FRAUD AND INTERNAL CONTROL ISSUES IN
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FRAUD AND INTERNAL CONTROL ISSUES IN CONTRACTING. DCIS. Defense Criminal Investigative Service. Mission Protect America’s Warfighters by conducting investigations in support of crucial National Defense priorities. Vision

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Defense criminal investigative service
Defense Criminal Investigative Service

Mission

  • Protect America’s Warfighters by conducting investigations in support of crucial National Defense priorities.

    Vision

  • Remain established as a premier investigative organization, demonstrating excellence in all aspects of our operations.


Dcis mission
DCIS Mission

  • Is the law enforcement arm of the OIG, DoD

  • Has statutory law enforcement authority

  • Derives its authority from Public Law 97-252, DoD Directive 5106.1, and Title 10 Section 1585a

  • Investigates allegations of criminal violations


Investigative priorities
InvestigativePriorities

DCIS devotes most of its investigative resources to:

  • Terrorism

  • Substituted/Non-conformingProducts

  • Computer Crimes

  • Illegal Technology Transfer

  • Public Corruption



Office locations

Portland

Office Locations

  • Seattle

Lester

Syracuse

Boston

  • Minneapolis

Sioux Falls

Milwaukee

  • Buffalo

Hartford

Cleveland

New York

New Jersey

Harrisburg

Rock Island

Pittsburgh

  • Chicago

Salt Lake City

  • San Francisco

Baltimore

Columbus

Monterey

Indianapolis

Sacramento

Denver

Arlington

Dayton

Kansas City

Richmond

Norfolk

Roanoke

St. Louis

Las Vegas

Wichita

Wiesbaden, Germany

Woodland Hills

Long Beach

Tulsa

  • Nashville

Raleigh

Albuquerque

Mission Viejo

Phoenix

  • San Diego

Huntsville

Hawaii

Smyrna

Charleston

Camp Victory

DCIS

Field Office

Resident Agency

Post of Duty

Arlington

El Paso

  • Glynco/FLETC

Iraq

Austin

Jacksonville

Pensacola

Houston

Kuwait City

Tampa Bay

Orlando

New Orleans

San Antonio

Ft. Lauderdale


Dcis investigative programs
DCIS Investigative Programs

  • Economic Crime Programs

    • Product Substitution (includes environmental crimes).

    • Public Corruption (includes health care fraud).

    • Financial Crimes.

    • International Contract Corruption Task Force/Joint Operations Center.

    • Asset Forfeiture.


Fraud vulnerability reports fvr
Fraud Vulnerability Reports (FVR)

  • Fraud Vulnerability Reports address:

    • fraud vulnerability(s) identified during an investigation.

    • typically involve internal control breakdowns.

    • normally issued after judicial proceedings or at conclusion of case.

    • intended to inform management of potential fraud vulnerabilities within their system.

    • responses are coordinated with DCIS Field Office directing investigation.


Internal controls
Internal Controls

  • What’s at Stake?

    • Responsible Use of Entrusted Taxpayer Dollars.

  • What’s at Risk?

    • Insufficient resources to support DoD mission.

  • Measures to:

    • encourage adherence to policies and procedures

    • promote operational efficiency and effectiveness

    • safeguard assets and ensure the reliability of accounting data.


Internal controls1
Internal Controls

  • Internal controls encompass both internal administrative controls and internal accounting controls.

  • Performance and accountability “speed bumps.”

    • what gets measured gets done.

    • what gets counted gets recorded.

  • To disregard any one internal control within a system

    creates a fundamental weakness to be exploited.


CASES STUDIES:

WHEN INTERNAL CONTROLS

BREAK DOWN



Case study a1
Case Study A

  • Director, Graphics and Presentations Division, Real Estate & Facilities Division, Washington Headquarters Services (WHS), suspected of misusing Government Purchase Card (GPC) to purchase personal use items.

  • Deputy Director also suspected in scheme.

  • Director used name of co-workers as requestors on fraudulent transactions for Information Technology services from a sham company created by her brother.


Case study a2
Case Study A

  • Scheme netted over $3 million.

  • Co-worker of Director provided “suspicious” documents to DoD IG.

  • OIG Auditing requested Director provide supporting documentation; Director delayed.

  • Data Mining support to OIG Auditing on documentation identified questionable charges.


Case study a3
Case Study A

  • Computer analysis revealed fraudulent invoices, some created minutes apart, on the Director’s computer.

  • Director & brother email discussions.

    • how much to charge and still avoid detection.

    • agreement to split 2/3 of proceeds; 1/3 for taxes.


Case study a4
Case Study A

  • Search warrants executed on premises of Director, brother’s residences, and WHS offices of Director and Deputy Director.

  • On the weekend after the searches, Deputy Director and husband attempted to enter items fraudulently purchased with GPC into the WHS inventory to avoid detection.


Case study a5
Case Study A

  • Director:

    • guilty plea to Theft of Government Property.

