Air Cargo Carriers LLC, a turboprop freighter operator, paid the government more than $350,000 to settle charges that it manipulated shipping data to avoid late-delivery penalties under a U.S. Postal Service contract to transport mail in the Caribbean, FreightWaves has learned.
The air cargo industry has a history of similar scams that took advantage of the Postal Service.
Milwaukee-based Air Cargo Carriers operates 26 Shorts SD3-60 converted cargo aircraft with an average age of more than 40 years. In addition to flying for the Postal Service, the company also provides regional feeder service for UPS’s parcel network. The company’s website lists routes between smaller cities in the Ohio Valley and Louisville International Airport, where UPS’s global air hub is located.
The U.S. Postal Service inspector general in late August issued a one-page summary of an audit conducted on a commercial air carrier for falsifying billing data for mail service between San Juan, Puerto Rico; St. Thomas and St. Croix. “On paper, the carrier was meeting the contract terms for deliveries when, in fact, it consistently failed to do so,” the case study said.
The carrier that committed the fraud over a nearly four-year span was Air Cargo Carriers, according to the investigative file provided Monday to FreightWaves through a Freedom of Information Act request.
Air Cargo Carriers received a four-year contract for intra-Caribbean transport in early 2020 and continues to operate under the first of two contract renewals. The contract is worth up to $71 million through July 2028, if all options are exercised, according to a description on the HigherGov database. A previous contract to carry mail between 2014 and 2020 was held by M&N Aviation, which provides private executive passenger charter and was acquired by Air Cargo Carriers in 2014.
The documents, parts of which were redacted, indicate that Air Cargo Carriers submitted false bar code scans for mail receptacles to make it appear it was meeting requirements for on-time delivery and ensure full payment.
The Office of Inspector General launched an investigation after receiving a tip on its whistleblower hotline. Investigators said they identified a large number of containers that shared an exact two-hour difference between the load and delivery scan between 2018 and 2021. Metadata on bin identification tags showed that scans were not performed by a handheld scanner. Information, instead, was generated by an internal tracking system. Investigators determined that delivery information was inaccurate because the time and date was actually captured during loading.
The U.S. Postal Service requires mail cargo to arrive at the designated destination by a required time. Scan data allows the agency to determine the appropriate payment for each receptacle.
Under the contract that expired in 2020, delivery scans for Priority and first-class mail were subject to a 5% reduction in payment if delivery scans were performed one to 30 minutes after the required delivery time. The USPS deducted 15% from the standard payment for scans performed 31 to 60 minutes behind schedule. Scan delays of more than hour incurred a 25% reduction in payment. Priority Express handling units that were not delivered on time were subject to 25% and 50% penalties after 30 and 60 minutes, respectively.
The current contract has a 30-minute grace period before chargebacks kick in. Delivery scans performed more than 30 minutes, but less than two hours after the required delivery time are subject to a 20% reduction in payment, with penalties rising to 30% after that and to 50% for delays over four hours. Payments for Priority Express Mail that miss the delivery deadline are automatically cut by 50%.
The Office of Inspector General referred the case to the Department of Justice. Air Cargo Carriers admitted to submitting incorrect reporting scans and entered into a financial settlement last April, agreeing to pay the government $350,633, including $187,000 in restitution to the Postal Service, according to the OIG and the documents.
FreightWaves reached out to a company official for comment, but did not hear back.
Air Cargo Carriers is not the first airline to hide performance issues from the Postal Service by fudging time stamps. In November, Sky Lease Cargo agreed to pay $1 million to settle charges it manipulated electronic scans of mail receptacles under a contract for transporting U.S. diplomatic and military mail.
The U.S. government also collected more than $75 million from a multi-year fraud investigation of international mail delivery. In 2022, UPS paid $5.3 million to settle charges that it falsified scan data on international mail to cover up late deliveries or delivery to the wrong location. Other companies that settled included United Airlines, for $49 million in 2021, and American Airlines for $22 million in 2019. Northern Air Cargo paid $4.7 million and partners British Airways and Iberia Airlines paid $5.8 million to resolve alleged violations.
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