News | July 3, 2018

DoD OIG Newsletter July 2018


The DoD OIG newsletter summarizes the reports and investigations released by the Department of Defense Office of Inspector General in the previous month and those we anticipate releasing in the coming month. I encourage you to read these reports and to access our website, which lists reports and investigations by year, subject, and DoD component. You'll also find our project announcements and additional news releases highlighting investigations conducted by the Defense Criminal Investigative Service. Thank you for subscribing to our newsletter.





Significant reports expected to be issued within the next 30 days include:


Acquisition of the Navy’s Mine Countermeasure Mission Package

This audit determines whether the Navy’s development of a mine countermeasures mission package, which allows the littoral combat ship to detect and neutralize or avoid mines, has met initial operational capability requirements.  The littoral combat ship is a Navy ship intended to be reconfigurable to enable the ship to counter submarine, surface, and mine threats and assure maritime access for joint forces.


Audit of Defense Logistics Agency Energy Savings Performance Contracts

This audit determines whether the Defense Logistics Agency maintained competition in soliciting and awarding Energy Savings Performance Contracts (ESPC).  ESPCs provide a way for the private sector to finance Federal government energy-savings projects.  Through an ESPC, an energy services contractor designs, finances, acquires, installs, and maintains energy-saving equipment and systems for a Federal agency.


Evaluation of DoD Hotline Complaint Regarding Defense Contract Management Agency-Baltimore’s Actions on Audit Findings Reported by Defense Contract Audit Agency

This evaluation determines whether allegations that a Defense Contract Management Agency contracting officer at the Baltimore field office did not take appropriate action on a Defense Contract Audit Agency report finding that identified $1.1 million in questioned contract costs.


DoD’s Organizational Changes to the Past Conflict Personnel Accounting Community

This evaluation determines whether the DoD has implemented previous DoD Office of Inspector General (OIG) recommendations and Secretary of Defense directed organizational changes to the past conflict personnel accounting community.  This work involves the national effort to account for missing DoD personnel from past conflicts, coupled with providing family members the available information concerning the loss, incident, and recovery work to provide the current status of those missing personnel.  In 2014, the Deputy Secretary of Defense for Policy presented the Secretary of Defense with nine recommendations for reorganizing the accounting community, and the DoD OIG published a report containing an additional 21 recommendations.  In response, the Secretary of Defense directed the formation of the Defense Prisoner of War/Missing in Action Accounting Agency, which consolidated personnel accounting resources, research, and operations into a single entity within the DoD. 


Operation and Management of the Military Cemeteries:  Gravesite Accountability and the Reliability of Information Technology Systems Used to Schedule and Document Burials at Arlington National Cemetery

This evaluation determines the accuracy of gravesite accountability at the Arlington National Cemetery, including the reliability of information technology systems used to schedule burials, accurately document, and account for buried remains.


Recently issued Reports of Interest (to view report, if available, please click on title)


Audit of Procurement Quantities of the AH-64E Apache New Build and Remanufacture Helicopter Programs

This audit determined that Army officials could not justify the planned procurement quantities of 85 training, 67 temporary replacements, and 15 test AH-64E Apache helicopters for regular Army and Army National Guard operational fleets.  As a result, Army officials cannot ensure that 167 Apache Helicopoters-64Es for training, temporary replacement, and test, valued at $3.5 billion, will meet the needs of the Army, and also do not have assurance that the AH‑64E program will be affordable over the lifecycle of the program. The AH-64E Apache is an Army two-pilot, four-blade, attack and reconnaissance helicopter. 

Hotline Allegation Regarding the Actions of a Defense Contract Management Agency Contracting Officer on a Subcontractor’s Termination Settlement Proposal
This evaluation substantiated a Hotline allegation, and determined that a Defense Contract Management Agency contracting officer: (1) failed to comply with the Federal Acquisition Regulation and contract terms when she did not uphold the Defense Contract Audit Agency (DCAA) questioned costs of $825,910; (2) did not take reasonable steps to ensure that only allowable costs were reimbursed to the subcontractor; and (3) did not prepare a price negotiation memorandum to document the reason for not upholding the DCAA-questioned costs.  The DoD OIG also determined that the contracting officer lacked experience in negotiating DCAA-questioned costs and was not adequately supervised.

