THE VIRGINIAN-PILOT 
              Copyright (c) 1996, Landmark Communications, Inc.

DATE: Tuesday, July 2, 1996                 TAG: 9607020233
SECTION: LOCAL                   PAGE: B6   EDITION: FINAL 
SOURCE: BY LYNN WALTZ, STAFF WRITER 
DATELINE: NORFOLK                           LENGTH:   40 lines

CHESAPEAKE MAN SENTENCED IN OIL SCAM HE DEFRAUDED MILITARY, IRS BY CHARGING FOR HIGHER-QUALITY OIL THAN THAT DELIVERED.

A Chesapeake businessman who defrauded the Internal Revenue Service and the military in a tax fraud and kickback scheme was sentenced Monday to 41 months in a federal penitentiary.

William Bartlett ``Buddy'' Jones, 52, sales manager for Domestic Industries Corporation, pleaded guilty in January to the elaborate scam to defraud the Defense Department by charging for higher-quality oil than delivered and the IRS by not reporting the extra cash earned by doing so.

Jones pocketed more than $300,000 in tax-free cash, some of which came from writing fraudulent third-party checks from his company and cashing them himself, according to the U.S. Attorney's office.

Jones held the contract to supply heating fuel oil to Defense Department customers in Hampton Roads from 1990 to 1992. He conspired with another man, Lynn Franklin Payne, 48, who was then the terminal manager of Kenan Transport Company Inc., which delivered the oil. Payne is awaiting sentencing for his role in the scheme.

The two men substituted lower-grade fuel oils, including used and waste oil, for the higher-quality fuels specified by the contract, the investigation showed. To conceal the fraud, documents were created falsifying the quality and quantity of the fuel.

To generate non-taxable income, Jones and Payne created a fictitious company called L.F. Payne. Jones issued checks to the fictitious company from Domestic Industries, then the two men shared the profits, which were not declared to the IRS, federal authorities said.

The investigation is part of a multi-agency task force initiative to stop defense fraud. Participating in the probe are the U.S. Attorney's Office, the Defense Criminal Investigative Service, the Internal Revenue Service, the Naval Criminal Investigative Service, the Defense Contract Audit Agency and the FBI.

KEYWORDS: SENTENCING TAX FRAUD by CNB