Dec. 10, 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:
Understanding the FY 2018 DoD Agency Financial Report and Audit Results
This document will explain the recently issued audit opinions on the DoD financial statements in understandable, non-technical terms. It will provide background on the DoD financial statement audit effort, discuss the history of audits of DoD financial statements, discuss the contents of the DoD financial report, and explain the importance of the DoD financial statement audits to DoD operations and financial management. In particular, the document will provide information regarding the overall findings of 21 financial statement audits, an assessment of the DoD efforts to address the overall findings, and the DoD OIG’s view of additional actions the DoD should take to address the overall findings.
Summary of DoD Cybersecurity Reports Issued and DoD Testimony Regarding Cybersecurity Made from July 1, 2017, Through June 30, 2018
This audit summarizes unclassified and classified cybersecurity reports and testimonies from the DoD oversight community and the Government Accountability Office issued between July 1, 2017, and June 30, 2018. It also identifies cybersecurity risks areas for DoD management to address based on the five functions of the National Institute of Standards and Technology Cybersecurity Framework, and identifies the open DoD cybersecurity recommendations.
Defense Hotline Allegations Concerning the MQ-9 Block 5 Reaper Unmanned Aerial System
This audit determines whether the U.S. Air Force was inappropriately charged by contractors for MQ-9 Reaper (MQ-9) Block 5 aircraft repairs prior to the Air Force accepting the aircraft; was using the MQ-9 Block 5 aircraft to support operational missions; and was properly estimating and procuring MQ-9 Block 5 aircraft spare parts. The MQ-9 is an armed, medium-altitude, long-endurance unmanned aircraft that is capable of performing multiple missions including intelligence, surveillance, and combat search and rescue. The MQ-9 Block 5 aircraft provides upgraded communications, avionics, electrical power, and capabilities.
System Review Report on the Defense Commissary Agency Internal Review
This review determines whether the Defense Commissary Agency Internal Review office’s system of quality control for audits in effect for January 31, 2018, provided reasonable assurance of conforming to Government auditing standards. The Defense Commissary Agency Internal Review office is responsible for establishing and maintaining a system of quality control designed to provide the Agency with reasonable assurance that its audit organization complies with professional standards and applicable legal and regulatory requirements in all material respects.
Quality Control Review of the Grant Thornton LLP FY 2017 Single Audit of Concurrent Technologies Corporation
This review determines whether the Grant Thornton single audit of Concurrent Technologies Corporation was conducted in accordance with auditing standards and the requirements of Title 2, Code of Federal Regulations Part 200, which describes audit requirements accounting firms, must follow when auditing the accounting records of companies that have received a federal award.
Recently issued Reports of Interest (to view report, if available, please click on title)
Investigation into the United States Air Force’s Failure to Submit Devin Patrick Kelley’s Criminal History Information to the Federal Bureau of Investigation
This investigation determined that after former Airman Devin Kelley had been criminally convicted by court martial, the Air Force missed four opportunities to collect and submit his fingerprints to the FBI Criminal Justice Information Services (CJIS) Division, and missed two opportunities to submit his final disposition report to the FBI CJIS Division, as required. Because his fingerprints were not submitted to the FBI, Kelley was able to purchase several weapons from licensed firearm dealers, which he used on November 5, 2017, to shoot and kill 26 people at the First Baptist Church in Sutherland Springs, Texas. The report includes recommendations to the DoD related to background checks for new recruits, retention of investigative and confinement case files, revision of the training program for law enforcement personnel, and pursuit of legislation amending the Gun Control Act.
Independent Auditor’s Report on the DoD Agency‑Wide Basic Financial Statements
On November 15, 2018, the DoD OIG issued a disclaimer of opinion on the DoD Agency-Wide Basic Financial Statements. As part of this opinion, the DoD OIG identified 20 material weaknesses related to the DoD’s financial statements. As part of this audit effort, the DoD OIG completed or oversaw the completion of 21 financial statement audits by Independent Public Accounting firms of the DoD and its components, resulting in 23 audit opinion reports.
