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DoD OIG Newsletter - August 2019

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Newsletter

 

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.

 

                                                                                                            

UPCOMING REPORTS­­

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

Audit of DoD Management of Medical Claims Through the Third Party Collection Program

This audit determines whether the DoD collected the cost of providing health care services from medical claims within the Third Party Collection Program.  The Third Party Collection Program is a congressionally mandated program that authorizes military treatment facilities to recover the cost of providing health care services to covered DoD beneficiaries from third party payers.  Third party payers are health insurers that a covered beneficiary may have through their employer or private insurance that provides for medical, dental, or pharmacy expenses.

Audit of TRICARE Payments for Health Care Services and Equipment That Were Paid Without Maximum Allowable Reimbursement Rates

This audit determines whether the Defense Health Agency paid higher prices than necessary for TRICARE health care services and equipment where it did not establish or use existing TRICARE maximum allowable reimbursement rates.  TRICARE is the DoD’s managed health care program for active duty service members, retirees, and eligible family members, in the United States and overseas.  A TRICARE maximum allowable reimbursement rate is the payment ceiling for reimbursement to providers.

Audit of Defense Logistics Agency Troop Support Negotiation of Prices for the Pharmaceutical Prime Vendor–Global Program

This audit determines whether Defense Logistics Agency Troop Support could improve current and future pharmaceutical prices by obtaining pricing information from the Defense Health Agency and use the information when negotiating pharmaceutical prices.  We reviewed DLA Troop Support’s established prices for pharmaceuticals purchased through its Pharmaceutical Prime Vendor-Global program, which provides global distribution of pharmaceuticals and related products directly to customers in the DoD and other Government agencies.

Evaluation of U.S. and Coalition Efforts to Train, Advise, Assist, and Equip Afghan Tactical Air Coordinators

This evaluation determines whether U.S. and Coalition efforts to train, advise, assist, and equip Afghan tactical air coordinators, air liaison officers, and Afghan air targeting officers met U.S. and Coalition objectives in support of developing Afghan air-to-ground integration capabilities.  The goal of the Afghan air-to-ground integration mission is to deliver and sustain aerial attacks from Afghan or coalition aircraft while preventing civilian or friendly fire casualties. 

Evaluation of U.S. Africa Command Intelligence Priorities for U.S. Special Operations Command-Africa Counterterrorism Mission

This evaluation determines whether U.S. Africa Command and Special Operations Command Africa followed established DoD guidance for identifying and prioritizing requirements for counterterrorism related intelligence and whether Special Operations Command AFRICA was satisfying AFRICA Command’s priority intelligence requirements for counterterrorism.

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

Compendium of Open Office of Inspector General Recommendations to the Department of Defense

This Compendium, which we have issued annually since 2017, summarizes the recommendations that the DoD OIG issued to DoD Components that remained open as of March 2019.  There were 1,581 recommendations made by the DoD OIG that were issued to DoD Components since April 2006.  Of the 1,581 open recommendations, DoD management has agreed to take corrective action on 1,481 recommendations.  Included in that total are 41 open recommendations from DoD OIG reports with potential monetary benefits of $4.8 billion and another 80 that are more than five years old.  This is a 42 percent increase over the number of recommendations that were reported as more than 5 years old in last year’s Compendium.  The Compendium also highlights 30 open recommendations that the DoD OIG believes warrant priority attention based on the potential for the recommendations to improve the effectiveness of DoD operations and provide cost savings to the taxpayer.  The 2019 Compendium includes a new chapter that discusses the findings and recommendations that resulted from the first ever DoD-wide financial statement audit, as well as the process that the DoD OIG and independent public accounting firms will use to follow up on those recommendations. 

Audit of the DoD’s Management of the Cybersecurity Risks for Government Purchase Card Purchases of Commercial Off-the-Shelf Items 

This audit determined that the DoD purchased and used commercial off-the-shelf (COTS) information technology items with known cybersecurity risks.  Specifically, Army and Air Force government purchase cardholders purchased at least $32.8 million of COTS information technology items in FY 2018, such as Lenovo computers, Lexmark printers, and GoPro cameras, with known cybersecurity vulnerabilities.  As a result, adversaries could exploit known cybersecurity vulnerabilities that exist in COTS items purchased by the DoD.  If the DoD continues to purchase and use COTS information technology items without identifying, assessing, and mitigating the known vulnerabilities associated with COTS information technology items, missions that are critical to national security could be compromised.

