Jul 30
2023
Feds sanction local defense contractor — again
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A Western New York-based military contractor was rebuked by federal agencies three times between 1996 and 2021 for improper accounting practices and mishandling defense contracts, according to records obtained by Investigative Post.
The investigations and audit into the Calspan University at Buffalo Research Center — or CUBRC — have resulted in more than $500,000 in penalties against the nonprofit organization.
The most recent investigation, which ended in December 2021, was initiated after a tipster alleged CUBRC was committing fraud. Federal investigators ultimately did not charge the organization with crimes, but fined it $129,000 for violating federal contracting rules.
A spokesperson for NASA, which was part of the investigation, said an unnamed subject of the probe has since died.
“It should be noted that the alleged misconduct involved an individual who is no longer with the entity and is deceased,” the spokesman said.
Details of the audits and investigations into the organization have not been previously reported.
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CUBRC is a research agency founded in 1983 by Calspan, Arvin Industries, UB and the SUNY Research Foundation. It’s one of three major defense contractors headquartered in Western New York, along with Calspan and Moog. In 2021, it did $57 million in business, almost all of it federal contracts.
Moog is the region’s largest defense contractor. It did $3 billion in business in 2022. Unlike CUBRC, records obtained by Investigative Post indicate Moog has not been fined or otherwise sanctioned by the federal government over the past two decades. During that time, the company has been subject to numerous routine audits.
Control of CUBRC has changed over the years. Calspan’s involvement is now limited to renting facilities to the company, across the street from the Buffalo Niagara International Airport. UB and Arvin Industries are no longer directly involved.
Since 2013, the board of directors consists of appointees made by the SUNY Research Foundation, the John R. Oishei Foundation, the Margaret L. Wendt Foundation and the James H. Cummings Foundation. None of the foundations provide or receive funding from CUBRC, spokespeople said.
Tom McMahon, the CEO of CUBRC, described the most recent investigation as a “wild goose chase” and said the nonprofit paid a fine to avoid further legal expenses.
“Every hole that they were drilling came up dry for … at least four-and-a-half years,” McMahon said. “And then they found what they believed were inconsistencies with what we were proposing versus what we were delivering.”
Federal officials — including those with the Defense Criminal Investigative Service, other investigatory agencies, and a spokesperson for the U.S. Attorney for the Western District of New York — declined to discuss the probes.
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Records obtained via the Freedom of Information Act showed that CUBRC faced its first federal reprimand in 1996.
In that case, the Defense Criminal Investigative Service probed the “improper accounting” of property and contracts shared between Calspan and CUBRC, and ultimately fined CUBRC $400,000. The fine was specifically related to “improper allocated costs associated with CUBRC contracts and the subsequent reporting of costs to Calspan overhead accounts.”
Then, a 2009 audit by the Defense Contract Audit Agency found CUBRC’s accounting system “to be inadequate,” with deficiencies related to the organization not having written policies for accounting and billing; not including enough detail when it billed the government; and lacking internal controls that caused it to miss certain contract deadlines.
Two years later, in 2011, the Defense Contract Audit Agency found CUBRC had fixed those issues. No fines were issued.
In 2015, the Defense Criminal Investigative Service opened the most recent probe after receiving a complaint that alleged fraud.
The claim: CUBRC was routinely moving funds between contracts in an improper way, including large bonuses for executives and investing federal money in start-up companies.
Investigators found the organization moved people and money between contracts in ways that violated federal rules, but failed to find evidence of systemic problems. Investigators determined that CUBRC “moved” $111,000 between orders on Army contracts, one for testing of a “hypersonic test vehicle,” the other for testing a “conventional strike missile.” The investigators further found that CUBRC made errors on a NASA contract, including listing the wrong project leaders and thus the wrong costs.
McMahon said it was on the advice of Richard Aubrecht and Robert Brady — both retired executives from Moog — that CUBRC paid the fine to “just get rid of this.” Both men serve on CUBRC’s board of directors.
Founded in 1983, CUBRC was created to take over the former Cornell Aeronautical Laboratory and Calspan research labs after Arvin Industries acquired the company. Once formed, CUBRC “was one of the first laboratories in the United States to combine an educational institution and a for-profit organization,” according to an obituary for Charles Treanor, one of CUBRC’s founders.
CUBRC was meant to function as an “‘industry spin-off’ center in Western New York,” according to Treanor’s obituary.
Toward that end, audit reports CUBRC has filed with the IRS show it has invested in a handful of technology and bioscience companies in recent years, including Prosetta Biosciences, TROVE and Innate Immunotherapeutics. CUBRC was one of the largest investors in Innate Immunotherapeutics. Investments in that firm landed former Congressman Chris Collins in federal prison after he pled guilty to securities fraud.
In recent years, CUBRC has secured research and development contracts with NASA, the Army and other federal agencies — reflecting significant growth for the contractor over the years. In 2001, the organization obtained $17.7 million in revenue from federal contracts.
CUBRC employed 211 people as of 2021, according to its tax records. That workforce is bolstered by UB, which subcontracts with CUBRC to allow faculty and students to work on projects, according to university spokesperson John Della Contrada.
McMahon, the CEO, earned $1.1 million in salary and other compensation in 2021, according to tax records.
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Among other functions, CUBRC’s laboratories perform testing on hypersonic vehicles, like spacecraft and missiles. Sen. Charles Schumer has said CUBRC is “the only facility in the nation with the ability to test hypersonic weapons systems at flight conditions at full scale.” Schumer has also helped federal funds flow to CUBRC’s various projects.
Many of CUBRC’s contracts involve testing on planes, drones, missiles and hypersonic vehicles. Others pertain to the organization’s laboratories, which perform research into chemical and biological weapons, among other research. One contract from 2009, for example, saw the Navy pay CUBRC $93,000 for “laboratory testing of mustard gas.” CUBRC also performs data science work.
CUBRC’s largest contract to date, worth $61 million in 2012, was for “development of a novel antibiotic for the treatment of select bacterial infections.”
A for-profit subsidiary, Avarint, performs research into chemical and biological weapons, among other projects. A second subsidiary, Oriana, invests in start-up companies, according to audit records.
