. non-competitive awards) to Alaska Native Corporations, Indian Tribal corporations and most recently, Native Hawaiian Organizations.  There are no limits to the size of these non-competitive awards. Furthermore, native-owned companies may create unlimited subsidiaries that can also qualify for the program.  This has created a sort of Native-Military-Industrial complex that has grown immensely in Hawai’i in recent years.   In several reports to Congress, the Government Accounting Office expressed concerns over the lack of controls and oversight of this program:

Procuring agencies’ contracting officers are in need of guidance on how to use these contracts while exercising diligence to ensure that taxpayer dollars are spent effectively. Equally important, we stated, significant improvements were needed in SBA’s oversight of the program. Without stronger oversight, we noted the potential for abuse and unintended consequences.

Perhaps, more attention should be given to federal procurement trends that may be utilizing the sole-source contracting option with Super 8(a) firms to simplify their work, but at the same time creating a big loophole in accountability in federal contracting.  Also, more attention should be given to the “partnerships” between native corporations and large military contractors that may be simply business fronts for circumventing competition.   In this specialized marketplace of federal contracting, some enterprising native entrepreneurs have found ways to exploit their indigenous identity as an immaterial form of capital.  Indigenous identity as an exploitable resource, a competitive advantage over other businesses seeking federal contracts.   But the lingering question is “At what cost?”

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