Fiscal Year 2019 Top DoD Management Challenges
The DoD OIG’s summary of Top DoD Management Challenges identifies the top risks and challenges for the DoD in FY 2019 and beyond. By statute, each Inspector General is required to prepare this annual statement summarizing what the Inspector General considers the “most serious management and performance challenges facing the agency.” The Top Management Challenges document is also required to be included in the DoD’s financial report, and was published as part of that document on November 15, 2018. The DoD OIG identifies these top 10 challenges based on a variety of factors, including DoD OIG oversight work, research, and judgment; oversight work done by other DoD components; oversight work conducted by the Government Accountability Office; and input from DoD officials. As discussed in the next entry, the DoD OIG uses this document, and the top challenges, to determine where to allocate its audit, evaluation, investigative resources.
Fiscal Year 2019 Oversight Plan
The DoD OIG Oversight Plan describes the specific oversight projects that the DoD OIG intends to conduct in FY 2019, and how those projects are related to the top DoD management challenges. One significant way the DoD OIG identifies the key risks facing the DoD, and the oversight projects to conduct, is through the development of the Top Management Challenges document (discussed above). The Oversight Plan is organized by management challenge. Each chapter provides a summary of a particular challenge, followed by a list and discussion of the planned oversight projects that directly align to the challenge.
Semiannual Report to the Congress April 1, 2018 through September 30, 2018
The DoD OIG released the its Semi Annual Report to Congress covering the reporting period of March 31 through September 30, 2018. This report summarizes the work of the DoD OIG during this period, including significant matters and developments. For example, during this reporting period, the DoD OIG conducted and oversaw the first full financial statement audit of the DoD. This full financial statement audit, required by the National Defense Authorization Act for FY 2014, consisted of 21 separate financial statement audits of DoD Components, as well as the DoD agency-wide audit. In July 2018, the DoD OIG also issued its second Compendium of Open DoD OIG Recommendations to the DoD. This Compendium provides DoD senior leaders and Congress a comprehensive list of the status of open DoD OIG recommendations, highlighting key open recommendations and ones with significant potential monetary benefits. As part of its ongoing efforts to strengthen the protection of whistleblowers, the DoD OIG established a full-time DoD Whistleblower Protection Coordinator position. The DoD OIG has also established an alternative dispute resolution program, which allows complaints to be resolved faster than through a traditional investigation and enables the parties to reach a mutually-agreeable solution. In addition to these significant changes, the DoD OIG also completed many whistleblower reprisal investigations, reducing the number of open investigations from over 100 in October 2017 to 39 in September of 2018. In addition, the DoD Inspector General was appointed as the Lead Inspector General for three new overseas contingency operations related to counterterrorism activities in Africa and the Middle East.
Lead Inspector General Quarterly Reports to the United States Congress for Operation Inherent Resolve and Operation Pacific Eagle-Philippines July 1, 2018- September 30, 2018
This Lead Inspector General provided reports on Operation Inherent Resolve and Operation Pacific Eagle-Philippines, and for the first time reported on the three new classified contingencies designated by the Secretary of Defense on February 9, 2018. The three classified operations, Operation Yukon Journey and two operations in Northwest Africa and East Africa, are intended to degrade al Qaeda and ISIS-affiliated terrorists in the Middle East and some regions of Africa. These reports describe the activities of the U.S. Government in support of two overseas contingency operations and describes completed, ongoing, and planned Lead Inspector General and partner agency oversight work. To view the Operation Inherent Resolve report, click "Operation Inherent Resolve" in the title, and to view the Operation Pacific Eagle-Philippines report, click "Operation Pacific Eagle-Philippines" in the title.
Lead Inspector General Quarterly Reports to the United States Congress for Operation Freedom’s Sentinel July 1, 2018-September 30, 2018
This Lead Inspector General report to the United States Congress on Operation Freedom’s Sentinel is the 14th quarterly report this overseas contingency operation. The report summarizes significant events involving Operation Freedom’s Sentinel and describes completed, ongoing, and planned Lead Inspector General and partner agency oversight work.
DoD Task Orders Issued Under One Acquisition Solution for Integrated Services Contracts
This audit determined that the DoD was improperly charged for 101 of 112 employees, because they did not meet the labor category requirements for the One Acquisition Solution for Integrated Services (OASIS) contract. The OASIS contract provides a full range of service requirements to Federal agencies, including program management, management consulting, logistics, engineering, scientific, and financial services. In addition, the Air Force was unable to provide qualification documentation for 11 of 112 employees. Moreover, Army and Air Force contracting officers did not consider any potential impacts on the contracts’ requirements in terms of performance and price before authorizing contractors to use $6.8 million for employees without relevant education and work experience.
