March 1, 2019 —
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:
The DoD’s Implementation of Recommendations on Screening and Access Control’s for General Public Tenants Leasing Housing on Military Installations
This audit determines whether actions taken by the Military Services in response to a previous DoD OIG Report, Report No. DODIG-2016-072, “DoD Needs to Improve Screening and Access Controls for General Public Tenants Leasing Housing on Military Installations,” April 1, 2016, has improved controls over the Military Housing Privatization Initiative program’s screening and access-related procedures for general public tenants. Screening and access procedures include performing background checks and querying the National Crime Information Center database and the Terrorist Screening database for individuals without a Federal government or DoD-issued identification card who request unescorted access to military installations.
DoD Voting Assistance Programs for Calendar Year 2018
This evaluation, which is statutorily required, determines the effectiveness of the Military Services voting assistance programs, and whether the programs complied with DoD Instructions. The evaluation also summarized the annual assessments of the Voting Assistance Programs submitted by the Inspectors General of the Military Services.
Evaluation of Defense Contract Management Agency Contracting Officer Actions on DoD Contractor Executive Compensation Questioned by the Defense Contract Audit Agency
This evaluation determines whether actions taken by the Defense Contract Management Agency contracting officers complied with the Federal Acquisition Regulation and DoD policy concerning DoD contractor executive compensation that was questioned by the Defense Contract Audit Agency.
RECENTLY ISSUED REPORTS OF INTEREST (to view report, if available, please click on title)
Review of Parts Purchased From TransDigm Group, Incorporated
This audit determined that TransDigm Group, Inc. earned excess profit on 46 of 47 parts purchased by the Defense Logistics Agency and the Army between 2015 and 2017. The audit also found that while contracting officers followed the Federal Acquisition Regulations and the Defense Acquisition Regulation Supplement procedures when determining that prices were fair and reasonable for the 47 parts at the time of the contract award, these procedures were not effective in identifying these excess profits. Specifically, the DoD OIG determined that 112 of 113 contracts had profit percentages ranging from 17 to 4,451 percent for 46 parts. As a result, TransDigm earned $16.1 million in excess profit for 46 parts it sold to the Defense Logistics Agency and the Army for $26.2 million for 112 contracts. In addition, the DoD OIG concluded that if statutory and regulatory requirements continue to prevent and discourage contracting officers from obtaining uncertified cost data, the DoD could continue paying excess profits on parts purchased from sole-source manufacturers and providers of spare parts.
Report of Investigation: Ms. Ellen Ardrey Defense Intelligence Senior Executive Service National Geospatial-Intelligence Agency
The DoD OIG investigated allegations that Ms. Ellen Ardrey, Defense Intelligence Senior Executive Service, while serving as director of the Human Development Directorate, National Geospatial-intelligence Agency (NGA), circumvented DoD policy and wasted government resources in her management of NGA's Voluntary Early Retirement Authority and Voluntary Separation Incentive Payments. The investigation determined that Ms. Ardrey improperly permitted NGA senior officials to downgrade themselves to non-senior official positions within the agency for one pay period, and then paid them $40,000 each as buyout incentives to leave the agency. The DOD OIG concluded that Ms. Ardrey’s actions resulted in a cost to the government of $280,000.
Iraqi Border Guard Equipment
This audit determined that the 1st Theater Sustainment Command records of the equipment transferred to the Iraqi border guard did not match Combined Joint Task Force-Operation Inherent Resolve (CJTF-OIR) Iraqi border guard equipping requests. This audit also determined that CJTF-OIR and 1st Theater Sustainment Command did not maintain complete records or conduct inventories of the equipment transferred to the border guard. As a result, CJTF-OIR did not have evidence that Iraqi border guard personnel received the equipment needed to secure Iraq’s borders against localized and changing ISIS threats. In addition, CJTF-OIR risks unnecessary spending of Counter-ISIS Train and Equip Fund-Iraq funds on equipment that was identified as already divested, but was actually on hand, to fulfill Iraqi border guard requirements.
Fiscal Year 2018 Agency Financial Report
RMA Associates, LLC, an independent public accounting firm, audited the DoD OIG’s FY 2018 financial statements. RMA issued the DoD OIG an unmodified opinion, that the DoD OIG’s financial statements are presented, in all material respects, in accordance with generally accepted accounting principles. The DoD OIG received an unmodified opinion for the third year in a row.
