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DoD OIG Newsletter - October 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 the National Maintenance Strategy Contract in Afghanistan

This audit determines whether the Army developed the National Maintenance Strategy–Ground Vehicle Systems contract requirements to meet Afghan National Defense and Security Forces vehicle maintenance and sustainment needs.  The Afghan National Defense and Security Forces consist of the Afghan National Army and the Afghan police.  The National Maintenance Strategy Contract provides vehicle maintenance, supply chain management, and warehouse management to Afghan National Defense and Security Forces across Afghanistan.

Audit of the DoD Supply Chain Risk Management Program for Nuclear Command, Control, and Communications Systems  

This audit determines whether the DoD’s supply chain risk management program has mitigated the risk that adversaries could infiltrate the DoD supply chain and sabotage, maliciously introduce an unwanted function, or otherwise compromise the design or integrity of the critical hardware, software, and firmware of the critical networks or systems that compose the Nuclear Command and Control System.

Quality Control Review of the KPMG LLP FY 2017 Single Audit of the Johns Hopkins University

This evaluation determines whether KPMG LLP conducted the FY 2017 single audit of Johns Hopkins University in accordance with auditing standards and Federal requirements.  The single audit includes an audit of the non Federal entity’s financial statements and Federal awards, as required by Public Law 104-156, “Single Audit Act Amendments of 1996.”

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

Evaluation of the DoD’s Handling of Incidents of Sexual Assault Against (or involving) Cadets at the United States Air Force Academy

This evaluation determined that the U.S. Air Force Academy sexual assault response coordinator (USAFA SARC) and Sexual Assault Prevention and Response (SAPR) victim advocates provided SAPR services to cadet-victims of sexual assault, as required by DoD and Air Force policy.  However, the DoD OIG determined that the USAFA SARC did not have a process to document contacts and consultations with cadet-victims who chose not to make an official report of sexual assault, or a means to document any resulting referrals to victim support services.  Furthermore, the DoD OIG determined that 11 cadet-victim reports of sexual assaults that were made to the USAFA Family Advocacy Program were not entered into the Defense Sexual Assault Incident Database.  The DoD SAPR Office uses the database to account for the number of cadet-victim reports of sexual assault in its annual reports to Congress.  As a result, reports of sexual assaults made to the USAFA Family Advocacy Program were not accurately reported to Congress in the “Annual Report on Sexual Harassment and Violence at the Military Service Academies,” as required by law.

Audit of Access Controls in the Defense Logistics Agency’s Commercial and Government Entity Code Program

This audit determined that Defense Logistics Agency program offices did not have adequate and effective controls to govern the Commercial and Government Entity code process.  The Commercial and Government Entity code is a unique five-character identifier assigned to contractors located in the United States and its territories to identify a commercial or Government entity.  As a result, the Defense Logistics Agency awarded contracts to unauthorized contractors and allowed unauthorized contractors to view, download, and share unclassified military technical data with unauthorized parties.  A redacted results in brief section of this report will be released.

Audit of U.S. Army Corps of Engineers Oversight of Contracts for Repair and Restoration of Electric Power Grid in Puerto Rico  

This audit determined that the U.S. Army Corps of Engineers (USACE) in Huntsville, Alabama, and Jacksonville, Florida, did not adequately monitor contractor labor hours worked, or accurately review contractor invoices to ensure that the invoices corresponded to actual work performed on power grid repair and restoration contracts in Puerto Rico.  As a result, USACE Huntsville did not know whether contractor labor costs paid on 11 invoices, valued at $258.9 million, were allowable according to the terms of the contracts.  Based on DoD OIG testing of a sample of labor cost, the DoD OIG identified at least $20.9 million, paid by USACE Huntsville, that was unsupported and potentially unallowable.  Additionally, USACE Jacksonville did not know whether contractor labor costs paid on seven invoices, valued at $61.3 million, were allowable according to Federal regulations or the terms of the contract.  Based on DoD OIG testing of labor costs, the DoD OIG identified that USACE paid at least $29.2 million that was unsupported and potentially unallowable.

