April 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:
Audit of Payments to the DoD for Medical Services Provided to Department of Veterans Affairs Beneficiaries at Selected Army Medical Centers
This audit determines whether the Army billed and received payment for services provided to Department of Veterans Affairs beneficiaries under Health Care Sharing Agreements at selected Army medical centers. The DoD and the Department of Veterans Affairs coordinate, use, or exchange their health care resources through Health Care Resource Sharing Agreements.
Audit of the B61 Modification 12 Life Extension Program Tail Kit Assembly
This audit determines whether the Air Force is developing the B61–12 tail kit assembly within cost, schedule, and performance requirements. The B61-12 tail kit replaces the existing parachute delivery system on the B61 and will provide the capability to guide the B61 bomb after it is released from the aircraft. This report is classified.
Audit of Army Oversight of the National Afghan Trucking Services 3.0 Contract
This audit determines whether the Army provided effective oversight of the National Afghan Trucking Service 3.0 contract. The National Afghan Trucking contract is intended to provide U.S. and Coalition forces a secure and reliable means of distributing reconstruction material, security equipment, fuel, miscellaneous dry cargo, and life support assets throughout the Combined/Joint Operations Area-Afghanistan. In addition, the contract provides services such as personnel, trucks, equipment, tools, materials, supervision, and other items necessary for safe, timely, and reliable ground transportation of U.S. Government supplies and assets.
RECENTLY ISSUED REPORTS OF INTEREST (to view report, if available, please click on title)
Summary Audit of Systemic Weaknesses in the Cost of War Reports
This audit determined that the Deputy Comptroller (Program/Budget) personnel issued unreliable and outdated Cost of War reports from FYs 2015 and 2016 to Congress, DoD decision makers, and budgetary decision makers. Cost of War reports summarize obligation data by DoD Component, appropriation, and operation. The DoD OIG and Service audit agencies identified systemic problems with inaccurate and untimely cost reporting for Operation Inherent Resolve and Operation Freedom’s Sentinel. As a result, if DoD Components do not correct the systemic internal control weaknesses in the Cost of War reporting process, Congress, DoD decision makers, and budgetary decision makers may not be able to make informed budgetary decisions, maintain accountability of war-related overseas contingency operations funds, or determine precise trends for executing those contingency operations.
Audit of DoD Efforts to Consult with Victims of Sexual Assault Committed by Military Personnel in the United States Regarding the Victim’s Preference for Prosecution
This audit determined that some victims of sexual assault by military personnel were not consistently provided the opportunity to state their preference for how their cases were prosecuted. The DoD OIG found that in 77 of the 82 cases reviewed, officials at Fort Hood, Naval Station Norfolk, Joint Base San Antonio, and Marine Corps Base Camp Pendleton either did not ask or did not provided sufficient evidence that they asked victims of sexual assault about their preference for prosecution. Of the 77 cases, the victims in 21 cases were not asked their preference for prosecution. For the remaining 56 cases, Military Service officials stated that the victims were asked, however, the officials could not provide sufficient evidence of what the victims preference was for prosecuting offenses.
FollowUp Audit on the Military Department’s Security Safeguards Over SIPRNET Access Points
This audit determined that Army, Navy, and Air Force officials did not correct problems identified in prior DoD OIG reports related to the improvement of logical or physical security safeguards that protect SECRET Internet Protocol Router Network (SIPRNET) access points. SIPRNET access points are logical or physical connections where users can access the classified network. Army, Navy, and Air Force officials did not ensure that approving officials maintained complete and approved user access forms, and did not ensure that users had the required security training. These deficiencies can impact military programs and operations, and lead to accidental or negligent exposure of classified information on the SIPRNET. This report is classified.
Audit of the DoD’s Management of Government-Owned Property Supporting the F-35 Program
This audit determined that DoD officials did not account for and manage the F‑35 Program Government property held by contractors, including recording the property in an accountable property system of record, as required. F-35 Program officials did not maintain a Government record of government–furnished property (GFP); award contracts with complete GFP lists; and coordinate with Defense Contract Management Agency officials to execute contracting actions to transition contractor-acquired property to GFP. As a result, the DoD does not know the actual value of the F‑35 property and does not have an independent record to verify the contractor‑valued Government property of $ 2.1 billion for the F‑35 Program. In addition, F-35 Program officials have no visibility over the property and have no metrics to hold the prime contractor accountable for how it manages Government property. Furthermore, the lack of a DoD record of GFP for the F-35 Program results in an understatement of either assets or expenses on the DoD financial statements, depending on how the contractor used the property on the contract.