Summary and Follow-up Report on Audits of DoD Energy Savings Performance Contracts
This audit summarized eight reports issued by the Government Accountability Office, the DoD OIG, and the Army Audit Agency regarding the administration of Energy Savings Performance Contracts (ESPCs) by the DoD, the Military Services, and the Defense Logistics Agency. An ESPC is a contract type through which an energy services contractor designs, finances, acquires, installs, and maintains energy-saving equipment and systems for a Federal agency. ESPCs allow Federal agencies to procure energy savings and facility improvements with no upfront capital costs or special appropriations from Congress. The report identifies five systemic issues related to the delegation of authority to contracting officer representatives; quality assurance surveillance plans; contractor-claimed energy savings and associated Government contract payments; project effectiveness; and guidance for ESPC training and contract administration. Overall, the reports found that the Government did not know whether it received contractor-claimed energy savings and whether the ESPC program was cost effective. The Department of Defense took action to implement and close 62 of the 70 recommendations made by the Government Accountability Office, Department of Defense Office of Inspector General, and U.S. Army Audit Agency to resolve the problems identified.
Accounting and Financial Reporting for the Military Housing Privatization Initiative
This audit determined that Defense Finance and Accounting Service personnel did not properly account for and summarize Military Housing Privatization Initiative (MHPI) transactions in DoD financial systems. MHPI was established by Public Law 104-106, “National Defense Authorization Act For FY 1996,” to improve the condition of military housing through partnerships with private investors. In addition, MHPI financial management personnel did not report $2.6 billion of real property (such as housing units and other structures) transferred from the military departments to privatized projects in exchange for military departments receiving an ownership stake in the projects; $489.5 million of equity investment net losses allocated to the Military Departments; and required information about the financial risks to the MHPI. As a result, the FY 2017 and FY 2018 DoD Agency-Wide Financial Statements, as related to the MHPI program, were misstated and unsupported.
Lead Inspector General for Operation Freedom’s Sentinel Quarterly Report to the United States Congress October 1, 2018 – December 31, 2018
This is the 15th Lead Inspector General (Lead IG) quarterly report on Operation Freedom’s Sentinel (OFS) in Afghanistan covering the period October 1, 2018 through December 31, 2018. This report summarizes the quarter’s key events and describes completed, ongoing, and planned Lead IG and partner agency oversight work related to OFS. This report stated that, during this quarter, the security situation in Afghanistan remained volatile, as the Taliban and other terrorist groups continued to attack Afghan security forces and civilians. U.S. and Afghan forces continued to pressure and attack the Taliban and other terrorist groups with airstrikes and ground operations. Also during this quarter, the Lead IG and partner agencies completed nine audit, evaluation, and inspection reports related to OFS, and had 35 ongoing criminal investigations.
System Review Report for the External Peer Review of the National Guard Bureau Internal Review Office
This review determined that, except for certain deficiencies, the system of quality control for the National Guard Bureau of Internal Revenue Office, in effect for the period ended February 28, 2018, was suitably designed and complied with to provide it with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Audit organizations can receive a rating of pass, pass with deficiencies, or fail. The National Guard Bureau of Internal Revenue Office received an external peer review rating of pass with deficiencies. Examples of deficiencies noted included incomplete audit documentation and audit reporting policies; and insufficient monitoring of audit quality and supervisory reviews.
DEFENSE CRIMINAL INVESTIGATIVE SERVICE HIGHLIGHTS (to view DOJ press release, if available, please click on title)
Former U.S. Navy Captain Sentenced in Sweeping U.S. Navy Corruption and Fraud Probe
On February 8, 2019, a former Navy captain, Jeffrey Breslau, was sentenced to six months in prison for secretly working for a foreign defense contractor, Leonard Glenn Francis, and his Singapore-based port services company, Glenn Defense Marine Asia (GDMA). Breslau admitted that between March 2012 and September 2013, while serving in the Navy, he provided Francis with public relations consulting services, including correspondence and talking points regarding GDMA’s business with the Navy. During the course of this consulting agreement, Breslau accepted approximately $65,000 from Francis and did not disclose his consulting activities to the Navy. This is a joint investigation with Defense Criminal Investigative Service (DCIS), the Naval Criminal Investigative Service, and the Defense Contract Audit Agency.
