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DoD OIG Newsletter - January 2020

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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 Munitions Distribution to the Joint Distribution to the Joint Force Throughout the Republic of Korea
This audit determines whether U.S. Forces Korea have the capability to receive and distribute munitions to joint forces throughout the Republic of Korea in support of the operation plan requirements.  This report is classified.

 

Audit of the Readiness of Arleigh Burke-Class Destroyers  
This audit determines whether the Navy has identified and addressed previously identified readiness challenges affecting Arleigh Burke-Class destroyer’s ability to conduct pre-deployment certification on critical mission areas.  Arleigh Burke-class destroyers are multi-mission, surface combatant ships capable of conducting anti-air warfare, anti-submarine warfare, and anti-surface warfare.  This report is classified.

 

Audit of DoD’s Accountability of Equipment Designated for Syria
This audit determines whether the DoD accounted for and properly stored equipment in Kuwait that was designated for Syria and procured with Counter-Islamic State of Iraq and Syria Train and Equip Funds, from procurement through divestment.  This report is classified.

 

Audit of the Global Command and Control System – Joint Security Controls
This audit determines whether DoD Combatant Commands and Military Services have implemented effective physical and logical security controls for the Global Command and Control System-Joint (GCCS-J) to protect DoD data and information technology assets.  The GCCS-J is a system that provides DoD military commanders secure and reliable information on the operational environment including air, land, maritime, space, and cyberspace.  Additionally, the GCCS-J allows users to plan movement of troops and equipment across theaters of operation and build operations for enhanced combat situational awareness.  This report is classified.

 

Understanding the Results of the Audit of the DoD FY 2019 Financial Statements
This report describes, in plain language, improvements made by the DoD and its Components since FY 2018, the FY 2019 DoD Component and Agency-Wide audit results, and the DoD OIG’s perspective on what the DoD should do to continue its progress towards clean opinions and stronger financial management.  In addition, the report describes the contents of the DoD Agency financial report, the purpose of the financial statement audits, the importance of financial statement audits, and the roles and responsibilities of DoD management and the auditors that reviewed the financial statements.

 

Audit of Surge Sealift Readiness Reporting
This audit determines whether U.S. Transportation Command provided adequate oversight of readiness reporting for the surge sealift fleet.  U.S. Transportation Command is a unified, functional combatant command that provides global mobility solutions to other combatant commands, the Military Services, Defense agencies and other organizations. This report is classified.

 

Audit of Controls Over Opioid Prescriptions at Selected DoD Military Treatment Facilities
This audit determines whether selected DoD military treatment facilities overprescribed opioids for DoD beneficiaries.  DoD beneficiaries are active duty service members, retirees, and eligible family members who receive health care at military treatment facilities, which the Defense Health Agency and the Surgeons General of the Military Departments oversee.  Opioids are a class of drugs that include the illegal drug heroin; synthetic opioids, such as fentanyl; and legally prescribed pain relievers, such as oxycodone, hydrocodone, and morphine.

 

Audit of DoD Service-Disabled Veteran-Owned Small Business Contract Awards
This audit determines whether the DoD awarded service-disabled veteran-owned small business set-aside and sole source contracts to eligible contractors.

 

Evaluation of the Integrated Enterprise Ground Service Environment
This evaluation determines whether the Air Force Space Command has developed a plan to implement the Enterprise Ground Services.  The Enterprise Ground Services is the prototype phase of the Air Force Satellite Control Network and consists of hardware, and software applications that support tactical operational systems.   

 

Evaluation of DoD Policies and Procedures to Provide Interoperable and Sustainable Efforts to Counter Small Unmanned Aircraft Systems
This evaluation determines whether the Counter Unmanned Aircraft Systems Senior Integration Group coordinated with and integrated efforts within the Military Services and other DoD Components to counter the evolving threat from Unmanned Aircraft Systems.  This report is classified.