Department of the Navy Civilian Pay Budget Process

This audit determined that Navy budget officials did not maintain sufficient documentation and could not fully support how they developed Navy civilian pay requirements in the FY 2017 Operation and Maintenance Budget Estimate Submission.  Specifically, Navy budget officials did not ensure that supporting documentation included information about the source data, calculations, and assumptions used for budget adjustments.  Additionally, the Marine Corps could not justify or support how it determined the civilian pay requirements in its FY 2017 budget estimate submission.  Marine Corps budget officials also did not follow Office of Management and Budget policy when determining their civilian pay funding levels.  Marine Corps officials used an average based on historical data when they should have used projected hours to be worked.

Evaluation of Nuclear Ballistic Missile Submarine (SSBN) Sustainment

This evaluation determined that the Navy has plans and initiatives in place to sustain the Ohio-class SSBNs until the replacement Columbia-class submarines are fielded.  The Navy has made the sustainment of the Ohio-class SSBNs a priority and has developed plans to ensure that all submarine bases and shipyards meet sustainment requirements.  The Navy has also given shipyards that serve the SSBNs direct hiring authority to address maintenance worker shortages.  In addition, the Navy has accelerated and improved training of new shipyard workers and has modified SSBN maintenance procedures and schedules to manage time before and during a submarine's maintenance period.  These initiatives are focused on sustaining each of the Ohio-class SSBNs for a full 42-year service life. 

DoD Cybersecurity Weaknesses as Reported in Reports Issued From July 1, 2016, through June 30, 2017

This DoD OIG report summarizes DoD cybersecurity weaknesses identified in 29 unclassified reports and 1 unclassified testimony by the DoD oversight community and the Government Accountability Office from July 1, 2016, through June 30, 2017.  These reports most frequently cited cybersecurity weaknesses in the categories of risk management, configuration management, identity and access management.  Risk management includes assessing, responding to, and monitoring risk over time; configuration management is a collection of activities focused on establishing and maintaining the integrity of information technology products and information systems; and identity and access management includes the processes, technologies, and policies for managing digital identities and controlling how identities can be used to access resources.


The Fort Bliss Hospital Replacement Military Construction Project

This audit determined that as of March 15, 2018, design errors and omissions resulted in cost increases and schedule delays for the Fort Bliss Hospital Replacement facility project.  For example, the construction project had 978 contract change requests, including 132 cancelled change requests that occurred during construction.  The change requests included 453 engineering changes, which included design errors and omissions.  The FY 2018 budget request for $251.3 million included three line items for design errors and omissions, valued at $165.6 million.  This audit was conducted in response to the FY 2018 NDAA requirement to report on design errors and omissions related to the construction of the Fort Bliss Hospital Replacement project at Fort Bliss, Texas.  The DoD is in the process of implementing several initiatives, including updating guidance on roles, responsibilities, and management controls, to prevent further schedule delays and cost increases on this project as well as lessons learned that could be applied to future projects.

Development, Review, and Validation of the Philippines Operations Support Contract III Requirements

This audit determined that U.S Pacific Command (USPACOM) and subordinate commands developed, reviewed, and validated requirements for the Philippines Operations Support Contract (POSC) III without a Service Requirements Review Board (SRRB).  A SRRB is a formal process to identify, plan, prioritize and validate contract service requirements before issuing funding documents.  USPACOM and Special Operations Command Pacific did not formally re-validate the POSC III requirements through an SRRB before authorizing approximately $8.2 million to exercise the first option period beginning April 1, 2018.  Due to the uncertain nature of contingency operations, and the 6-month rotation of members of the Special Operations Task Force in the Philippines, there is an increased risk that the contract requirements may not meet the needs of the mission.   


U.S. Special Operations Command Reporting of General Equipment on Its Financial Statements  

This audit determined that U.S. Special Operations Command (USSOCOM) overstated its general equipment account balance by $5.7 billion and could not support another $261 million in general equipment on its FY 2015 financial statements.  Additionally, USSOCOM understated its general equipment account balance by $1.4 billion on its first quarter FY 2016 financial statements.  As a result of USSOCOM’s general equipment and accumulated depreciation account balances being misstated and unsupported, its financial statements are misstated.  USSOCOM’s inability to produce accurate general equipment and accumulated depreciation account balances may affect the accuracy of the DoD agency-wide financial statements.