Audit of Protection of DoD Controlled Unclassified Information on Contractor-Owned Networks and Systems

This audit determined that DoD contractors did not consistently implement DoD‑mandated system security controls for safeguarding DoD controlled unclassified information (CUI), and DoD Component contracting offices and requiring activities did not always know which contracts required contractors to maintain CUI.   Controlled unclassified information is a designation for unclassified information that requires proper safeguarding because compromise of the information has the potential to affect national security.  As a result, the DoD does not know the amount of DoD information managed by contractors and cannot determine whether contractors are protecting unclassified DoD information from unauthorized disclosure.  The DoD is at greater risk of its CUI being compromised by cyberattacks from malicious actors who will target DoD contractors.

Report of Investigation: Ms. Dana W. White and Mr. Charles Summers, Jr. Senior Executive Service Office of the Assistant to the Secretary of Defense for Public Affairs

The DoD OIG investigated an allegation that Dana White, while serving as the Assistant to the Secretary of Defense for Public Affairs, used her subordinates for personal services and accepted gifts from her subordinates, in violation of ethics rules.  The DoD OIG substantiated the allegation that Ms. White misused subordinates’ time to conduct personal services for her and that she accepted gifts from her subordinates.  

Whistleblower Reprisal Investigation: Willowheart, Limited Liability Company Fort Bragg, North Carolina

This administrative investigation substantiated an allegation that defense contractor, Willowheart Limited Liability Company, suspended an employee without pay in reprisal for reporting violations of law.  We recommended that the Secretary of the Army direct Army officials to take appropriate action against the contractor for reprising against the employee, including awarding the complainant compensatory damages (including back pay), employment benefits, and other terms and conditions of employment that the complainant would have received if he had not been reprised against.

Audit of Air Force Accountability of Government Property and Oversight of Contractual Maintenance Requirements in the Contract Augmentation Program IV in Southwest Asia

This audit determined that the Air Force did not account for government-furnished property (GFP) under four Air Force Contract Augmentation Program IV task orders in Kuwait, Qatar, and the United Arab Emirates.  As a result, the Air Force does not know the value of GFP provided to contractors, has no oversight of the property, and cannot hold the contractors accountable for how they manage GFP, including property damage and losses.  In addition, the Air Force and the contractors do not have assurance that the base support contractors in Qatar maintained at least $20.6 million of Government property according to contract requirements including $5 million of GFP and $15.6 million of Government property, which the Qatar base support contractor was required to maintain.

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

CEO, CFO and Company Sentenced in Massive Pharmaceutical Scheme to Defraud, Launder Money and Obstruct Justice

On July 2, 2019, Dean Volkes and Donna Fallon of Long Island, NY, and Devos Ltd., doing business as Guaranteed Returns, also located in Long Island, were sentenced to five years confinement, one year confinement, and five years’ probation, respectively.  Additionally, Volkes and Guaranteed Returns were each ordered to forfeit $114,832,445 and pay restitution of $95,253,090, and Fallon was ordered to pay $515,221 in restitution.  Volkes, Fallon, and the company were convicted at trial in March 2017 of mail fraud, wire fraud, theft of Government property, money laundering conspiracy, obstruction of justice, and false statements in connection with a scheme to steal money from clients who relied on the business to return unused pharmaceutical products.  As a reverse distributor, Guaranteed Returns managed the returns of pharmaceutical products for healthcare providers, including numerous hospitals, pharmacies, and long-term care facilities, as well as Department of Defense facilities.  Pharmaceutical manufacturers allow expired drugs to be returned for a refund.  Guaranteed Returns handled this process for healthcare provider clients in exchange for a fee based on a percentage of the return value.  From 1999 through 2014, Guaranteed Returns promised its clients that it would hold their “indate” (not yet expired) drug products until they expired, and then return them on the clients’ behalf, in exchange for a fee.  Instead, Guaranteed Returns, at CEO Volkes’ direction, stole indated drug products that it received from its clients, returned the drugs to manufacturers, and kept the refund money.  Volkes created a system in which he classified clients as either “managed” or “unmanaged.”  While both categories of clients were victimized, Volkes reserved special treatment for “unmanaged” clients by stealing what he could from them by ensuring that Guaranteed Returns kept the full value of the returned product for itself.  The evidence demonstrated that through their fraud, Volkes and Guaranteed Returns stole more than $100 million from over 13,000 clients, including more than $20 million from numerous medical treatment facilities operated by the U.S. Department of Defense and other government agencies.  This case was investigated by the Defense Criminal Investigative Service (DCIS) and the Federal Bureau of Investigation (FBI). 

