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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.

slide11
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