Report to Congress on
Contracting Fraud

Under Secretary of Defense
for Acquisition, Technology and Logistics
October 2011
Preparation of this Report/study cost the
Department of Defense a total of
approximately $81,000 for FY 2011.
Generated on 2011 Oct06
1559 ReflD: D-315854E

 A. Background

In the Committee Print of the Committee on Appropriations' Explanatory Statement,
page 72, accompanying H.R. 3326, the Department of Defense (DoD) Appropriations Act, 2010
(Public Law 111-118) requested the Secretary of Defense, in coordination with the DoD
Inspector General (DoDIG), to report to the congressional defense committees on contracting
fraud. The report is to include an assessment of the total value of DoD contracts entered into
with contractors that have been indicted for, settled charges of: been fined by any Federal
department or agency for, or been convicted of fraud in connection with any contract or other
transaction entered into with the Federal Government over the past 10 years. The report is also
to include recommendations for penalties for contractors who are repeatedly involved in contract
fraud allegations as well as actions the Department has taken to strengthen its policies and
safeguards against contractor fraud.

B. The DoD Approach to Dealing With Allegations of Procurement Fraud
Pursuant to DoD Instruction 7050.05, "Coordination of Remedies for Fraud and
Corruptions Related to Procurement Activities," each DoD Component is "required to monitor,
from its inception, all significant investigations of fraud and corruption related to procurement
activities affecting its organization." This monitoring is designed to focus DoD Components'
attention on two general courses of action .
The first course of action entails a range of contractual and administrative actions that
DoD Components may use to protect the Government as investigations into possible fraudulent
behavior develop. These administrative and contractual actions are discretionary and should
remain so. Contracting Officers and Suspension and Debarment Officials must retain the ability
to engage early rather than relying upon debarments after convictions since convictions generally
occur many years after the misconduct and permit too much time to pass before the
Government's interest is adequately protected . For example, if the allegations appear serious,
DoD Components will likely plan to acquire required goods and services from alternative
sources and minimize possible lost time should the allegations be proven. Even before
allegations of fraud are fully proven, DoD Components have the ability to engage with the
contractor either with a suspension, debarment , or a show-cause letter, and, through these
processes, work with the contractor to ensure that the Government is protected in any future
dealings with the contractor.
The second course of action involves criminal and civil remedies for contractor
misconduct. Holding contractors accountable civilly and criminally for fraud falls solely under
the purview of the Department of Justice (DoJ) (e.g., Contract Disputes Act of 1978; Executive
Order 6166, June 10, 1933). As such, DoD Components generally refer fraud matters to the DoJ
to initiate cases, when appropriate , and work with the DoJ to assist in prosecuting these cases.

2

 C. Summary of Fraud Related Criminal Convictions and Civil Judgments or Settlements
1. Criminal Convictions
The DoJ identified 54 DoD contractor companies that were criminally charged with
fraudulent practices over the past 10 years . A list of these contractors is contained in Table IA.
The amount of funds the Department obligated to these companies subsequent to conviction is
also identified in Table 1A, along with the total dollars obligated to these companies for the
l 0-year period. The contractors criminally convicted of fraudulent actions identified by the
DCIOs for the period 2007 - 2009 that were not included in the DoJ database are contained in
Table lB, along with the dollars the DoD obligated subsequent to the convictions.
A criminal conviction often results in a debarment but not automatically. Suspension and
debarment are not considered punishments (see Federal Acquisition Regulation (FAR) Subpart
9.402) but are actions taken to protect the Government in future contracting actions when the
contracting officer makes a separate determination with regard to present responsibili ty.
Contractors suspended, proposed for debarment or debarred are precluded from receiving future
contract awards or extensions absent agency findings of compelling reasons. In appropriate
circumstances, the agency may enter into an administrative agreement with a convicted
contractor in lieu of a suspension or debarment. Administrative agreements usually require the
contractor to implement ethical codes of conduct, employee training, and independent oversight
to improve conduct and performance and to ensure present responsibility and a good
Government business partner in future actions.
While the Government needs protection from contractors found to be not responsible
during the period of their suspension or debarment, it should be noted that after those periods
expire, contractors return to eligibility and are, generally, considered responsible like any other
contractor. This is, of course, subject to the contracting officer's separate, independent
determination of responsibility under FAR Subpart 9 .1, wherein the original misconduct may
remain a factor. Accordingly, receipt of contracts and the associated funding will be reflected in
the tables.
2. Settlements/Judgments
For the 10-year period, the DoJ identified more than 300 DoD companies that entered
into settlement agreements or had civil judgments rendered against them . Table 2A identifies the
dollars associated with the settlements and/or judgments , the dollars subsequently obligated to
them, and the total dollars obligated to them over the 10-year period . It should be noted that the
data that the DoJ provided did not differentiate between settlements and civil judgments;
however, we understand that the vast majority are settlements. Further, with regard to these civil
cases , it is important to note that a single settlement or judgment may appear in this table
multiple times, listed under each entity that shares liability for the settlement or jud gment
amount. Therefore, the settlement and judgment amounts appearing in this table cannot be added
to calculate the total U.S. recoveries from DoD contractors during the period. Note also that
liability for the settlement or judgment amount listed for a particular entity may be shared joint ly
and severally with other entities .
..,
.)