FY 2020 Comprehensive Oversight Plan for Overseas Contingency Operations
This annual oversight plan describes the Lead Inspector General and partner agencies’ oversight of U.S. activities in support of six ongoing overseas contingency operations:  Operation Inherent Resolve (Syria and Iraq), Operation Pacific Eagle–Philippines, Operation Freedom’s Sentinel (Afghanistan), and three other classified overseas contingency operations (Africa and the Middle East).  The three classified operations are covered in a classified appendix to the plan.  The DoD Inspector General is the Lead IG for each of these operations and coordinates efforts with the Department of State and United States Agency for International Development Inspectors General along with other partner agencies within the oversight community.  This is the 5th annual joint strategic oversight plan from the Lead Inspector General for Overseas Contingency Operations (COP-OCO).  The FY 2020 COP-OCO includes 264 oversight projects that the agencies involved plan to undertake in the new fiscal year. 

Audit of the DoD’s Management of the Third Party Collection Program for Medical Claims

This audit determined that DoD medical facility and Defense Health Agency personnel did not adequately manage the Third Party Collection Program to ensure the collection of all available funds from delinquent medical claims for provided health care services.  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 his or her employer, or private insurance that provides for medical, dental, or pharmacy expenses.  This audit identified that from October 1, 2015, to June 30, 2018, 250,932 claims (valued at $86.9 million) were more than 120 days old at nine medical facilities.  As a result, substantial uncollected funds were not available for the medical facilities to use to improve the quality of health care.

Followup Audit of the Defense Logistics Agency’s Management of Excess Items in Long-Term Storage

This followup audit determined that the Defense Logistics Agency (DLA) improved long-term storage inventory management and implemented all four recommendations from a prior DoD OIG report, Report No. DODIG‑2016‑036, “Management of Items in the Defense Logistics Agency’s Long‑Term Storage Needs Improvement,” December 22, 2015.  The followup audit determined that the DLA implemented recommendations related to policy, excess inventory, and the exclusion of inventory from automated reuse.  As a result, from November 2014 to January 2019, the DLA’s long-term storage inventory decreased by nearly 2.72 million inventory items (valued at $1.4 billion).  Furthermore, from November 2018 through February 2019, the DLA automatically reused 5,240 items (valued at $699,571) that the DLA previously excluded from reuse, avoiding the need to purchase new items.  This followup audit also determined that although the automated recoupment process identified items for reuse, the system ordering the items contained deficiencies.  As a result, from January 13 through 26, 2019, the DLA did not reuse 11,379 items valued at $364,136.  The DLA agreed to correct the system-ordering problem, which should allow the DLA to reuse these items in the future.

Audit of Controls at Military Installations for Schools Participating in the DoD Tuition Assistance Program

This audit determined that Military Service officials implemented Tuition Assistance Program controls,at five military installations that the DoD OIG visited, to ensure that educational institutions with authorized access to DoD installations complied with DoD instructions and partnership memorandums of understanding to prevent improper recruitment of service members. 

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

 Long Island Aerospace and Defense Contractor Agrees to Repay $2.6 Million in Overbillings to the United States 

On September 4, 2019, Arkwin Industries, Inc. (Arkwin), a corporation based in Westbury, New York, agreed to pay a $2.6 million settlement to the United States for overbilling of the Government and its prime contractors.  Arkwin designs, tests, and manufactures precision hydraulic and fuel system components for civil and military fixed-wing aircraft, helicopters, spacecraft, turbine engines, and other special applications.  Arkwin acts both as a prime contractor and as a subcontractor to the DoD.  Arkwin detected an error in its accounting systems that double-counted worker hours spent performing inspections of its products.  Arkwin then self-disclosed the discovery to the United States, through the DoD Contractor Disclosure Program, and initiated an internal investigation by outside counsel and a forensic accounting team.  After receiving Arkwin's findings, the U.S. Attorney's Office, with the support of the Defense Criminal Investigative Service (DCIS) and the Air Force Office of Special Investigations (AFOSI), independently investigated the nature and extent of the overbilling, including whether the overbilling had been intentional or accidental.  Following this investigation, Arkwin agreed to a $2.6 million settlement, which represents the total of potential overbilling, with interest.  This was a joint investigation with DCIS and the Air Force Office of Special Investigations.