Followup Audit: U.S. Army Corps of Engineers Use of Cooperative Agreements for Environmental Compliance
This audit determined that DoD officials implemented corrective actions in response to nine recommendations the DoD OIG made in a prior audit report, Report No. DODIG-2015-174, “U.S. Army Corps of Engineers–Alaska District Needs to Improve Competitive Procedures for Cooperative Agreements for Alaska Integrated Natural Resources Management Plans.” That report found that grant officers from the U.S. Army Corps of Engineers–Alaska District did not properly award or effectively use cooperative agreements issued on a sole-source basis, valued at about 18 million, for the development and implementation of integrated natural resources management plans at Joint Base Elmendorf-Richardson and Fort Wainwright, Alaska. In this follow-up audit, we determined that adequate corrective action was taken to address the recommendations in the prior report. As a result of these corrective actions, the DoD increased controls over the issuance and management of cooperative agreements used for environmental projects on DoD installations.
DoD Actions to Implement the Cybersecurity Information Sharing Act of 2015 Requirements
This audit determined that the DoD took limited actions to implement Cybersecurity Information Sharing Act of 2015 requirements for sharing cyber threat indicators and defensive measures within the DoD and with other Federal and non-Federal entities. As a result, the DoD limited its ability to gain a more complete understanding of cybersecurity threats. Using the shared information, entities can improve their security posture by identifying affected systems, implementing protective measures, and responding to and recovering from incidents.
DoD Oversight of Bilateral Agreements With the Republic of the Philippines
This audit determined that the Joint Staff Directorate for Logistics was not aware of 76 of 77 acquisition and cross service agreement (ACSA) line items executed with the Republic of the Philippines from October 1, 2016, through May 31, 2018. An ACSA is a bilateral agreement between the United States and authorized foreign countries to acquire or provide expedited or real-time logistic support, supplies, and services in exchange for reimbursement. As a result, the Directorate for Logistics did not have assurance that ACSA transactions, valued at $13 million, executed in the U.S. Indo-Pacific Command area of responsibility with the Republic of the Philippines, were accurate and reimbursed properly. The DoD therefore lacks assurance that only approved logistical support, supplies, and services are provided to authorized foreign countries in accordance with the negotiated bilateral agreements.
Evaluation of Contracting Officer Actions on Contractor Pricing Proposals Deemed Inadequate by the Defense Contract Audit Agency
This evaluation determined that for all 23 contractor price proposals we evaluated, the contracting officers took appropriate actions to address the proposal inadequacies identified by the Defense Contract Audit Agency. However, for 9 of the 23 proposals, contracting officers did not adequately document the contractor price proposal inadequacies or the actions taken to address the inadequacies in the contract file, as required by the Federal Acquisition Regulation. Without adequate documentation, contracting officers could not readily demonstrate that they had appropriately addressed the contractor price proposal inadequacies before they negotiated a fair and reasonable price with the contractor. In addition, the DoD OIG found that an Army contracting official increased a contract cost ceiling by $92 million without adequate justification.
Evaluation of the Defense Threat Reduction Agency’s Counterintelligence Program
This evaluation determined that the Defense Threat reduction Agency’s Counterintelligence Office did not comply with all applicable statutory requirements, policies, and authorities when conducting counterintelligence inquiries and supporting counterintelligence investigations of U.S. and non-U.S persons. The lack of compliance by the Counterintelligence Inquiries Branch, and limited oversight of counterintelligence inquiry activities by the Defense Threat Reduction Agency Security and Counterintelligence Department management and the Office of the Under Secretary of Defense, led to unauthorized inquiries and unauthorized counterintelligence investigative procedures on U.S. and non-U.S. persons, as well as questionable intelligence activities not being properly investigated. The full report is classified.