 DCIO data identified additional contractors for the period 2007-2009 that were not in the
DoJ database and, as explained previously, we have included that information in this report as
well in Table 2B, along with the dollars the DoD obligated subsequent to the settlements/civil
judgments.
There is a presumption that when judgments have been entered or civil settlements have
been agreed upon, the contractors (not having exhibited other problems) have returned to
eligibility and are generally considered responsible like any other contractor, subject again to the
contracting officer's separate, independent determination ofresponsibility under FAR Subpart
9 .1. Accordingly, follow-on awards of contracts and the associated funding will be reflected in
the tables.
Table 3 identifies those contractors whose names appeared on the settlement/judgment
list (Table 2B) who were suspended or debarred as a result of fraudulent activities.

3. Parent Company Obligations
Table 4 contains the obligations to the "parent" company for any company that was
identified in the DoJ and DCIO data and which also appeared on the annual DoD top 100
contractor list.

D. Methodology
In discussions with congressional staff, the DoD and the DoDIG explained the DoD's
difficulties associated with addressing fraud issues on contracts awarded by other Federal
departments or agencies. As a result of those discussion s, it was initially determined that the
report would be limited to fraud issues associated with DoD contracts and that the information
would be collected from the Defense Criminal Investigative Organizations (DCIOs). It also was
agreed that the timeframe for which the data would be gathered would be 3 years.2 The DoD
expressed concern over the fact that, given a 10-ycar time frame, contractors will have merged ,
changed names, or dissolved, thus making it very difficult to track or correlate them to the
current DoD contractor community of more than 235,000 contractors. It also was agreed that the
focus would be on convictions, civil settlements, and judgments. Indictments were not to be
included because indictments may be dismissed or otherwise not result in a conviction.
Finally, it was agreed that in order to make the data more manageable, the threshold for
reporting convictions , civil judgments, and settlements would be limited to those contract actions
that were valued at more than $1,000,000. It should be noted, however, that data below that
threshold was provided and is included in this report. These agreements were set forth in an
interim draft report that was provided to the congressional defense committees on April 5, 2010.
The DoD faced many challenges in developing this report and discussed those difficulties during
subsequent meetings with the congressional staff. During those discussions, it was decided that
the DoD would provide 10 years of data, as requested by the Explanatory Statement (ES), and
that the data would be obtained through the Department of Justice (DoJ). The DoJ provided the
information to the DoD to the extent that the data was available. As a result, the information
2

As discussed below, the data gathering was later expanded to cover the entire I0-year period .

4

 contained in this report on specific fraud-related actions over the 10-year period is based on
information provided by the DoJ. The DoJ data was then used to obtain the 10 years of
obligation data from the Federal Procurement Data System (FPDS). An informal release of
information to congressional staffers included the 3 years of data (2007-2009) provided by the
DCIOs versus the 10 years of DoJ data. We have included that DCIO information on criminal
convictions, settlements, and judgments in this report for completeness .
In discussions with the DoJ, the DoD reports that there may be several reasons that some
of the cases identified by the DCIOs were not also included on the lists provided to the DoD by
the DoJ. For example, the case management system used by the U.S. Attorneys' offices does not
identify defendants by their status as Government contractors. In addition, that database tends to
identify cases by the "lead charge." As such, a case involving !bid-rigging, for example , may not
appear as a "fra ud" case. In addition to the above, the difference betw een the data provided by
the DoJ and the DCIOs may be attributed to other factors , including how the data was
categorized in the DoJ databases. As an example, a case could have been categorized as a
bribery matter instead of a procurement fraud issue. The DoJ ensuring that all cases involving
some type of "fra ud-related " matters were reported would require opening up thousands of
indictments and case files - a matter not practical in terms of time and resources.
Federal contracting processes and the FPDS utili ze the Dun and Bradstreet Data
Universal Numbering System (DUNS) to identify contractors awarded specific contract actions
and associated obligated dollars. The DoJ data did not contain any DUNS or other physical
address identifier s for the named companies. Additionally, the DoJ database does not keep track
of corporate lineage. Using the DoJ-provided information as a starting point, the DoD used the
FPDS to search for the obligation data associated with the identified companies by the names
provided . Without the DUNS identifier, it is difficult for the DoD to guarantee that all data
associated with a particular company has been captured. Moreover, the possibility exists that
without the DUNS identifier an entity may have been identified and erroneously included in the
data collection.
Although not requested by the ES, congressional staff requested that the Department
provide the obligation data for the parent company for all "offen ding" companies for the 10-year
period as well. The Department does not have a license with Dun & Bradstreet and therefore ,
does not have access to the "fami ly tree" for all the companies on the DoJ list. Furthermore, the
parental tree is an annual "snapshot" in time for a given year. It does not address which
components/subsidiaries are no longer parts of the parent corporations or address mergers and
acquisitions that have taken place over the 10-year period. The Department's annua l top l 00
DoD contractor list does, however, identify the "parent company." To the extent that any of the
companies identified on the DoJ list and the DCIO list were included on the annual top 100 DoD
contractors list for the past 10 years, the DoD used this list to identify the obligation data for the
parent company. Obviously, many of the companies on the Do.J list are small companies that do
not appear on the top 100 DoD contractors list, and in those instances, only the obligations for
the identified company that matched the same name were provided.
A further clarification regarding the data is necessary. As stated above, the DoJ data
included only the name of the company, for example, "Beck." The FPDS does not include any
information on Beck. There is information on Beck & Beck Service; Beck & Hofer