DEFENSE CRIMINAL INVESTIGATIVE SERVICE HIGHLIGHTS (to view DOJ press release, if available, please click on title)

Fort Myers Pain Management Physician Pleads Guilty to Healthcare Offenses and Agrees to $2.8 Million Civil Settlement with the United States

On June 4, 2018, Dr. Michael Frey, a principal owner of Advance Pain Management Specialists, P.A. (Advanced Pain), pleaded guilty to two counts of conspiracy to receive healthcare kickbacks.  In addition to his guilty plea, Dr. Frey has agreed to a civil settlement under which he will pay $2.8 million to the United States to resolve allegations that he violated the False Claims Act, by receiving illegal kickbacks and ordering medically unnecessary laboratory tests.  According to the plea agreement, beginning in 2010, Dr. Frey conspired with the owners of A&G Spinal Solutions, LLC (A&G Spinal), a durable medical equipment provider, to receive compensation in exchange for referrals to A&G Spinal.  A&G Spinal paid Dr. Frey a percentage of its profits based on his referrals and referrals from other providers at Advanced Pain.  The two principals of A&G Spinal, Ryan Williamson and William Pierce, have pleaded guilty to conspiring to pay healthcare kickbacks to Dr. Frey and are currently awaiting sentencing.  Williamson also paid Dr. Frey cash payments in exchange for referrals of compound pharmaceutical pain cream prescriptions.  According to the plea agreement, Dr. Frey also admitted that he received kickbacks in the form of speaker fees paid to him in connection with his participation in Insys Therapeutics, Inc. (Insys) speaker event programs, which were false.  Insys manufactures a fentanyl sublingual spray known as SUBSYS.  Insys paid kickbacks to Dr. Frey to induce him to write prescriptions for their product.  This is a joint investigation with the Defense Criminal Investigative Service, the Department of Health and Human Services Office of Inspector General (HHS OIG) and the U.S. Postal Service Office of Inspector General.


Signature HealthCARE to Pay More than $30 Million to Resolve False Claims Act Allegations Related to Rehabilitation Therapy

On June 8, 2018, the Department of Justice (DOJ) announced that Signature HealthCARE, LLC (Signature) agreed to resolve allegations that it violated the False Claims Act by knowingly submitting false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary, and skilled.  The settlement also resolves allegations that Signature submitted forged pre-admission certifications of patients’ needs for skilled nursing to the state of Tennessee’s Medicaid program.  Under the settlement agreements, Signature agreed to pay more than $30 million to the Government.  This was a joint investigation between the Defense Criminal Investigative Service, HHS OIG, and the Tennessee Bureau of Investigation.


Two Men Face Federal Charges for their Role in Stealing Government Property

On June 14, 2018, DOJ announced that the that Richard Treloar, owner of Treloar Enterprises International, Inc. (TEI), was charged with seven counts of conversion of government property and seven counts of false statements.  Additionally, Mark Collier, Treloar’s co-defendant, was charged with seven counts of false statements.  TEI contracted with the Defense Logistics Agency to demilitarize Humvees, which includes eliminating the functional capabilities and inherent design features of vehicles.  In many cases, the demilitarization involves the total destruction of the Humvee.  The indictment alleged Treloar converted at least seven fully armored Humvees for his own use and sold or attempted to sell them for his own benefit.  The value of the Humvees was over $589,000.  Treloar and Collier had certified that the Humvees were demilitarized, when in fact they were not.  This is a joint investigation between the Defense Criminal Investigative Service, Naval Criminal Investigative Services, and DLA Office of the Inspector General.

Former Employee of U.S. Government Contractor in Afghanistan Sentenced to Federal Prison for Accepting Kickbacks from Subcontractor

On June 14, 2018, a U.S. District Judge sentenced Christopher McCray, a former employee of a U.S. Government contractor, to 5 months in federal prison, with 5 months home detention, 3 years of supervised release, and 200 hours of community service.  McCray pleaded guilty to one count of accepting illegal kickbacks.  As part of his plea, McCray admitted that he received kickbacks from an Afghan subcontractor.  According to the plea agreement, McCray was employed as the country manager for a company that was moving cargo for the DoD from Bagram Airfield to military bases throughout Afghanistan.  McCray’s employer entered into a subcontract with an Afghan trucking company.  McCray influenced his employer’s decision to subcontract with the Afghan trucking company after the Afghan trucking company secretly agreed to pay McCray 15 percent of the revenues it would receive from the contract.  From December 2012 to May 2014, McCray received kickbacks from the Afghan trucking company.  McCray and the Afghan trucking company also maintained a separate set of invoices, which showed the amounts charged to McCray’s employer, the amounts kept by the Afghan company, and the amounts sent to McCray.    This was a joint investigation with the Defense Criminal Investigative Service, Special Inspector General for Afghanistan Reconstruction, U.S. Army Criminal Investigation Command Major Procurement Fraud Unit, U.S. Air Force Office of Special Investigations and the Federal Bureau of Investigation.