    • sentenced to 37 months incarceration.

    • three years supervised release.

    • paid $1.7 million in restitution.

  • Deputy Director:

    • guilty plea to Theft of Government Property.

    • sentenced to three years probation, including six months home detention.


Case study a6
Case Study A

  • Director’s brother:

    • established a false identity and moved to Phoenix to elude law enforcement.

    • arrested and admitted involvement.

    • guilty plea of Theft of Government Property

    • sentenced to 48 months incarceration.

    • paid $1.6 million in restitution.

  • Director and Deputy Director debarred from doing business with the Government.


Case study a7
Case Study A

  • Weakness

    • WHS management failed to review Subjects’ GPC monthly transactions/reports

    • Lack of oversight allowed Subjects to carry out scheme


Case study a8
Case Study A

  • Remedy:

    • DoD IG issued guidance in 2002 as result of investigation and DoD Charge Card Task Force recommendations:

      • Notification of supervisors and security managers when cardholder under investigation for charge card misuse.

      • DCIO or DoD element must notify subject’s commander or second-line supervisor and security manager.



Case study b1
Case Study B

  • The Office of Small and Disadvantaged Business Utilization (SADBU) - chief administrator of acquisition preference programs within DoD.

  • Former SADBU Director (SES-5) and his Executive Assistant used positions to leverage bribes and gratuities & extort those doing business with DoD and GSA.

  • Coordinated their activities by working together as partners.


Case study b2
Case Study B

  • Conspired in scheme to launder proceeds through nominee companies, offshore bank accounts, and multi-layered sham transactions.

  • Conspired to embezzle U.S. funds and launder over $800,000 in proceeds of specified unlawful activity.

  • Shell company bank account amassed laundered money and was repository for bribes and extortion money.


Case study b3
Case Study B

  • Investigation proved subjects accepted:

    • $70,000 cash.

    • Rolex watches.

    • travel expenses (airfare, hotel, limousine).

    • Las Vegas Heavyweight boxing title match seats.

    • $200,000 in third-party payments for their benefit.

  • Residences searched; subjects arrested.


Case study b4
Case Study B

  • Both subjects originally sentenced:

    • 292 months incarceration.

    • 3 years supervised release.

    • Ordered to pay $1.7 million restitution within 60 days of release.

  • Subjects re-sentenced upon appeal to 108 months and 96 months imprisonment.


Case study b5
Case Study B

  • Both subjects forfeited $1 million and debarred for 27 years by U.S. Air Force.

  • Several other co-conspirators were prosecuted by DoJ and debarred by the U.S. Air Force for varying terms.

  • Civil settlement with DoD contractor whose employee was involved in the scheme:

    • paid the U.S. $300,000 to avoid civil litigation.

    • debarred for a period of nine months.


Case study b6
Case Study B

  • Weakness

    • Lack of management oversight of SADBU program allowed Subjects to carry out scheme

  • Remedy

    • Successful criminal prosecution

    • Significant press coverage served as deterrence



Case study c1
Case Study C

  • Allegations that former USAF official (SES-6):

    • steered acquisition contracts to The Boeing Company (Boeing).

    • negotiated employment with a Boeing official while still employed with USAF.

    • released a competitor’s proprietary financial information to Boeing during negotiations of KC-767 tanker lease.


Case study c2
Case Study C

  • Investigation found:

    • USAF official used her position to influence 28 contracts related to various USAF programs between 1993 and 2002, including the Evolved Expendable Launch Vehicle (EELV) program.

    • While still employed with the USAF, she negotiated employment with a Boeing official for herself, her daughter, and son-in-law.


Case study c3
Case Study C

  • USAF Official:

    • guilty plea of conspiracy to commit acts affecting personal financial interest by negotiating employment with Boeing.

    • sentenced to nine months confinement and seven months community confinement

    • three years supervised release.

    • 150 hours community service.

    • fined $5,000.


Case study c4
Case Study C

  • Boeing Official:

    • guilty plea to aiding and abetting acts affecting personal financial interest for his involvement.

    • sentenced to four months imprisonment and two years supervised release.

    • 200 hours community service.

    • fined $250,000.


Case study c5
Case Study C

  • USAF and Boeing officials debarred by USAF for a period of six years to expire February 2010.

  • A global settlement resulted in Boeing agreeing to pay the Government $615 million to resolve the conflict of interest and EELV scandals at the company.


Case study c6
Case Study C

  • An OIG Auditing review:

    • USAF relied on DoD’s Appropriations Act, Sect. 8159 – did not consult OMB circular and the FAR to justify its acquisition strategy to lease 100 Boeing KC-767A tanker aircraft over another aircraft.

    • USAF neither “demonstrated…best practices nor prudent acquisition procedures to provide sufficient accountability for…$23.5 billion for the KC-767A tanker program.”