5

 Construction; Beck Associates PC; Beck Bus Transportation Corp; Beck Development Group;
LLC; Beck Electric Supply; Beck Engineering ; and Beck Gebadereinigung Und Dien and Beck
Packaging Corporation. In this case, since there is no way to determine which company is
identified, no obligation data was included as nothing could be directly attributable to "Beck" as
an entity. However , when a similar situation exists for a company like General Dynamics , where
no specific entity was identified, but the name is unique enough to distinguish the vendor as one
that is routinely a DoD top 100 contractor, we gathered all data on General Dynamics
Corporation .
It should also be noted that in many instances, the investigative activity that led to the
convictions, civil settlements or judgments was an ongoing effort spanning several years . Since
the information in the FPDS reflects obligated dollars, the DoD has included only the dollars
obligated subsequent to the disposition date for the fraud-related issue. If more than one fraud
related incident was reported, each instance was identified; however, the obligations data reflect
total dollars obligated after the first incident, along with all obligations for the l 0-year period.

E. DoDIGReview
The information obtained from the DoJ, as well as the information previously collected
from the Defense Criminal Investigative Organizations , was provided to the DoDIG , specifically
to the Deputy Inspector General's Office of Policy and Oversight, as required by the ES. The
DoDIG planned to focus only on the DCIO data provided to the Department for the period 20072009 and on the methodology that the DCIOs used to collect that information . Accordingly, the
DCIOs were requested to provide the instructions/regulations pertaining to their
collection/recording of recoveries, indictments and convictions to the DoDIG . Upon receipt of
the documents, the DoDIG reviewed the following:
a. Databases used by the DCIOs to record Recoveries, Indictments and Convictions
(RIC);
b. Documents required for validation of RIC;
c. Responsibility for inputting RIC into DCIO database;
d. DCIO levels of validation/v erification of RIC;
e. Input of RIC into DCIO database;
f. If DCIO RIC data are periodically validated. And if so, how often; and
g. DCJO's process for insuring that RIC is not claimed by another DCIO or duplicated.
The DoDIG findings are contained in Attachment 2.
F. Actions the Department has taken to strengthen Department policies and safeguards
against contractor fraud.

As highlighted in the interim report, the Department has taken a number of actions to
improve awareness and safeguards with regard to contractor fraud. Some of the major efforts are
discussed below :

6

 Panel on Contracting Integrity
Section 813 of the John Warner National Defense Authorization Act for FY 2007
directed the Department of Defense to establish a Panel on Contracting Integrity consisting of
senior leaders representing a cross section of the DoD. The Panel's purpose was twofold:
(1) review progress made by the DoD to eliminate areas of vulnerability of the defense
contracting system that allow fraud, waste , and abuse to occur, and (2) recommend changes in
law, regulations, and policy to eliminate the areas of vulnerability.
The Under Secretary of Defense for Acquisition, Technology and Logistics established
the Panel on Contracting Integrity by a February 16, 2007 , memorandum. The Panel was
established with representatives from the Military Departments, Defense agencies, and other
DoD organizations. The Panel meets on a quarterly basis, and the working subcommittees that
support the Panel meet as required to accomplish their activities . To date, and in accordance
with the requirements of Section 813, the Panel has submitted three annual reports to Congress
describing its progress.
Initially , the Panel focused on the areas of vulnerability in the defense contract systems
that the U.S. Government Accountability Office (GAO) identified in its report, "Contract
Management: DoD Vulnerability to Contract ing Fraud, Waste and Abuse" (GAO-06-838R) , as
well as findings from the DoDIG and recommendat ions from the Procurement Fraud Working
Group. The Panel also reviewed the findings of the March 2005 Defense Science Board Task
Force "Management Oversight in Acqu isition Organizations," and the issues raised by the
Commission on Army Acquisition and Program Management (the Gansler Commission).
Originally, the Panel was supported by 10 subcommittees that identified 21 initial actions
for implementation in 2008. Attachment 3 contains an extract of the 2007 Report to Congress
that identifies the members hip of the Panel at that time and also contains a list of the
subcommittees and their Chairs. Twenty of the 21 initial Panel action items were accomplished.
The remaining item, a legislative proposal to clarify what constitutes a commercial item, was
prepared for submission to the Office of Management and Budget.
Currently , the Panel includes 13 subcomm ittees, all pursuing the central theme of
eliminating areas of vulnerability in the defense contracting system that allow fraud, waste, and
abuse to occur. Key to the fraud topic area was the work performed by subcommittee 8, chaired
by the DoDIG and supported by the military audit or investiga tive agencies. The
subcommittee's efforts included:
•

Updating the Procurement Fraud Handbook and adapting 20 contract-related
scenarios from the Handbook on Fraud for Contract Auditors and Indicators of Fraud
in DoD Procurement in 2008;

•

Creating a Web site on procurement fraud information to increase awarene ss of
procurement fraud and fraud indicators in October 2008.
(www.dodig.mil/Inspections/APO /fraud/lndex.htm) The DoDIG has recently added
new scenarios to the Web site and plans to update the guidance based on recent
changes to the GAO 's Yellow Book of Auditing Standards ;
7

 •

Creating a Defense Acquisition University (DAU) training module on Procurement
Fraud Indicators , which includes information on risk mitigation - CLM 049;

•

Hosting a DoD Procurement Fraud Conference at DAU in June 2009;

•

Developing and airing Web video cast to increase overall awareness of procurement
fraud and indicators of such fraud; and

•

Drafting and publishing an article on procurement fraud indicators in the
March-April 2009 issue of the "AT&L Journal."