Evaluation of DoD Voting Assistance Programs for 2018
This evaluation summarized the annual review by the Inspectors General of the Army, Navy, Air Force, and Marine Corps of the effectiveness and compliance with federal statute of their Service’s voting assistance programs. In addition, this evaluation determined that the Navy did not completely evaluate its compliance with voting assistance program guidance, and had not assigned enough unit voting assistance officers to meet the requirement of one voting assistance officer in every military units of 25 or more permanently assigned personnel. Additionally, only 2 of 10 combatant commands (USAFRICOM and USTRANSCOM) had a written Federal Voting Assistance Program policy as required by DoD instruction. The remaining eight combatant commands relied on a Service component or host installation policy. As a result, the Navy could be under-reporting compliance and is noncompliant for assigning unit voting assistance officers in accordance with the Federal Voting Assistance Program. In addition, without a written policy, combatant commanders cannot ensure they meet the intent of the Federal Voting Assistance Program.
Quality Control Review of the PricewaterhouseCoopers LLP FY 2017 Single Audit of The CNA Corporation
The DoD OIG conducted a quality control review of PricewaterhouseCoopers LLP to determine whether it performed the FY 2017 single audit of the CNA Corporation in accordance with auditing standards and Single Audit Uniform Guidance requirements. The DoD OIG reviewed such audit areas as qualification of auditors, auditor independence, due professional care, and internal control and compliance testing. The DoD OIG determined that PricewaterhouseCoopers generally complied with auditing standards and Single Audit requirements when it performed the FY 2017 single audit of the CNA Corporation.
DEFENSE CRIMINAL INVESTIGATIVE SERVICE HIGHLIGHTS (to view DOJ press release, if available, please click on title)
U.S. Obtains Over $25 Million in Forfeited Funds as Part of a Successful Effort to Root Out Fraud and Corruption in Government Contracting in Afghanistan
On March 5, 2019, the Department of Justice (DOJ) announced that Hikmatullah Shadman, a defense contractor in Afghanistan, agreed to forfeit $25 million to the U.S. Government. This settlement was part of a comprehensive settlement that resolved a criminal case and alleged violations of the False Claims Act. According to court documents, Shadman operated a logistics company that delivered supplies to U.S. military installations throughout Afghanistan. The company, Hikmat Shadman Logistics Services, paid kickbacks to U.S. military personnel in Afghanistan and allegedly overcharged the military for logistics services. This was a joint investigation with the Defense Criminal Investigative Service (DCIS), Army Criminal Investigation Command (Army CID), the Special Inspector General for Afghanistan Reconstruction, and the Federal Bureau of Investigation (the FBI).
Essex County, New Jersey, Man Sentenced to 50 Months in Prison for HealthCare Fraud
On March 7, 2019, Brian Catanzarite was sentenced to 50 months in prison and 3 years of supervised release for his role in a healthcare fraud conspiracy. Catanzarite was paid kickbacks for referring compounded medication prescriptions to a pharmacy. According to documents filed in this case and statements made in court, he encouraged Government health care beneficiaries to obtain compounded medications and paid a nurse practitioner to write prescriptions for compounded medications. Catanzarite pleaded guilty to one count of healthcare fraud. The conspiracy caused Government healthcare benefits programs to lose $3.5 million. Catanzarite was ordered to pay the Government $3.5 million in restitution. This was a joint investigation with DCIS and the FBI.