Former State Delegate Sentenced for Role in Defrauding United States

On July 2, 2019, Ronald Villanueva, a former member of the Virginia General Assembly was sentenced to two and a half years confinement for his role in a conspiracy that resulted in the fraudulent award of over $80 million in Government contracts.  Villanueva participated in a nine-year conspiracy with others to help two Virginia Beach companies secure Small Business Administration contracts that had been set aside for minority-owned businesses.  Villanueva began working for one company, SEK Solutions, in or about 2005.  When that company’s small business status was set to expire in 2010, Villanueva and his co-conspirators set up a new company, Karda Systems, which was allegedly run by Villanueva’s brother-in-law.  However, Karda’s contracting business was managed by Villanueva and others associated with SEK.  Villanueva and others misrepresented whether SEK and Karda were eligible for government contracts under the small business program.  Neither company was eligible to participate in the program, yet Villanueva and his co-conspirators made numerous false statements and certifications to the contrary.  During part of the conspiracy, Villanueva was a member of the Virginia General Assembly, and in one instance used his House of Delegates letterhead to send a letter to the Small Business Administration in support of Karda’s application to participate in the small business program, knowing that it contained false and misleading statements about who actually operated the company.  As a result of the fraud, the two companies were awarded over $80 million dollars in Government contracts for which they were not eligible.  As part of the sentence, Villanueva was ordered to pay $524,533 in restitution.  This was a joint investigation with the General Services Administration Office of Inspector General (OIG), the Small Business Administration OIG, FBI, and DCIS.

Former NSA Subcontractor Pleads Guilty To Submitting False Claims for Hours Worked On Government Contracts

On July 2, 2019, Kyle Smego of Raleigh, North Carolina, pleaded guilty to submitting false claims to the United States for inflating the number of hours he claimed to have worked on two Government contracts.  From February 2016, the National Security Agency (NSA), had two ongoing contracts with an outside company, Contractor A.  Each of these contracts required Contractor A to supply information technology services to the NSA.  Contractor A subcontracted with Subcontractors 1 and 2 to provide software engineers and developers needed to carry out its obligations under each contract.  From February 2016 through May 2018, Smego was successively employed on a full-time basis by Subcontractors 1 and 2 to work as a software engineer and front-end developer on the two separate contracts held by Contractor A.  Because the subject matter of these contracts involved classified information, all of the work had to be performed at secure, access-controlled locations.  Smego was therefore required to be physically present at his assigned duty locations to do his work.  Between February 2016 and November 2017, Smego falsely claimed to have worked 1,326 of the 3,289 hours he had reported to Subcontractor 1 (40.3%) and 375 of the 797.5 hours he had reported to Subcontractor 2 (47%).   All of the hours that were falsely reported by Smego were ultimately paid for by the NSA totaling$220,379.  This was a joint investigation with the NSA OIG and DCIS.

Former Army Corps Employee Pleads Guilty to Lying to Law Enforcement

On July 12, 2019, Tracey Sellers, a former employee of the Army Corps of Engineers (USACE), pleaded guilty to making false statements to law enforcement agents. 

Sellers was a civilian employee of the USACE Jacksonville, Florida District.  A biologist, Sellers coordinated and advised on environmental issues related to USACE projects and reviewed products from environmental consulting companies.  Federal ethics laws and regulations prohibit Federal employees from engaging in outside employment that conflicts with employees’ official duties.  From 2014 through February 8, 2019, while employed with USACE, Sellers violated these laws and regulations by engaging in outside employment with a consulting company despite being part of a team that oversaw that company’s work for USACE in relation to large dredging projects in South Florida.  In November 2014, October 2018, and January 2019, the consulting company offered Sellers part-time work on three different projects with the company.  Sellers accepted the offers from the consulting company, provided it her resume, entered into an independent consulting contract with it, and performed work on the projects for it.  In an interview occurring in February 2019, Sellers falsely and willfully misled Federal agents about her outside involvement with the consulting company.  This was a joint investigation with the National Oceanographic and Atmospheric Administration, the Environmental Protection Agency Criminal Investigation Division, the U.S. Army Criminal Investigative Command Division, Major Procurement Fraud Unit, and DCIS. 