Additionally, the Panel on Contracting Integrity Subcommittee 10 is recommending the
creation of a DoD-spccific program fraud-civil remedy to redress fraud in DoD procurement
program s and acquisitions. This administrative remedy (i.e., non-judicia l remedy) would permit
DoD agencies and the Military Departments, subject to DoJ approval, to impose penalties and
assessments on contractors who make false claims and statements to DoD agencies or the
Military Departments.
Procurement Fraud Working Group

In January 2005, the DoD -wide Procurement Fraud Working Group was established to
develop a closer working relationship among the relevant DoD activities and agencies involved
in the identification, investigation, and prosecution of contractor fraud. Specifically, the
Working Group provides a forum of information exchange , legislative/policy development , and
continuing education with regard to current issues, future national trends , investigative strategies,
appropriate remedies and enforcement problems in the procurement fraud arena. The Working
Group also enhances inter-agency coordination, communication, and cooperation with the
Department of Justice (DoJ), the National Aeronautics and Space Administration (NASA), and
other Government agencies combating procurement fraud.
The Working Group has conducted annual training seminars since March of2005 with
the most recent seminar held in April 2011 . These seminars provide an opportunity for sharing
best practices among investigative and acquisition professionals, and include expert
presentations and group discussions - all seeking to provide practical solutions to contract
integrity problems encountered in the field. Membership and attendance includes the DoD,
NASA , the DoJ, and other civilian attorneys, investigators, and auditors. The Working Group's
steering group meets monthly. Steering Committee members are also members of various
committees of the DoJ's Financial Fraud Enforcement Task Force and provide a liaison between
the two groups to ensure the consideration ofDoD interests. In the past, the Working Group has
sought to gain acquisition personnel involvement in the annual conference and has the current
goal of expanding this effort to obtain broader participation.
In addition to the training seminar , the Working Group has instituted webcasts through
the Defense Acquisition University to provide additional continuing education to the
procurement fraud enforcement community. Topics covered include the use of DO DIG
subpoenas. Upcoming topics include grant fraud awareness and contractor disclosures. Finally,

8

 the Working Group also redrafted DoD Instruction 7050.05 , "Coordination of Remedies for
Fraud and Corruptions Related to Procurement Activities," to help ensure more effect ive
coordination of remedies in procurement fraud matters.
Coordination with Other Federal Organizations

The DoD works closely with the Financial Fraud Enforcement Task Force, under the
leadership of the DoJ, to identify and stop procurement fraud, most recently in Iraq and
Afghanistan. DoD representatives participate in the Task Force meetings and exchanges of
information .
The DoD will continue to work with the Office of Federal Procurement Policy (OFPP) to
recommend changes to laws, regulations, and policy that would serve to clarify or strengthen
issues identified through the work of the Panel on Contracting Integrity .
Ethics Regulations and Policy Training

The DoD has initiated several changes to the Federal Acquisition Regulation (FAR) and
the Department of Defense FAR Supplement (DF ARS) to update the acquisition regulations
pertaining to ethics in contracting. The Defense Acquisition Regulations (DAR) Council, in
concert with Civilian Agency Acquisition Council, proposed an amendment to the FAR to
address a Contractor Code of Ethics and Business Conduct and a requirement for contractors and
their subcontractors participating in contracts over a certain dollar threshold to post an Office of
the Inspector General Fraud Hotline poster. The Councils published the proposed rule in
February 16, 2007, under FAR Case 2006-007, to obtain public comments, and, subsequently,
published a final rule on November 23, 2007, with an effective date of December 24, 2007. A
separate DF ARS Case 201 0-D026, specifically identifying the requirement to disp lay a DoD
Inspector General Fraud I lotline Poster was published as a final rule on September 16, 2011.
In addition, the DAR Council initiated a proposed FAR revision to require contractors to
establish and maintain internal controls to detect and prevent fraud in their contracts, and to
notify the Office of the Inspector General and contracting officers immediately whenever they
become aware of contract fraud. The FAR Council published the proposed rule under FAR Case
2007-006 on November 14, 2007, with public comments due by January 14, 2008. A final rule
was published on November 12, 2008, with an effective date of-December 12, 2008. DFARS
Case 201 l-D006 made an administrative change to the DFARS to provide the address of the
DoD Office of Inspector General and the Department's centrali zed collection point for fraud
information.
The DoD Standards of Conduct Office reviews the mandatory annual ethics training
yearly to ensure that it is current and relevant. The DoD provides the "Employee's Guide to the
Standards of Conduct" online .
Furthermore, the DoD added to the DFARS 209.571, Organizational Conflicts oflnterest
(OCI) in Major Defense Acquisition Programs (MDAPs) , as required by section 207 of the
Weapons Systems Acquisition Reform Act of 2009. The rule provides uniform guidance
requirements for OCI and tightens existing requirements for OCI by contractors in MDAPs. The
9