McAllen Woman Charged in Multi-Million Dollar Kickback Conspiracy
On February 6, 2019, the DOJ announced that Victoria Guerra was charged for her role in a multi-million dollar kickback conspiracy involving a pharmacy and doctors throughout Texas. Guerra, a licensed pharmacist, worked as a marketer for a pharmacy. Guerra allegedly paid kickbacks to physicians for referring prescriptions for expensive compounded drugs to the pharmacy. The pharmacy allegedly billed Federal health care programs for these prescriptions. Over the course of approximately two years, the pharmacy allegedly paid Guerra approximately $7.5 million for her role in the conspiracy. This was a joint investigation with DCIS, the USPS OIG, the Department of Labor OIG, the FBI, the VA OIG, and the Drug Enforcement Administration (DEA).
$3.6 Million Settlement Resolves Procurement Fraud Investigation Against Colorado and Maryland Construction Companies Involved With SBA's Minority Disadvantaged Business Development Program
On February 6, 2019, the DOJ announced that VMJ Construction and its owner, Michael Vigil, as well as Vigil Contracting and its operations manager, John Vigil, agreed to pay the United States $3.6 million to resolve allegations that they defrauded the SBA’s 8(a) Business Development Program, which is a business assistance program for small disadvantaged businesses. In 2011, VMJ Construction was accepted into the 8(a) Program. Vigil Contracting is a graduate of the program and has not been eligible to bid for contracts reserved for 8(a) Program participants since 2011. VMJ Construction allegedly made false statements to the SBA regarding its eligibility to participate in the 8(a) Program. Specifically, VMJ Construction relied almost exclusively upon Vigil Contracting to bid on and fulfill contracts awarded to VMJ Construction under the 8(a) Program. Vigil Contracting employees made high-level business decisions for VMJ Construction and managed VMJ Construction’s day-to-day operations. As a result of the deception, the Army, the Navy, and the Department of Agriculture awarded VMJ Construction several federal government contracts set aside for 8(a) Program participants. This was a joint investigation with DCIS, Army CID, and the SBA OIG.
Marketer Agrees to Pay Nearly $340,000 for Allegedly Engaging in an Illegal Kickback Scheme with OK Compounding
On February 8, 2019, the DOJ announced that James Adams, the owner of a marketing company, agreed to pay the Government $339,412 for allegedly accepting kickbacks from OK Compounding. OK Compounding allegedly paid kickbacks to third-party marketers for compounded drug prescription referrals. Adams allegedly caused false or fraudulent claims to be submitted to TRICARE and Medicare. This was a joint investigation with DCIS, the FBI, the Department of Health and Human Services (HHS) OIG, the DEA, and the U.S. Postal Inspection Service.
Southern District of Georgia Continues Crackdown on Healthcare Fraud
On February 8, 2019, Jonathan Austin was sentenced to 30 months in prison and ordered to pay over $1.4 million in restitution. Austin admitted to defrauding Medicare and TRICARE for nearly three years by submitting false claims for prescription reimbursements. This case represents one of the largest beneficiary-created fraud schemes ever prosecuted in the Southern District of Georgia. This was a joint investigation with DCIS, the HHS OIG, and the Social Security Administration OIG.
Sumter Women Convicted of Healthcare Fraud for Over-Charging Government by Millions of Dollars
On February 8, 2019, the DOJ announced that Angela Keith and Ann Eldridge pleaded guilty to one count of false statements to defraud Medicaid. Keith and Eldridge were executives of the South Carolina Early Autism Project (SCEAP). The company provided behavioral health and education solutions for children and young adults. SCEAP overcharged Medicaid and TRICARE millions of dollars by inflating billing records and charging the Government for services that it did not provide to clients. In December 2012, SCEAP was sold to a company called Chancelight for over $18 million, and Chancelight provided Eldridge and Keith with leadership positions within the company. In 2018, SCEAP/Chancelight paid the Government nearly $9 million for overbilling Medicaid and TRICARE in a civil settlement. This was a joint investigation with DCIS and the HHS OIG.