Defense Contractor Sentenced to 3 Years in Prison for Conspiracy to Defraud the Department of Defense, Conspiracy to Violate Arms Export Control Act, and Income Tax Evasion  

On September 4, 2019, the owner of two defense contracting firms was sentenced to 36 months confinement for providing nonconforming parts for military equipment, illegally sharing sensitive technical information, and evading income taxes.  Roger Sobrado of Marlton, New Jersey, previously pleaded guilty to an information charging him with one count each of conspiracy to commit wire fraud, conspiracy to violate the Arms Export Control Act, and income tax evasion.  Sobrado was the owner of two companies: Tico Manufacturing, Inc. (TICO), a purported manufacturing company, and Military and Commercial Spares, Inc. (MCS), a defense contracting company, both in Berlin Township, New Jersey.  Between January 2011 and December 2015, Sobrado admitted that MCS obtained contracts with the DoD by falsely claiming that the military parts it contracted to provide would be exactly as described and provided by authorized manufacturers.  The DoD contracts specified that the parts were critical application items for military equipment, including fighter jets and helicopters.  Sobrado also admitted that he failed to report over $1 million in additional income from 2011 through 2014.  Additionally, Sobrado admitted that in August 2005 and in November 2010, he submitted to the DoD a fraudulent application for access to export-controlled drawings and technical data on behalf of a family member’s company.  Sobrado acknowledged that access to the controlled drawings and technical data was limited to citizens of the United States and to those lawfully in the United States.  In addition to the prison term, Sobrado was sentenced to 3 years of supervised release, and ordered to pay over $8 million in restitution.  This was a joint investigation with DCIS; the Department of Homeland Security, Homeland Security Investigations; the Internal Revenue Service Criminal Investigation (IRS-CI); and the Social Security Administration OIG.

Pueblo Company Owner Pleads Guilty to Falsifying Records to Obstruct a Federal Investigation and Agrees to Pay $500,000 to Resolve False Claims Act Allegations 

On September 6, 2019, Pueblo business owner Mary Catherine Grasmick pleaded guilty to falsifying records with the intent to obstruct a Federal investigation.  In addition to the guilty plea in the criminal case, Grasmick and her company, MASS Service and Supply, LLC (MASS), a government contractor specializing in construction services, agreed to pay a combined $500,000 to settle civil allegations that they made false statements to the Small Business Administration (SBA) in connection with Government contracts awarded to MASS under the SBA’s Historically Underutilized Business Zone program (HUBZone).  The HUBZone program provides Federal contracting assistance to businesses of which 35 percent of their employees reside in a HUBZone.  As part of the civil settlement, MASS and Grasmick acknowledged that between 2009 and 2012 MASS engaged in a scheme to deceive the SBA with the intent to influence the SBA’s effort to determine whether MASS was eligible to continue participating in the HUBZone program.  MASS falsely claimed that some of its employees resided in HUBZones when, in fact, those employees lived elsewhere in non-HUBZone areas.  During that same period, MASS applied for, and was awarded, a HUBZone set-aside contract and a Federal contract allowing MASS to benefit from the HUBZone program’s pricing preference.  The SBA had decertified MASS from the HUBZone program in 2012.  The Government conducted an investigation into MASS’s previous representations to the SBA.  During the course of that investigation, a DCIS special agent requested that MASS provide information relating to its employees and their HUBZone residency status.  Grasmick knowingly caused spreadsheets with false information to be created and sent to the DCIS special agent with the intent to impede and obstruct the Government’s investigation.  This was a joint investigation with DCIS, AFOSI, the Army Criminal Investigation Command (Army CID), the General Services Administration OIG, the SBA OIG, and the Defense Contract Audit Agency.