 Department is also supporting the OFPP and the FAR team that is proposing changes to the FAR
under case 2011-001, "Organizational Conflicts of Interest and Contractor Access to Nonpublic
Information." The FAR Case attempts to address the current needs of the acquisition community
with regard to OCI. It also separately addresses the issue of unequal access to information. The
goal of this rule is to highlight the importance of avoiding or mitigating OCJ or potential OCI,
which may among other things, lead to potential fraud, waste and abuse issues.
Finally, the DoD recently administered a values -based ethics survey to approx imately
240,000 DoD personnel, civilian , and military (active and reserve), including all 125,000
acquisition corps personnel. The purpose of the survey was to determine the culture of the entire
DoD from a value-based perspective versus a rules-based perspective. Assessment of the results
is complete and the next step will be to implement a values-based ethics training program, based
on the results and recommendations of the survey .
Reporting Fraud
DoD personnel can report fraud to any of several sites such as the DoDIG Defense
Hotline, the Defense Contract Management Agency's FraudNet, the Defense Logistics Agency's
Hotline Program, the Army's Criminal Investigation Command, the Navy's Criminal
Investigative Service, and the Air Force's Office of Special Investigations. The offices of the
Suspension and Debarment Officers provide training and methods of reporting suspected fraud .
G. Recommendations
The ES also requested the DoD include recommendations for penalties for contractors
who arc repeatedly involved in contract fraud allegations. The DoD has a number of existing
remedies with respect to contractor wrongdoing as identified in DoD Instruction 7050.05,
"Coordination of Remedies for Fraud and Corruptions Related to Procurement Activities ." In
addition to the criminal, civil penalties, and sanctions prescribed by Congress, the DoD and all
other Federal agencies have numerous contractual and administrative remedies available,
including suspension and debarment, if it is determined that it is not in the DoD's best business
interests to contract with a particular company.
It is not clear, however, that these remedies are sufficient. The DoD's Panel on
Contracting Integrity will review again the administrative and legal penalties already in place to
deter and punish fraud when it is detected and to protect the Government from dealing with
contractors that have engaged in fraudulent activities. The Panel will have the opportunity to
review the findings and data contained in this report to assist in its assessment. However, our
main effort is detection and prevention. At the heart of improving our ability to detect and
prevent fraud is an adequately staffed and capable acquisition workforce , to include audit and
contract management personnel. One of the core functions of the Panel is to ensure that we are
taking actions to increase awareness and training with regard to uncover ing fraudulent
contracting acts. Over the past 2 years, we have significantly expanded the awareness training of
our acquisition workforce to become more vigilant in identifying potential fraudulent acts.
However, there is more work to be done, which is why the Secretary of Defense has steadfastly
maintained that we will continue to increase the size and the capability of our acquisition
10

 workforce, especially including contracting and auditing skills, to ensure the interests of the
taxpayers and our W arfighters are protected.
Beyond that, the DoD is considering making the use of the Purchase Card On-Line
System (PCOLS) a mandatory tool for all DoD components. PCOLS manages the issuance and
maintenance of Government purchase cards and data mining and provides program risk
assessment capability. Some of the key features of PCOLS are: (1) PCOLS uses the DoD
Common Access Card to positively identify users and links them to defined roles in a hierarchy
to grant systems access and privileges; (2) PCOLS links to the Defense Enrollment Eligibility
Reporting System (DEERS), a system operated by the Defense Manpower Data Center to
identify when cardholders or billing officials leave so that purchase card accounts associated
with them may be systemically cancelled; (3) All DoD purchase card transactions are data mined
looking to identify fraud, waste, and abuse - those transactions receiving a "high risk" score are
referred to supervisors for review; and (4) PCO LS will provide a risk assessment of a
command's purchase card program based on ratio(s) of high-risk transactions to total number of
transactions and the ratio of cardholders to billing officials.
We will also ensure that the workforce receives training and guidance on the use of the
new Federal Awardec Performance and Integrity Information System (FAPIIS). FAPIIS
consolidates all data that contracting officers currently use when making their responsibility
determinations, thus enabling contracting officers "across the Governrnent" to monitor the
integrity and performance of entities performing federal contracts, grants , and cooperative
agreements. This new database responds to the continuing need for greater insight into potential
contractors' integrity and business ethics and the Department needs to ensure that the contracting
community utilizes that information in its award decisions.
FAPIIS imposes a duty on both Government contractors and the Government by
requiring contractors to disclose additional information to the Government and contracting
officers to consider all available information when making responsibility determinations prior to
obligating funds. This information will include criminal convictions, civil judgments , and
administrative proceedings. In fact, it will contain much of the type of information requested by
the ES. Contracting officers are required to provide terminations for default and cause to
FAPIIS . Contractors may be suspended, proposed for debarment or debarred upon sufficient
evidence of fraud. Suspension and debarment officials may also enter into an administrative
agreement with contractors in lieu of a suspension or debarment which specifically identifies
corrective actions a contractor must undertake to rectify a given situation. These administrative
agreements are also placed in FAPIIS .
Additionally, we will recommend that the DoDIG direct the DCIOs to periodically check
the FAPIIS database for accuracy and completeness of contractor disclosed information .
Finally, as noted above, we recognize that there is always more work to be done, to
ensure the interests of the Department of Defense, the taxpayers, and our Warfighters are
protected.