DEFENSE CRIMINAL INVESTIGATIVE SERVICE HIGHLIGHTS (to view DOJ press release, if available, please click on title)
Former U.S. Navy Captain Pleads Guilty and Former Master Chief Petty Officer Sentenced in Sweeping U.S. Navy Corruption and Fraud Probe
On November 13, 2018, Jeffrey Breslau, a retired Navy captain, pleaded guilty to criminal conflict of interest charges, and Ricarte lcmat David, a retired Navy Master Chief Petty Officer, was sentenced to 17 months in prison on corruption charges. Breslau and David are among the defendants in the corruption and fraud investigation involving foreign defense contractor Leonard Glenn Francis and his port services company, Glenn Defense Marine Asia. Breslau admitted that, between March 2012 and September 2013, he received approximately $65,000 from Francis as payment for public relations services. Breslau concealed his business relationship with Francis from the Navy, and he provided Francis with consulting services in order to defend Glenn Defense Marine Asia’s fraudulent practices. David was assigned to various logistics positions within the Navy's Seventh Fleet from 2001 to 2010. David admitted that he received various things of value from Francis, such as five star hotel rooms during every port visit and he allowed Glenn Defense Marine Asia to overbill the Navy for port services. This is a joint investigation with the Defense Criminal Investigative Service (DCIS), the Naval Criminal Investigative Service (NCIS) and the Defense Contract Audit Agency (DCAA).
Two Individuals and a Corporation Sentenced for Their Roles in Multi-Million Health Care Fraud and Money Laundering Scheme Involving Alcohol and Drug Addiction Treatment Centers and Clinical Laboratories
On November 1, 2018, the Chief Executive Officer of Smart Lab, H. Hamilton Wayne (H. Wayne), and the Chief Operating Officer, Justin Wayne (J. Wayne), were sentenced for their roles in a multi-million dollar health care fraud scheme. According to court documents, H. Wayne, J. Wayne, and co-conspirators paid employees of substance abuse treatment centers to refer the bodily fluid samples of insured patients to Smart Lab. Smart Lab fraudulently charged insurance companies for expensive and unnecessary drug tests, and the laboratory kicked back a portion of the insurance reimbursements to co-conspirators and treatment center employees. Smart Lab, H. Wayne, and J. Wayne previously pleaded guilty to one count of conspiracy to commit health care fraud. H. Wayne was sentenced to 63 months in prison, 3 years of supervised release, and a $50,000 fine. J. Wayne was sentenced to 46 months in prison, 3 years of supervised release, and a $20,000 fine. The defendants were jointly and severally ordered to pay over $2.9 million in restitution. This was a joint investigation with DCIS, the Federal Bureau of Investigation (FBI), the Internal Revenue Service Criminal Investigation Division, the Florida Division of Investigative and Forensic Services, the Amtrak Office of Inspector General, the Department of Labor Employee Benefits Security Administration, and the National Insurance Crime Bureau.
Northrop Grumman Systems Corporation to Pay $27.45 Million to Settle False Claims Act Allegations
On November 2, 2018, the Department of Justice (DOJ) announced that Northrop Grumman Systems Corporation agreed to pay approximately $27 million to resolve alleged violations of the False Claims Act. Between July 2010 and December 2013, the company allegedly inflated the number of hours its employees in the Middle East worked on two Air Force communications contracts that provided battlefield communication services. This was a joint investigation with DCIS, DCAA, the Air Force Office of Special Investigations, and the Air Force Materiel Command Law Office Fraud Division.
Chinese National Allegedly Exported Devices with Military Applications to China
On November 2, 2018, the DOJ announced that additional charges were filed against Shuren Qin. In 2014, Qin, a Chinese national, allegedly lied on his visa application to obtain permanent residency in the United States. From at least July 2015 to December 2016, Qin allegedly exported sensitive military technology to entities affiliated with China’s People’s Liberation Army without obtaining the required export licenses from the Department of Commerce. In June 2018, Qin was arrested and charged for violations of export laws and visa fraud; the additional charges, filed in November, include conspiracy to defraud the United States, smuggling, money laundering, and making false statements to Government officials. This is a joint investigation with DCIS, NCIS, the FBI, Homeland Security Investigations (HSI), and the Department of Commerce Office’s Bureau of Industry and Security, Office of Export Enforcement.