Ex-U.S. Navy Contract Official Sentenced to More than 5 Years in Prison for Bribery Scheme Where He Netted $1.2 Million in Kickbacks

On July 15, 2019, Fernando Barroso, a former civilian employee of the Navy who was a senior procurement official for Naval Base Ventura County in Hueneme, California received $1.2 million in illegal kickbacks and was sentenced to 70 months confinement.  In March 2019, Barroso pleaded guilty to one count of conspiracy and one count of subscribing to a false Federal income tax return.  Barroso admitted in his plea agreement that he defrauded the U.S. Government, submitted false claims for payment, and accepted bribes.  Barroso worked for 22 years as the master scheduler for the Public Works Department at the Naval Base, which included three facilities – Point Mugu, Port Hueneme, and San Nicolas Island.  In this role, Barroso was an “approving official” responsible for approving material purchases, service contracts, vendors, and payments to vendors.  Barroso conspired with Theodore Bauer, a Ventura County businessman who operated three entities that received contracts from the Navy.  Barroso and Bauer entered into an arrangement in 2008 where Barroso issued and approved work orders and purchase orders for Bauer’s companies.  Bauer submitted false invoices on behalf of his companies, and Barroso approved invoices and payments to Bauer’s companies, including invoices and payments for work that was not performed.  In return, Bauer gave Barroso 50 percent of all proceeds generated by the scheme.  Barroso also admitted that he failed to report $95,200 of kickbacks on his 2011 tax return, and that he claimed $331,225 of fictitious deductions on his 2012 tax returns.  These violations caused a tax loss to the Government of $105,039.  Barroso was ordered to pay $1,077,718 in restitution to the Navy and the Internal Revenue Service (IRS).  This was a joint investigation with the IRS Criminal Investigation, the Naval Criminal Investigative Service (NCIS), and DCIS.

ITT Cannon to Pay $11 Million to Settle False Claims Act Allegations that It Sold Untested Electrical Connectors to the Military

On July 16, 2019 ITT Cannon (ITT) agreed to pay the U.S. Government $11 million to settle False Claims Act allegations that it supplied electrical connectors to the military that had not been properly tested.  ITT sold the untested connectors both directly to the Government and through distributors and other Government contractors, which incorporated them into technology and equipment sold to the Government.  The settlement resolves allegations that from September 2008 to March 21, 2017, ITT did not conduct the required periodic testing on six models of electrical connectors.  In December 2010, the Government learned that ITT had not done this testing and ITT promised the Government that it would conduct remedial testing and report the result to the Government.  Shortly thereafter, in February 2011, ITT experienced several failures in its remedial testing.  ITT did not immediately disclose these failures but represented to the Government that it was behind in the remedial testing.  In March 2017, the Defense Logistics Agency (DLA) issued an order stopping the shipment of the six connectors.  In June 2017, ITT issued six Government Industry Data Exchange Program notices disclosing to industry its failure to conduct required testing, its test failures, and changes in the processes, materials, construction, sourcing, and design of the connectors.  DLA then removed the six ITT connectors from the qualified products list.  The qualified products list itemizes products that have met the qualification requirements set forth in the applicable military specifications, which are uniform engineering and technical requirements for certain products used by the DoD.  DLA’s removal of ITT from the qualified products list precluded ITT from selling parts to the military covered by the military specifications.  This was a joint investigation with the DLA, the National Reconnaissance Office, the National Aeronautics and Space Administration OIG, the Air Force Office of Special Investigations, the Defense Contract Audit Agency, the U.S. Coast Guard OIG, NCIS, and DCIS.