11

 Attachments:
(1) Tables: (See disc)
(a) Table IA - Criminal Convictions Reported by the DoJ
(b) Table 1B - Additional Criminal Convictions Reported by the Defense Criminal
Investigative Organizations
(c) Table 2A - Judgments/Settlements as Reported by the DoJ
(d) Table 2B - Additional Judgments/Settlements as Reported by the Defense
Criminal Investigative Organizations
(e) Table 3 - Suspension/Debarments Associated with Judgments/Settlements
(f) Table 4 - Parent Company Obligations
(2) DoDIG Findings
(3) Extract of Panel on Contracting Integrity 2007 Report to Congress

12

 Contracting Fraud Case Action Review

1. Introduction

The Joint Explanatory Statement accompanying the Department of Defense (DoD)
Appropriations Act for FY 2010 (Pub)ic Law 111-118) required the Secretary of Defense, in
coordination with the DoD Inspector General (JG), to report to the congressional defense
committees on contracting fraud . The language stipulated that the report include an assessmen t
of the total value of DoD contracts entered into with contractors that have been indicted for,
settled charges 01: been fined by a Federal department or agency for, or been convicted of fraud
in connection with any contract or other transaction entered into the federal Government over
the past ten years . The report must also include recommendations for penalties for contractors
who are repeatedly involved in contract fraud allegations as well as actions the Department has
taken to strengthen Department policies and safeguards against contractor fraud. The report was
to be submitted by March 14, 2010.
Due to the breadth and scope of this requirement, the Department met with appropriate
congressional staff in an effort to agree upon a more manageable data collection. Based on those
discussions, it was determined that the Department's immediate focus will be on fraud issues
associated with DoD contracts for the past three years with a threshold for reporting on matters
worth $ I ,000,000 or greater. An interim report outlining the Department's approach to this
congressional reporting requirement was submitted to Congress on April 5, 2010.
To ensure that all organizations were gathering the same information, the definition of
fraud as defined in DoD Instruction 5505.2, Criminal Investigations of Fraud Offenses, dated
February 6, 2003, was used.
Excerpt from DoD Instruction 5505.2, Enclosure 2 (Definitions), Paragraph E2. l .2
E2. l .2. Fraud. Any intentional deception designed to deprive the United States unlawfully of
something of value or to secure from the United States a benefit, privilege, allowance , or
consideration to which he or she is not entitled. Such practices include:
E2. l .2.1.
E2. l .2.2.
E2. l .2.3.
E2. l .2.4.
E2. l .2.5.
E2. l .2.6.
E2.1.2.7.

Offering payment or accepting bribes or gratuities.
Making false statements.
Submitting false claims
Using false weights or measures.
Evading or corrupting inspectors or other officials.
Deceiving either by suppressing the truth or misrepresenting material fact.
Adulterating or substituting materials.
1
Attachment

2

 E2. l.2.8. Falsifying records and books of accounts.
E2.1.2 .9. Arranging for secret profits, kickbacks or commissions.
E2. l .2. l 0. Conspiring to use any of these devices.
E2. l .2. l l . Conflict of interest cases, crim inal irregularities, and the unautho rized disclosure of
official information relating to procurement and disposal matters.
The Office of the Under Secretary of Defense for Acquisit ion, Technology and Logistics
collected data from the Air Force Office of Special Investigations (AFOSI), Defense Criminal
Investigative Service (DCIS), Naval Criminal Investigative Service (NCIS) and the United States
Army Criminal Investigation Command (USACIDC), hereafter referred to as the Defense
Criminal Investigat ive Organ izations (DCIOs) pertaining to contractor fraud convictions and the
dollar value of the contracts involved.
The DoD Office of Inspector General (010), Investigative Policy and Oversight
Directorate, reviewed the process and methodologies utili zed by DCIOs for record ing and
reporting of fraud case actions (i.e., actions taken against DoD contractors that have been
indicted, settled charges of, or been convicted of fraud in connection with any contract ente red
into with the DoD) to determine whether the proces ses and methodologi es were reliable.

2. Summary
The DoD OIG reviewed the DCIO methodology and processes used in accounting and
reporting fraud case actions associated with major procurement fraud investigations. The DCIOs
have reliable processes and methodo logy to report fraud case act ions . This determination was
based upon a review of DCIO instructions, training programs and interv iews of DCIO program
managers. The DCIOs use standard coding terminology with similar definitions and processes
for fraud case action reporting and recording the data into their investigative management
databases. The recording and reporting of fraud case actions has always been an integral part of
the various DCIO case management systems. Each DCIO has established training designed to
ensure their personnel understand how to report fraud case actions. Ultimately, the DCIO special
agents input the information directly into their respective databases , with supervisory review and
verification. Additionally, the DCIOs have processes in place to validate and oversee that fraud
case action reporting is accurate. However, there is not a common Department-wide database for
recording fraud case actions. In addition , there is no standard on how to report fraud case actions
during joint investigations of more than one DCIO or joint investigations between the DCIOs
and other federal law enforcement agencies (e.g., Federal Bureau oflnvestigation) to prevent
duplicate reporting of the same fraud case action.