Granite Bay Man Pleads Guilty to Multi-Million Dollar Product Substitution Fraud on Federal Government Agencies
On November 5, 2018, Jim A. Meron pleaded guilty to wire fraud in connection with a procurement fraud scheme. Meron operated two office supply companies. According to court documents, between May 2011 and July 2017, Meron’s businesses substituted and delivered generic versions of name-brand products that Government agencies had ordered. Over the course of thousands of transactions, the office supply companies overcharged Government agencies out of approximately $3.5 million. As part of his plea, Meron agreed to forfeit more than $1.7 million in assets seized during the investigation of his crimes. This was a joint investigation with DCIS and the General Services Administration Office of Inspector General.
$5.1 Million Dollar Settlement Reached With Indiana Dental Firm To Resolve False Claims Allegations
On November 6, 2018, the DOJ announced that lmmediaDent of Indiana (lmmediaDent) and Samson Dental Partners agreed to pay the U.S. Government and the State of Indiana over $5.1 million to resolve alleged violations of the False Claims Act. Between January 1, 2009, and September 30, 2013, the companies allegedly submitted improper claims for reimbursement to Indiana's Medicaid program. This was a joint investigation with DCIS, the Department of Health and Human Services Office of Inspector General, and the Indiana Attorney General's Medicaid Fraud Control Unit.
Arms Trafficker Found Guilty of Conspiring to Supply and Use Anti-Aircraft Missiles after Pleading Guilty to other Arms Offenses
On November 15, 2018, Rami Najm Asad-Ghanem, also known as Rami Ghanem, was found guilty by a federal jury of conspiring to acquire, transfer, and use anti-aircraft missiles. Ghanem conspired to transfer a wide array of surface-to-air missile systems to customers around the world, including clients in Libya, the United Arab Emirates, and Iraq. In 2015, Ghanem conspired to provide mercenaries that operate Russian-made surface-to-air missile systems to a militant faction in Libya. Ghanem negotiated the salaries and terms of service of the mercenaries, facilitated their travel to Libya, and offered them a $50,000 bonus if they shot down airplanes flown by the Libyan government. In October, Ghanem had pleaded guilty to a variety of arms-trafficking charges, as well as money laundering, although he did not plead to all the charges against him. This was a joint investigation with DCIS, HSI, and the Department of Commerce’s Bureau of Industry and Security, Office of Export Enforcement.
ANNOUNCED PROJECTS (to view the announcement letters, if available, please click on the title)
Evaluation of Military Family Housing for Lead Paint
The objective of this evaluation is to determine whether the Military Services effectively managed lead-based paint hazards in Government-owned and controlled military family housing. The evaluation is being conduct in response to Congressional direction in House Report 115-929, the conference report accompanying the bill that became Public Law 115-244, "Energy and Water, Legislative Branch, and Military Construction and Veterans Affairs Appropriations Act, 2019."
Audit of Military Construction Projects at Joint Region Marianas
The objective of this audit is to determine whether Naval Facilities Engineering Command personnel are executing military construction projects at Joint Region Marianas to mitigate further schedule delays and associated cost increases. Joint Region Marianas is a joint U.S. military command located on Guam. The Naval Facilities Engineering Command Marianas mission includes providing engineering services and a variety of contracting capabilities for services and construction, and environmental assistance to Navy, Marine Corps, Air Force and other DoD supported commands.
Audit of Defense Environmental Restoration Program Implementation at Joint Region Marianas
The objective of this audit is to determine whether the DoD is properly executing the Defense Environmental Restoration Program to identify, investigate, and clean up munitions and explosives in Joint Region Marianas.
Followup Audit on Defense Logistics Agency Management of Excess Items in Long-Term Storage
The objective of this audit is to determine whether the Defense Logistics Agency implemented the recommendations in a prior DoD OIG report, Report No. DODIG-2016-036, "Management of Items in Defense Logistics Agency Long-Term Storage Needs Improvement," December 22, 2015, and whether the implemented actions corrected the problems identified in the report. That report found that the Defense Logistics Agency stored items in long-term storage inventory that exceeded historical demand and, therefore, were not justified for retention.
Quality Systems Review of the Naval Criminal Investigative Service
The objective of this evaluation is to determine whether internal quality controls and self-inspections used by the Naval Criminal Investigative Service are suitably designed, and operating efficiently and effectively to ensure that NCIS investigations meet investigative standards and requirements.