Case study c7
Case Study C

  • Weakness

    • USAF official’s time in position

    • No one challenged her decisions, which allowed for abuse of power

    • Lack of management oversight of USAF official’s decision making


Case study c8
Case Study C

  • Remedy

    • Successful criminal prosecution

    • Significant press coverage served as deterrence

    • OIG Auditing review



Case study d1
Case Study D

  • Health care provider in the Philippines allegedly:

    • billed TRICARE’s Overseas Program (TOP) for services not rendered and inflated claims billed to TRICARE.

    • engaged in kickback scheme with other medical providers in the Republic of the Philippines.

    • inflated bills of other providers by 100% before submitting to U.S. Government for payment.


Case study d2
Case Study D

  • Allegations continued:

    • created a sham insurance program to pay beneficiaries deductibles and co-payments.

    • circumvented TRICARE’s controls.

    • submitted fictitious and fraudulent TRICARE claims that beneficiaries were hospitalized and received services when they had not.


Case study d3
Case Study D

  • Primary subject indicted and charged:

    • 32 counts Mail Fraud.

    • 41 counts Filing a False Claim.

    • a single count of Conspiracy.

    • a single forfeiture count seeking over $900,000.


Case study d4
Case Study D

  • Subject deported from the Philippines:

    • arrested in Guam.

    • transported to Madison, WI (location of TRICARE TOP fiscal intermediary).

    • trial pending.

  • Corporation charged and also pending trial


Case study d5
Case Study D

  • Potential Outcome:

    • conspiracy and false claims carry a maximum sentence of five years imprisonment and $250,000 fine.

    • subject’s company, a corporation, subject to a $500,000 fine on each count, or alternatively, potentially two times the amount of gain to the defendant or two times the loss to the Government.


Case study d6
Case Study D

  • Forum established to curtail TOP fraud in the Philippines.

    • U.S. Attorney’s Office & DCIS

    • ASD (Health Affairs)

    • TRICARE Management Agency & TOP Fiscal Intermediary

  • DCIS teamed with OIG Auditing to conduct TOP Audit, and partnered with NCIS and U.S. Postal Inspection Service in this investigation.


Case study d7
Case Study D

  • Weakness

  • FVR issued to ASD (Health Affairs)

    • No existing policy limiting amount provider can charge for medical service

    • No enforcement of existing policy 32 CFR 199.4 requiring beneficiaries to pay 25% cost share


Case study d8
Case Study D

  • Remedy

    • Meeting held with ASD (Health Affairs)

    • ASD (Health Affairs) directed his staff to follow-up on identified weaknesses



Case study e1
Case Study E

  • Senator Charles E. Grassley’s interest:

    • Examine fraudulent charges made with Government Purchase Card (GPC) and Government Travel Card (GTC) held by Navy employee

    • Review employee’s security clearance issues


Case study e2
Case Study E

  • Fraudulent charges to Government credit cards totaled $12,631

  • Employee admitted using GPC and GTC to purchase airline tickets and rent a vehicle totaling $1,079

  • Denied involvement in remaining $11,551 in fraudulent GPC charges


Case study e3
Case Study E

  • Employee’s husband and sister in-law developed as additional suspects in scheme

  • Husband confessed to receiving items illegally purchased with employee’s GPC

  • Husband implicated employee and his sister as co-conspirators in making illegal purchases

  • Sister-in-law refused to cooperate


Case study e4
Case Study E

  • U.S. Attorney’s Office declined prosecution

    • Statute of Limitations expired

    • No loss to Government as credit card companies suffered the loss


Case study e5
Case Study E

  • Security Clearance Concerns

    • Army “informally” suspended employee’s security clearance during investigation based on allegations of fraud

    • Despite the suspended security clearance, employee moved through a series of DoD jobs requiring security clearances


Case study e6
Case Study E

  • Two DoD employers made offers of employment prior to verifying security clearance status

  • Employee failed to communicate suspension of security clearance to hiring commands


Case study e7
Case Study E

  • Weakness

    • FVR issued to responsible hiring and security adjudication authorities

    • Recommendations to DoD employers

      • Security clearances verified or adjudicated prior to employment

      • Position descriptions (PD) should clearly state employment is or is not contingent on clearance


Case study e8
Case Study E

  • DoD Security Office notifies supervisor of suspended or revoked clearances

  • Clear line of responsibility in DoD to notify acquiring organization of suspended clearances

  • Human Resources Office notifies Security Office prior to offering employment


Case study e9
Case Study E

  • Remedy

    • Management Responses/Corrective Action

      • Security checks completed prior to offers of employment

      • Develop tracking to ensure compliance with regulations and controls

      • Security clearance requirements clearly stated in PD’s

      • Full use of JPAS will preclude breakdown in communication


Case study e10
Case Study E

  • GPC Procedural Changes

    • Decrease number of cardholders

    • Reduce number of cardholders per approving officials

    • Reduce monthly credit limits

    • Establish and monitor independent receipt and acceptance controls

    • Provide more training