Tiger Enters Guilty Plea to Federal Bribery Charge 

On September 13, 2019, George Tiger, of Bristow, Oklahoma, pleaded guilty to bribery concerning programs receiving Federal funds.  Tiger, the former Principal Chief of the Muscogee (Creek) Nation, was an agent of the Alabama-Quassarte Tribal Town (AQTT) from September 26, 2017, through December 4, 2018.  The AQTT is an Indian tribal government and organization that received Federal assistance.  Tiger was the Chairman of the Economic Development Authority, which was formed by the AQTT to identify, plan, initiate, and develop tribal economic and industrial activities on behalf of the AQTT.  The indictment alleged that, from about September 26, 2017, through about February 15, 2019, Tiger accepted bribes in connection with AQTT transactions exceeding $5,000.  This was a joint investigation with DCIS, the Federal Bureau of Investigation (FBI), IRS-CI, SBA OIG, Army CID, and the Naval Criminal Investigative Service.

Employee at U.S. Military Base Admits to Accepting Bribes and Kickbacks 

On September 16, 2019, a civilian employee of Picatinny Arsenal (PICA) and an employee of a defense contractor admitted their roles in conspiring with others to receive bribes and other gratuities in return for assistance with the awarding of Government contracts.  Robert Dombroski, of Branchville, New Jersey, a high-ranking civilian employee at PICA, pleaded guilty to conspiring to commit wire fraud in order to accept or receive things of value in return for favorable assistance with Government contracts, and with making false claims against the United States.  Indra Nayee, of Metuchen, New Jersey, pleaded guilty to conspiring to give, offer, or promise anything of value to a public official and to make false claims against the United States.  Dombroksi worked at PICA, a U.S. Army installation in Morris County, New Jersey, for more than 30 years.  PICA conducts research, development, acquisition, and life-cycle management of advanced conventional weapon systems and advanced ammunitions, and provides products and services to all branches of the U.S. military.  Dombroski admitted that, from January 2010 through December 2017, he conspired with other employees at PICA and Subsystems Technology (STI) (a defense contracting firm that works with PICA on several multi-million dollar contracts to provide engineering, management consulting, and information technology services, among others) to seek and accept gifts, valued at between $150,000 and $250,000, in exchange for assistance obtaining and retaining Government contracts and other favorable assistance at PICA.  He also admitted to filing false statements to the DoD by failing to list the items of value that he received from STI on his annual confidential financial disclosure form, known as an OGE Form 450.  This was a joint investigation with DCIS, FBI, and Army CID.

Compounding Pharmacy, Two of Its Executives, and Private Equity Firm Agree to Pay $21.36 Million to Resolve False Claims Act Allegations 

On September 18, 2019, Compounding Pharmacy Diabetic Care Rx LLC (also known as Patient Care America [PCA]), PCA Chief Executive Officer Patrick Smith, former PCA Vice President of Operations Matthew Smith, and private equity firm Riordan, Lewis & Haden, Inc. (RLH), agreed to resolve a lawsuit alleging that they violated the False Claims Act.  The lawsuit alleged that the pharmacy, executives, and private equity firm were involved in a kickback scheme to generate prescription referrals for expensive pain creams, scar creams, and vitamins that were reimbursed by TRICARE.  PCA and RLH agreed to pay $21.1 million, Patrick Smith agreed to pay at least $300,000, and Matthew Smith agreed to pay at least $12,788.  This settlement resolves a lawsuit pursued by the United States against PCA for allegedly paying kickbacks to outside “marketers” to target military members and their families for prescriptions for compounded creams and vitamins that were formulated to ensure the highest possible reimbursement from TRICARE.  The lawsuit also alleged that the marketers paid telemedicine doctors who prescribed the creams and vitamins without seeing the patients, or in some cases, even speaking to them.  The settlement also resolves allegations that PCA and a marketer routinely jointly paid the copayments for patients referred by the marketer without any verification of the patients’ financial needs, then disguised the payments as contributions from a sham charitable organization affiliated with the marketer.  Finally, the settlement resolves allegations that PCA continued to claim reimbursement for prescriptions referred by the marketers despite regularly receiving complaints from patients that the prescriptions were being generated without patient consent or a valid patient-prescriber relationship.  RLH, the private equity firm that managed PCA on behalf of its investors, allegedly knew of and agreed to the plan to pay outside marketers to generate the prescriptions and financed the kickback payments to the marketers.  Patrick Smith and Matthew Smith were PCA executives who allegedly executed the scheme.  This was a joint investigation with DCIS and the Food and Drug Administration’s Office of Criminal Investigations.