Chinese National Arrested for Conspiring to Illegally Export U.S. Origin Goods Used in Anti-Submarine Warfare to China

On June 21, 2018, Shuren Qui, a Chinese National and lawful permanent U.S. resident, was arrested and charged in connection with violating export laws by conspiring with employees of an entity affiliated with the People’s Liberation Army (PLA) to illegally export U.S. origin goods to China.  The criminal complaint also charged that Qui made false statements to obtain a visa to enter the United States and to become a lawful permanent resident under the EB-5 Immigrant Investor Visa Program.  According to charging documents, Qin operates several companies in China, which purport to import U.S. and European goods with applications in underwater or marine technologies into China.  From at least July 2015 to December 2016, Qin allegedly exported U.S. origin goods to Northwestern Polytechnical University (NWPU), a Chinese military research institute that has worked closely with the PLA on the advancement of its military capabilities.  Qui exported these items without obtaining the required export licenses from the Department of Commerce in violation of U.S. export laws.  Additionally, as alleged in court documents, Qin made false statements on his visa application in 2014.  Specifically, he falsely certified that he had never “engaged in export control violations or other unlawful activity.”  However, Qin had allegedly engaged in numerous violations of U.S. export laws since 2012.  This is a joint investigation with the Defense Criminal Investigative Service, Homeland Security Investigations, Department of Commerce Office of Export Enforcement, Federal Bureau of Investigation and the Naval Criminal Investigative Service.


ANNOUNCED PROJECTS (to view the announcement letters, if available, please click on the title)

Audit of the Contract Requirements for F-35 Spare Parts and Sustainment Incentive Fees  

The objective of this audit is to determine whether the DoD is receiving ready-for-issue spare parts for the F-35 Joint Strike Fighter and is paying sustainment incentive fees according to the incentive fee plan. The F-35 aircraft is DOD's most expensive weapon system with a FY17 sustainment contract valued at over $1 billion and estimated sustainment costs of more than $1 trillion over a 60-year life cycle.

Reannoucement of the Audit of the DoD's Implementation of Cybersecurity Controls for Unmanned Aerial Vehicle Systems as the Audit of DoD's Management of Cybersecurity Risks for Purchasing Commercial Items

The objective of this audit is to determine whether the DoD is assessing and mitigating cybersecurity risks when purchasing and using select commercial items.  The original objective was to determine whether the DoD implemented and operated cyber and physical security controls in accordance with Federal and DoD system, communications, and information security requirements to protect select unmanned aerial vehicle systems from unauthorized access and use.  During site visits in support of the original objective, we determined that concerns for how the DoD manages cybersecurity risks may exist for other commercial items.   

Audit of the Nuclear Command and Control System Supply Chain Security Risk Management Efforts

The objective of this audit is to determine whether the DoD's supply chain risk management program has mitigated risks to infiltrate the DoD supply chain and sabotage, and to maliciously introduce an unwanted function, or otherwise compromise the design or integrity of the critical hardware, software, and firmware for one or more critical networks or systems that comprise the Nuclear Command and Control System.


External Peer Review of the Defense Contract Management Agency, Office of Internal Audit and Inspector General
The objective of this review is to determine whether the quality control system for the audit function at the Defense Contract Management Agency is designed to provide reasonable assurance that the policies and procedures related to the system of audit quality are suitably designed, operating effectively, and complied with in practice.

Audit of the Security Controls Over the Air Force Satellite Control Network
The objective of this audit is to determine whether the Air Force Space Command implemented security controls to protect the Air Force Satellite Control Network against potential cyber-attacks.

Summary Audit of Systemic Weaknesses in the Cost of War Reports
The objective of this audit is to summarize systemic weaknesses in DoD’s accounting for costs associated with ongoing overseas contingency operations identified in Cost of War audit reports issued by the DoD Office of Inspector General, Army Audit Agency, Naval Audit Service and Air Force Audit Agency between 2016 and 2018.

Audit of the National Maintenance Strategy Contract in Afghanistan
The objective of this audit is to determine whether the Army developed the National Maintenance Strategy Ground Vehicle Systems contract requirements to meet user needs to maintain and sustain the Afghan National Defense and Security Forces’ vehicles.