President of Insulation Contracting Firm Pleads Guilty to Antitrust and Fraud Charges

On July 17, 2019, Paul M. Camara Jr., president and co-owner of an insulation contractor, pleaded guilty for his role in schemes to rig bids in violation of the antitrust laws and engage in criminal fraud on insulation contracts.  Camara’s guilty plea is the third conviction in this ongoing investigation.  From October 2011 and continuing until March 2018, Camara, of Brooklyn, Connecticut, conspired with other insulation contractors to rig bids and engage in fraud on contracts for installing insulation around pipes and ducts on construction projects at universities, hospitals, and other public and private entities, including an engineering headquarters for a DoD contractor, in Connecticut and elsewhere.  The conspirators discussed prices and agreed on bids that inflated prices to their customers by at least 10 percent.  In order to conceal their actions, the conspirators perpetrated the bid-rigging and fraud schemes using burner phones.  This is an ongoing joint investigation with the FBI and DCIS. 

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

Audit of TransDigm Group, Inc.’s Business Model and Its Affect on DoD Spare Parts Pricing

The objective of this audit is to determine whether TransDigm Group Inc.’s business model impacts the DoD’s ability to negotiate fair and reasonable prices for spare parts on DoD weapon systems.  TransDigm designs, produces, and supplies highly-engineered proprietary aerospace parts and systems.  TransDigm’s products support DoD weapons systems including, the C-17 Globemaster III, AH-64 Apache, F-16 Fighting Falcon, and the CH-47 Chinook.  TransDigm is the sole source provider for more than three-quarter of its net sales.

Audit of Munitions Storage Facilities in the U.S. European Command

The objective of this audit is to determine whether the DoD stored and secured its munitions in the U.S. European Command in accordance with applicable policy.

Audit of Labor Qualifications for Defense Health Agency Information Technology and Telecommunications Contracts

The objective of this audit is to determine whether contractor employees met the labor qualifications for Defense Health Agency information technology and telecommunications contracts. 

Audit of Management of Pharmaceutical Inventories in Support of Overseas Contingency Operations

The objective of this audit is to determine whether the Military Services properly stored, tracked, and safeguarded pharmaceuticals at their overseas locations supporting overseas contingency operations.

Audit of the DoD Military Health System Interoperability With Health Care Systems of the Department of Veterans Affairs and External Health Care Providers

The objective of this audit is to determine whether the DoD is developing standards and implementing controls to provide interoperability between the health care systems of the DoD, the Department of Veterans Affairs, and external health care providers.

Audit of the Core Inventory Management System Implementation

The objective of this audit is to determine whether the DoD's implementation of the Core Inventory Management System improved weapons and vehicle accountability.  The Core Inventory Management System provides automated accounting of shipping, receipt, and inventory at Afghan National Defense and Security Forces national and regional level depots, which storeweapons, vehicles, and other materials.  The DoD plans to expand implementation of the Core Inventory Management System to enhance the systems capability to assign and move assets between organizations and personnel with real-time transparency.

Evaluation of DoD Enhanced End-Use Monitoring for Equipment Transferred to the Government of Ukraine

The objective of this evaluation is to determine whether the DoD’s transfer to the Government of Ukraine military equipment requiring enhanced end-use monitoring, such as javelin missiles, javelin command launch units, night vision devices, and other enhanced end-use monitoring item, complies with Federal law and DoD guidance.  In addition, the evaluation will determine whether Ukraine’s security and accountability of enhanced end-use monitoring military equipment meet the criteria prescribed by law and regulation.

Evaluation of Mental Health Access to Care in the Department of Defense

The objective of this evaluation is to determine how the DoD meets outpatient mental health access to care standards for active duty service members and their families, according to Federal law and applicable DoD policies.  Specifically, the evaluation will review the appointment booking and referral processes for outpatient mental health care to determine whether patients are able to get the care they need within access to care standards and whether the metrics reflect the actual patient experience.  In addition, the team will evaluate how the MHS determines the required capacity to meet patient demand for outpatient mental health services.

Evaluation of DoD Contracting Officer Actions Taken on Defense Contract Audit Agency Report Findings Involving Two of the Five Largest DoD Contractors

The objective of this evaluation is to determine whether the actions taken by DoD contracting officers on Defense Contract Audit Agency audit report findings for two of the five largest DoD contractors complied with Federal Acquisition Regulations, DoD policy, and DoD component policies.