Former Government Contracting Officer Representative Sentenced to 60 Months in Prison for Conspiracy and Bribery
On February 12, 2019, Jerry Vertefeuille was sentenced to 60 months in prison for his role in a bribery scheme. In 2018, Vertefeuille pleaded guilty to conspiracy to commit theft of honest services; conspiracy to commit wire fraud; bribery of a public official; and obtaining and disclosing procurement information. Vertefeuille was a Government contracting officer representative for the Air Force. His duties included overseeing maintenance work and initially approving purchases and invoices. In 2007, Vertefeuille helped co-defendant Christopher Carter, owner of TCC Services, win a paint booth maintenance contract and multiple contract renewals. Vertefeuille received kickbacks for approving Carter's fraudulent invoices and recommending the renewal of TCC's contract. Carter will be sentenced at a later date. This was a joint investigation with DCIS, the Air Force Office of Special Investigations, and the Air Force Audit Agency.
Florida Compounding Pharmacy and Its Owners to Pay at Least $775,000 to Resolve False Claims Act Allegations
On February 14, 2019, the DOJ announced that Vital Life Institute (formerly known as AgeVital Pharmacy) and its owners, Jenny and William Wilkins, agreed to pay at least $775,000 to resolve alleged violations of the False Claims Act. AgeVital, at the direction of the Wilkinses, allegedly paid kickbacks to a third-party marketing company for the referral of compounded drug prescriptions for TRICARE and Medicare beneficiaries. The marketing company arranged for prescribers to sign the prescriptions, which were then referred to AgeVital to be filled. The kickbacks to the marketing entity allegedly consisted of a substantial share of the pharmacy’s TRICARE and Medicare reimbursements. This was a joint investigation with DCIS, HHS OIG, and the FBI.
Mississippi Woman Pleads Guilty to Health Care Fraud, Money Laundering and Tax Evasion Charges for Role in $200 Million Compounding Pharmacy Scheme
On February 20, 2019, the DOJ announced that Hope Thomley pleaded guilty for her role in a $200 million scheme to defraud TRICARE and other health care benefit programs. Thomley owned and operated a marketing company for Advantage Pharmacy. Thomley’s marketing company received nearly 50 percent of the reimbursements that Advantage Pharmacy obtained from compounded medications. Thomley admitted that co-conspirators formulated Advantage Pharmacy’s compounded medications without regard to the individual needs of the patients, but instead with the goal of increasing reimbursements paid by health care benefit programs. From approximately April 2012 through January 2016, health care benefit programs, including TRICARE, paid Advantage Pharmacy and other pharmacies involved in the scheme at least $200 million. This was a joint investigation with DCIS, the FBI, and Internal Revenue Service–Criminal Investigation.
ANNOUNCED PROJECTS (to view the announcement letters, if available, please click on the title)
Evaluation of the U.S. Air Force's Certification of the SpaceX Falcon Launch Vehicle Family
The objective of this evaluation is to determine whether the U.S. Air Force complied with its Launch Services New Entrant Certification Guide when it certified the Falcon 9 launch vehicles as available to launch national security payloads. National security payloads are military spacecraft used to support the defense of the United States and its allies. Appropriate Launch Vehicle certification is critical to the successful launch and on orbit operation of national security payloads. In addition, the Falcon 9 family of Launch Vehicles were the first to be certified using the USAF Launch Services New Entrant Certification Guide. This evaluation will determine whether improvements can be made to the Launch Services New Entrant Certification Guide Certification process before other launch vehicles go through the certification process.
Audit of the Navy and Air Force Hurricane Recovery Effort Costs
The objective of this audit is to determine whether the Navy and Air Force controlled costs for the Global Contingency Construction Contract and the Air Force Contract Augmentation Program task orders issued to support the military base recovery efforts from the 2017 and 2018 hurricanes. The Global Contingency Construction Contract task orders were awarded for hurricane recovery efforts such as security systems, erosion repairs, electrical power generations, mold remediation, and debris clearing and removal. The Air Force Contract Augmentation Program task orders were awarded for hurricane recovery efforts such as damage assessments, roof repair, minor infrastructure construction, potable water, and temporary lodging.
Evaluation of Niger Air Base 201 Military Construction
The objective of this evaluation is to determine whether the U.S. Air Force effectively planned, designed, and implemented requirements to provide airfield and base support infrastructure at Air Base 201 in Niger, Africa.
Evaluation of U.S. Central Command Kinetic Targeting Processes and Reporting Procedures
The objectives associated with this evaluation include identifying and analyzing command processes and procedures employed for kinetic target nomination and prosecution, and identifying and analyzing command post-strike activities, including collateral damage assessment and civilian casualty assessment activities. The evaluation will identify deviations from prescribed guidance and procedures and the results of those deviations with respect to target development and collateral damage and civilian casualties in the area of responsibility.