2
Attachment 2

 3. Review of DCIO Fraud Case Action Reporting Policies
The OoD OIG reviewed DCIOs' policies, instructions, and directives regarding fraud case action
reporting, specifically found in AFOSI Manual 71-122, NCIS Manuals for Investigation (NIS-3)
and Fraud Investigations (NIS-6), CID Regulation 195- 1, and the DCIS Special Agents Manual.
DCIO Fraud Program Managers and/or Su~ject Matter Experts were interviewed regarding their
respective processes for recording and reporting fraud case actions. Shown below are the
questions and answers from the methodology and process review:
a. How are fraud case actions defined? The definitions of fraud case actions used by
each agency were gene rally in agreement , but it was noted that there is no current single source
for that definition. The DCIOs define fraud case actions based upon the results of judicial
dispositions . They refer to DoDI 7050.5, "Coordinat ion of Remedies for Fraud and Corruption
Related to Procurement Activities," and DoDJ 7750.6, "Information Requirements for SemiAnnual Report to Congress," for guidance on reporting information related to significant fraud
investigations. DCIS and AFOSI further promulgate internal policy documents that define fraud
case action (see appendices), while NCJS and USACID incorporate fraud case action definitions
into process and database tools, but rely solely on the DOD guidance documents as policy. The
DCIOs agreed that a single DOD issuance that defines fraud case act ions would be beneficial.
b. Do the DCIOs train their special agents on how to report fraud case actions?
Reporting fraud case actions is part of the curriculum in the DCIO basic and advanced
investigative training courses. Additional training is provided to agents during DCIO fraud
conferences and during on-the-job trainin g. However, according to the DCIO program
managers, the most pertinent fraud case action training came duri ng an agent's on-the-job
training.
c. What databasc(s) are used to record fraud case actions? There is no single DCIO
Department-wide database for reporting fraud case actions. Each DCIO reports fraud case
actions in their electronic investigative information database. AFOSI reports fraud case actions
into I2MS (Inform ation and Investigations Management System). NCTS reports fraud case
actions into the Consolidated Law Enforcement Operations Center database. USACIDC repo rts
fraud case actions into the Army Criminal Investigation and Cr iminal Intelligence System and
submits status reports through their chain of command on a DA Form 4833. OCIS reports fraud
case act ions into their Investigative Data System and also submits Significant Incident Reports
through their chain of command.

3

Attachment 2

 d. What documents are required for verification of fraud case actions? The fraud
case action is input into the DC IO's investigative database when the DCIO case agents receive a
hard copy of support ing documentation with the results of judicial disposition from the U.S .
Attorneys' Office and/or the Staff Judge Advocate's Office. Examp les of supporting
documentation include criminal judgments, final order of forfeiture, civil settlements, court
martial dispositions and payments recouped through contractual channels etc.
e. Who maintains responsibility for inputting fraud case actions into database?

Case agents are responsible for entering fraud case action data into their respective investigative
databases , recording the fraud case action, and filing paperwork regarding fraud case actions into
their case files. Each DCIO has a process for review and oversight of fraud case actions but in
. general includes the case agent's supervisor, unit leadership , second echelon and/or regional
command leve l supervision, and HQ fraud program management.
f. What is the frequency of input of fraud case actions into database? The DCIO
case agent inputs the fraud case action into their investigative database within three to five days
of receipt of judicial disposition.
g. What are the levels of validation/verification of fraud case actions? The case
agent is responsible for inputti ng the fraud case action information into the respec tive DCJOs
investigative database . The case agent's immediate supervisor or special-agent-in -charge is then
responsible for verification that the data is accurate and properly input. DCIO headquarters
performs additional verification of fraud case actions at least every six months.
h. Is the fraud case action data periodically validated? If so, how often?

Many simi larities were found in how the individual DCIOs track, report and account for fraud
case actions. In general, the processes related to fraud case actions are inherently tied into the
admin istrat ive processes relating to the initiation, reporting and closure of fraud investigations.
In all cases , fraud case action reporting is driven by receipt of hard copy documentation
validating a fraud case action. That documentation is included in the agencies case file, the
retention of which is mandated by rules governing retention of criminal investigations case files .
In general, fraud case action reporting must occur within 3 - 5 days of receipt. Each agency
maintains its own electronic investi gative information database , however; only AFOSI's
database includes electronic copies of entire case files. DCIS, NCIS and USACIDC databases
contain key data points regarding investigations used for management and reporting purposes,
including data regarding fraud case action . All of these databases are used to track, compile and
report fraud case actions and statistics, including those provided externa lly to DoD and
Congress.

4

Attachment 2

 i. What is the process for insuring that fraud case actions is not duplicated or
claimed by another DCIO? There is no specific DoD guidance or process to prevent duplicate
reporting of fraud case actions from joint investigations. A DOD issuance regarding fraud case
action could provide clarity on how to report and de-conflict fraud case actions in joint
investigations.
4. Interviews

a. Agency:
Date:
Locat ion:
Interviewed :

Defense Criminal Investigative Service (DCIS)
August 17, 2011
HQ DCIS , Arlington , VA
HQ DCIS Fraud Policy Program Manager and Operations Staff

b. Agency:

Air Force Office of Special Invest igations (AFOSI)
August 19, 2011
HQ AFOSI, Quantico , VA
HQ AFOSI Fraud Program Managers

Date:
Location:
Interviewed:
c. Agency:
Date:
Location:
Interviewed:

U.S . Army Criminal Investigation Command (USACIDC)
August I 9, 2011
HQ USACIDC, Quantico, VA
HQ U SACIDC Operations Director and Fraud Program Manager

d. Agency:
Naval Criminal Investigation Service (NCIS)
Date:
August 19, 2011
Location:
HQ NCIS, Quantico , VA
Interv iewed: IIQ NCIS Fraud Program Managers
5. Conclusion