Ohio Man Arrested for Orchestrating $10 Million Scheme to Defraud Health Care Benefit Programs

On September 18, 2019, Kent Courtheyn, of Kent, Ohio, was arrested for his role in a large-scale, multi-level marketing scheme to defraud private and Federally funded health care benefit programs of $10 million through the submission of claims for medically unnecessary prescriptions for compounded medications.  Courtheyn, the owner and operator of two companies involved in the sales and marketing of compounded medications, lntegriMed Solutions LLC (lntegriMed) and KA Compounding LLC (KA Compounding), was charged with a two-count indictment for conspiring to commit health care fraud and conspiring to violate the Anti-Kickback Statute.  From as early as July 2014 through July 2016, Courtheyn, a former medical device sales representative, ran a scheme to defraud Federally funded health care benefit programs, such as TRICARE, as well as privately funded health care benefit programs.  Courtheyn recruited individuals to submit false and fraudulent claims for medically unnecessary compounded medications, including pain creams, scar creams, wound creams, and metabolic vitamins, without regard to medical necessity.  Courtheyn and others targeted individuals with health insurance plans that paid for compounded medications and had high reimbursements, and convinced these individuals to obtain compounded medications through their health insurance plan regardless of medical necessity.  To maximize profit, Courtheyn operated lntegriMed and KA Compounding as a multi-level marketing company.  He recruited several individuals to act as sales representatives.  The sales representatives were paid a percentage of the reimbursement amount for each medically unnecessary compounded medication they caused to be filled and billed to a paying health insurance plan.  If a sales representative was a beneficiary of a paying health insurance plan, Courtheyn also paid these individuals for obtaining their own or their family members' medically unnecessary compounded medications.  This was a joint investigation with DCIS and the FBI.

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

Audit of Other Transactions Awarded Through Consortiums for Research, Prototypes, or Follow-On Production

The objective of this audit is to determine whether the DoD planned and executed other transactions awarded through consortiums according to other transactional authority laws and regulations.  Other transactions are legally binding instruments other than procurement contracts, grants, or cooperative agreements, and are not subject to Federal laws and regulations that govern procurement contracts, such as the Federal Acquisition Regulation.  The DoD can award other transactions for research or prototypes through a consortium, which allows the Government and industry to communicate in one forum.

Audit of the DoD Disposition Analysis of Counter-Small Unmanned Aerial Systems Acquired Through the Urgent Capability Acquisition Process 

The objective of this audit is to determine whether DoD Components adequately determined whether to dispose of, sustain, or transition Counter-Small Unmanned Aerial Systems acquired through the urgent capability acquisition process according to DoD guidance.  Urgent operational needs are capability requirements identified by a DoD Component as impacting an ongoing or anticipated contingency operation.  The urgent capability acquisition process is one of the acquisition pathways that DoD Components use to acquire and deploy supplies, equipment, and capabilities to respond to combat and safety emergencies within 2 years of the validation of the urgent need.

Evaluation of U.S. Air Force Requirements and Systems Engineering Processes Used in the Design and Development of the KC-46A Airborne Tanker Refueling Boom

The objective of this evaluation is to determine whether the Air Force adhered to DoD and Air Force systems engineering processes during the design and development of the KC-46A airborne tanker refueling boom.  The KC-46A aerial tanker modernization is intended to replace the Air Force’s aging fleet of tankers with the capability to refuel any fixed-wing receiver capable aircraft on any mission.