DCIS

1. FRAUD AND INTERNAL CONTROL ISSUES IN CONTRACTING DCIS

2. 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.

3. 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

4. InvestigativePriorities DCIS devotes most of its investigative resources to: • Terrorism • Substituted/Non-conformingProducts • Computer Crimes • Illegal Technology Transfer • Public Corruption

5. Organizational Chart

6. 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

7. 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.

8. 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.

9. 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.

10. 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.

11. CASES STUDIES: WHEN INTERNAL CONTROLS BREAK DOWN

12. Case Study A

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. Case Study A • Weakness • WHS management failed to review Subjects’ GPC monthly transactions/reports • Lack of oversight allowed Subjects to carry out scheme

20. 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.

21. Case Study B

22. 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.

23. 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.

24. 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.

25. 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.

26. 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.

27. 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

28. Case Study C

29. 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.

30. 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.

31. 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.

32. 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.

33. 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.

34. 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.”

35. 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

36. Case Study C • Remedy • Successful criminal prosecution • Significant press coverage served as deterrence • OIG Auditing review

37. Case Study D

38. 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.

39. 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.

40. 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.

41. 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

42. 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.

43. 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.

44. 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

45. Case Study D • Remedy • Meeting held with ASD (Health Affairs) • ASD (Health Affairs) directed his staff to follow-up on identified weaknesses

46. Case Study E

47. 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

48. 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

49. 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

50. 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