All DCIOs maintain training programs and internal oversight for reporting fraud case actions.
They also have similar definitions and repo rting processes for fraud case actions. However ,
there is no specific DoD guidance that prevents duplicate reporting of fraud case action s during
jo int investigations. This matter will be addressed during the Defense Enterpr ise-wide Working
Group and policy guidance will be incorporated in DoDI 5505 .02, "Criminal Investigations of
Fraud Offenses."
Appendices
A. Fraud Case Action Definitions Provided By DCIS (See attached)
B. Fraud Case Action Definitions Provided By AFOSI (See attached)

s
Attachment 2

 APPENDIX A
FRAUD CASE ACTION DEFINITIONS -- DCIS

1. Recoveries. All recoveries with a monetary value to include:
a. Fines, Penalties, Forfeitures and Restitution . This includes all criminal and civil
monies as a result of judicial disposition (courts martia l, pre -trial diversion, conviction ,
Article 32, etc) Examples of supporting documentation would be criminal judgments,
final order of forfeiture, civil settlements , etc.
b. Recovered Government Property. This is defined as government property only
physically obtained from investigative efforts. The value is determined at the time the
property was seized (not acquisition value).
c. Administrative Remedies. These are any recoveries directly resulting from the
investigation as an administrative finding (i.e., payments recouped or a reduction of cost
through contracting channels , Article 15 UCMJ (Nonjudicial) , etc.).

d. Civil Recoveries. These include any recoveries resulting from a civil settlement or
judgment.

2. Adjudicative Charges . These include Federal, state, local and foreign court criminal
indictments , filings of criminal information, civil suits , pretrial diversion agreements and
courts martial charges preferred .

3. Adjudicative Convictions. These include the results of criminal trials (civil ian or military)
ending in judgments or a defendant's signed plea agreement that has been accepted by the
court.

s

APPENDIXA

 APPENDIXB
FRAUD CASE ACTION DEFINITIONS--AFOSI
l.

Recoveries. All recoveries with a monetary value to include:
a. Fines, Forfeitures and Restitution. This includes all penalties imposed as a result of
judicial disposition (courts martial, pre-trial diversion , conviction , Article 15)
b. Property Recoveries or Seizures. These include property (including cash and other
negotiable instruments) physically obtained from investigative effo11s.
c. Administrative Remedies. These are any recoveries directly resulting from the
investigation (i.e., payments recovered through contracting channels, etc.). This does not
include fines, forfeitures, restitution or investigative recoveries described as Property
Recover ies or Seizures.
d. Civil Recoveries. These include any recoveries resulting from a civil settlement or
judgment.

2. Indictments. These include Federa l, state, local and foreign court criminal indictments,
filings of criminal information, and courts martial charges preferred.

3. Convictions. These include the results of criminal trials (civilian or military) ending in
judgments or sentences that the accused is guilty .

6

APPENDIX B

 Panel on Contracting Integrity Membership
Position

Organization

Panel Chairman/
Deputy Under Secretary of Defense (Acquisition
and Technology)

Office .of the Under Secretary of
Defense (Acquisition, Technology &
Logistics) (OUSD(AT&L))

Executive Director /
Director, Defense Procurement and Acquisition
Policy (DPAP)

OUSD(AT&L)

Deputy Assistant Secretary of the Army (Policy
& Procurement) (DASA(P&P))

Department of the Anny

Deputy Assistant Secretary of the Navy,
(Acquisition & Logistics Management )
(DASN(A&LM ))

Department of the Navy

Chief of Staff , DASN (A&LM)

Department of the Navy

Deputy Assistant Secretary of the Air Force
(Contracting)

Department of the Air Force

Director

Defense Contract Audit Agency
(DCAA)

Director, Human Capital Initiatives

OUSD(AT&L)

-• •

Component Acquisition Executive

Defense Logistics Agency (DLA)

Deputy General Counsel (Acquisi tion &
Logistics)

DoD Office of the General Counsel

Deputy Director , DPAP /Program Acquisition and
Contingency Contracting (PACC)

OUSD(AT&L)

Acquisition Executive

US Special Operations Command
(USSOCOYi)

Figure 2. Panel on Contracting Integrity Membership (page l of 2)

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Panel on Contracting Integrity Membership, continued

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I

Position

Organization

Deputy General Counsel

Department of the Air Force

Directo r of Contracting

Missile Defense Agency (MDA)

Assistant General Counsel (Acquisition
Integrity)

Department of the Navy Office of
the General Counsel

Director

Defense Contract Management
Agency (DC.MA)

General Counsel

DCMA

Assistant Inspector General (Acquisition and
Contract Management )

DoD Office of the Inspector General
Representatives from:
Department of the Anny lG
Department of the Navy IG
Department of the Air Force IG

Chief of Staff

Department of Defense Advanced
Research Projects Agency (DARPA)

Deputy Director, Acquisitions & Contracts

National Geospatial intelligence
Agency (NGA)

Chief of Procurement

Department of Defense Education
Activity (DoDEA)

Director, Acquisition

US Transportation Command
(USTRANSCOM)

Deputy Senior Acquisition Executive

National Security Agency (NSA)

Director for Procurement

Defense lnfonnation Systems
Agency (DISA)

Chict~ Health Planning Operations

Assistant Secreta ry of Defense
(Health Affairs )/ TRTCARE
Management Agency (TMA)

Figure 2. Panel on Contracting Integrity Member ship (page 2 of 2)

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