Former U.S. Navy Contract Official Pleads Guilty in Bribery Scheme in Which He Received more than $1.2 Million in Kickbacks
On March 7, 2019, Fernando Barroso, a former civilian procurement official for Naval Base Ventura County, pleaded guilty to receiving more than $1.2 million in kickbacks. Barroso served as the master scheduler for the Public Works Department at the Naval Base and was the approving official for material purchases, service contracts, and vendor payments. Barroso conspired with Ventura County businessman, Theodore Bauer, who operated three business entities that received Navy contracts. Over the course of the conspiracy, Barrosa admitted that he approved invoices and payments submitted to Bauer’s companies despite work not being performed. In return, Barrosa received kickbacks from Bauer that exceeded $375,000 in cash and $856,350 in checks. Barroso also admitted that he failed to claim a portion of these kickbacks on his tax returns. This is a joint investigation with DCIS and the Internal Revenue Service-Criminal Investigation (IRS-CI).
Five Men Charged in 71-count Indictment with Defrauding Federal Agencies by Paying bribes and Fraudulently Obtaining at Least $15 Million in Government Contracts
On March 14, 2019, James Clark, Eric Hogan, Kenneth Latham, James Alford, and Harvey Daniels, Jr. were indicted for engaging in conspiracies to defraud Government agencies. According to the indictment, the conspirators paid bribes to obtain at least $15 million in construction contracts and defrauded Government contract programs intended for small and disadvantaged businesses. Construction projects detailed in the indictment include contracts at the Marine Corps Logistics Base in Albany, Georgia, the VA Medical Center in Louisville, Kentucky, and the NASA Plum Brook Station near Sandusky, Ohio. According to the indictment, through bribes and kickbacks, the defendants obtained Government contracts set aside for qualified, small and disadvantaged companies to which they were otherwise ineligible to obtain by using proxy and pass-through companies. This was a joint investigation with DCIS, the National Aeronautics and Space Administration Office of Inspector General (OIG), the Department of Veteran Affairs OIG, the Small Business Administration OIG, the Air Force Office of Special Investigations, the Naval Criminal Investigative Service (NCIS), and the Defense Contract Audit Agency.
Flooring Company Settles Allegations it Paid Bribe for Government Work
On March 20, 2019, Spectra Contract Flooring agreed to pay $133,718 to settle alleged violations of the False Claims Act. The civil settlement follows a criminal conviction of a defense contractor, Brent Meisner of Cherokee General Corporation, who oversaw a seismic upgrade project at the Delta Pier Support Facility at the Bangor Submarine Base near Silverdale, Washington. Spectra installed a floor in Meisner’s house and the costs were allegedly passed along to the Navy. Meisner was previously convicted of filing a false tax return and was sentenced to 18 months in prison for his involvement in this matter. This was a joint investigation with DCIS, NCIS, Army CID, and IRS-CI.
More Charges Announced in Ongoing Investigation into Bid Rigging and Fraud Targeting Defense Department Fuel Supply Contracts for U.S. Military Bases in South Korea
On March 20, 2019, the DOJ announced that two South Korean companies, Hyundai Oilbank Co. Ltd. and S-Oil Corporation, agreed to plead guilty to criminal charges and pay approximately $75 million in criminal fines for their involvement in a bid-rigging conspiracy that targeted DoD fuel contracts in South Korea. According to the unsealed indictment, the Defense Logistics Agency and the Army and Air Force Exchange Service are two DoD agencies that contract with South Korean companies to supply fuel to the numerous U.S. military bases throughout South Korea. Hyundai Oilbank, S-Oil, and the seven individual defendants allegedly conspired to suppress and eliminate competition during the bidding process for these fuel supply contracts. The individual defendants, all residents and citizens of South Korea, are Hee-Soo Kim, Tae Ho Cho, Jiwon Kang, Young-Ho Yoon, Byung Kuk Kim, Byungik Moon, and Eul-Jin Hyung. A superseding indictment included charges against the seven individual defendants for conspiring to defraud the United States by impairing, obstructing, and defeating the lawful function of the procurement processes for the fuel supply contracts. As part of its plea agreement with Hyundai Oilbank and S-Oil, the Antitrust Division agreed to move to dismiss this charge against Hyundai Oilbank and S-Oil upon sentencing. Hyundai Oilbank and S-Oil have agreed to cooperate with the Justice Department’s ongoing criminal investigation. The two companies have also agreed to pay the U.S. Government approximately $52 million to settle alleged False Claims Act and antitrust violations. The DOJ’s Antitrust Division filed a civil complaint that alleged the DoD paid substantially more for fuel supply services in South Korea than it would have had Hyundai Oilbank and S-Oil competed for the fuel supply contracts. This was a joint investigation with DCIS, Army CID, AFOSI, and the FBI.
Australian National Sentenced to Prison Term for Exporting Electronics to Iran
On March 21, 2019, David R. Levick, an Australian national, was sentenced to 24 months in prison for conducting business with an Iranian company without a license from the Department of the Treasury. Levick, the general manager of ICM Components, Inc., brokered the sale of electronic aircraft components to a representative of a trading company in Iran. This representative in Iran, referenced in court documents as “Iranian A,” also operated and controlled companies in Malaysia that acted as intermediaries for the Iranian trading company. Levick then placed orders with U.S. companies on behalf of “Iranian A” for the goods, which were aircraft parts and other items that “Iranian A” could not have directly purchased from the United States without the permission of the U.S. Government. Levick admitted to procuring or attempting to procure precision pressure transducers, emergency flotation system kits, and shock mounted light assemblies for transshipment to Iran, each of which required a license from the Treasury Department prior to any export to Iran. Levick also concealed the end-use and end-users of the aircraft parts from manufacturers, distributors, and shippers. In addition to the prison term, Levick must pay a forfeiture amount of $199,227, which represents the total value of the goods involved in the illegal transactions. Following completion of his prison term, Levick will be subject to deportation proceedings. This was a joint investigation with DCIS, the Department of Commerce Office of Export Enforcement, Homeland Security Investigations, and the FBI.
Former Army Colonel Pleads Guilty to Role in Fort Gordon Fraud, Kickback Scheme
On March 21, 2019, Anthony R. Williams, a former Army colonel, pleaded guilty for his role in a bribery conspiracy. While Williams was on active duty, he received bribes from Calvin Lawyer for steering military procurement contracts to the CREC Group. Lawyer and a co-conspirator also made false statements to the Small Business Administration (SBA) to obtain small, disadvantaged business status for the CREC Group. Lawyer previously pleaded guilty for his role in the conspiracy and was sentenced to 60 months in prison. This was a joint investigation with DCIS, Army CID, and the SBA OIG.
ANNOUNCED PROJECTS (to view the announcement letters, if available, please click on the title)
Reannouncement of the Evaluation of Lead Paint in Military Family Housing as the Evaluation of Health and Safety Hazards in Government-Owned and Government-Controlled Military Family Housing
The DoD OIG reannounced this evaluation (originally announced November 16, 2018), to describe an expansion of the objective of the evaluation. The original objective was to determine whether the Military Services effectively managed lead-based paint hazards in Government-owned and Government-controlled military family housing. The evaluation was expanded to assess broader health and safety hazards in Government-owned and Government-controlled military family housing.
Audit of the DoD Foreign Military Sales Agreement Development Process
The objective of this audit is to determine whether the DoD coordinated foreign partner requirements for defense articles and services with the Defense Security Cooperation Agency, Military Departments, and other organizations; and to determine whether the metrics used by these components maximize the results of the Foreign Military Sales agreement development process. The Foreign Military Sales program is an acquisition process through which the U.S. Government procures military equipment, training, and other services on behalf of foreign governments. Within the DoD, the Defense Security Cooperation Agency carries out key administrative functions, such as coordinating the formulation and execution of Foreign Military Sales cases and conducting negotiations with foreign governments. The Military Departments carry out the day-to-day implementation of procurements to fulfill Foreign Military Sales agreements between the U.S. and foreign governments.
Audit Aircraft Readiness at the Naval Aviation Warfighting Development Center, Fallon, Nevada
The objective of this audit is to determine whether the contract for maintenance of aircraft in support of the Naval Aviation Warfighting Development Center at Naval Air Station Fallon provided sufficient mission ready aircraft to train carrier air wings for deployment. The mission of the Naval Station Fallon is to support carrier air wings preparing to deploy; and other units participating in training events, including joint and multinational training and exercises. All carrier air wings train at Naval Air Station Fallon before deployment.