 

Evaluation of DoD Law Enforcement Organization Submissions of Criminal History Information to the Federal Bureau of Investigation
This evaluation determines whether the DoD and its law enforcement organizations complied with Federal law and DoD policy for submitting DoD criminal history information to the Federal Bureau of Investigation for entry into its criminal history databases.  The types of information we examined include fingerprints and offender final disposition reports; Deoxyribonucleic Acid information; Sex Offender Registration and Notification Act information; and Gun Control Act information.  This evaluation also determines whether the DoD and its law enforcement organizations has implemented policies, processes, training, and management oversight procedures to improve the DoD’s collection and submission of criminal history information to the Federal Bureau of Investigation. 

 

System Review Report on the Army Internal Review Program
This review evaluated the system of quality control for the Army Internal Review (IR) Program in effect for the 3-year period ended December 31, 2018.  A system of quality control covers the Army IR Program’s organizational structure, the policies adopted, and procedures established to provide the Army with reasonable assurance of conformity with the December 2011 version of the “Government Auditing Standards.”  The Army IR offices are responsible for establishing and maintaining a system of quality control that is designed to provide reasonable assurance that the Army IR offices and its personnel comply with professional standards and applicable legal and regulatory requirements in all material respects.

 

Evaluation of Defense Contract Management Agency Contracting Officer Actions on Penalties Recommended by the Defense Contract Audit Agency
This evaluation determines whether Defense Contract Management Agency (DCMA) contracting officer actions complied with the Federal Acquisition Regulation, DoD Instructions, and agency policy when the Defense Contract (DCAA) Audit Agency recommended penalties against DoD contractors for claiming unallowable indirect costs.  The DoD OIG evaluated DCMA contracting officer actions on 28 DCAA audit reports that recommended the assessment of penalties on $154 million in indirect costs claimed by DoD contractors.

 

Interagency Coordination Group of Inspectors General for Guam Realignment
This report describes the obligations, expenditures, and revenues associated with military construction on Guam in response to the FY 2010 National Defense Authorization Act. Section 2835 of the Act established the Interagency Coordination Group of Inspectors General for Guam Realignment and requires the group to submit an annual report summarizing, for the preceding calendar year, the activities under programs and operations funded with amounts appropriated, or otherwise made available for military construction on Guam.  

 

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

Audit of the DoD Personal Property Program Related to Household Goods Shipments 
This audit examined whether DoD members received personal property shipments in a timely manner and whether proper actions were taken on household goods that were damaged or lost during moves.  The audit determined that of 9,852 shipments, costing $102.3 million, DoD members did not receive a projected 4,004 shipments (41 percent), costing $33.1 million, on or before the delivery date, or the agreed‑upon delivery date from the storage location.  The moving company coordinates delivery directly with the DoD member, or the shipment is delivered to a temporary storage location if the DoD member does not have an address.  The moving companies are required to meet the specified delivery of shipments on or before the delivery date.  The moving company is also responsible for meeting the agreed-upon delivery date from the storage location.  Additionally, the DoD OIG determined that the Defense Personal Property System had system limitations and inaccuracies.  For example, 5,692 shipments, costing $65.2 million, were reflected as late when they were actually delivered on, or before the scheduled delivery date, or met the agreed-upon delivery date from the storage location.  The audit concluded that DoD members and families did not receive their shipments timely and incurred additional costs for lodging, food, and rental or purchase of household necessities.   Also, of the 311 shipments reviewed, the moving companies resolved 622 of 662 finalized damaged or lost household goods claims (94 percent), valued at $8.4 million, with the DoD members in accordance with DoD guidance.  However, the moving companies did not resolve 40 damaged or lost household goods claims, valued at $20,258.  As a result, the DoD members did not receive the entitled compensation for 40 damaged or lost household goods.

 

Audit of the Management of Non-Major Defense Acquisition Category 2 and 3 Programs
This audit determined that Army, Navy, and Air Force acquisition officials did not appropriately identify or monitor whether their Departments’ acquisition category (ACAT) 2 and 3 program costs and schedules aligned with their respective ACAT designation.  The DoD acquisition programs are classified into ACAT levels depending on estimated program costs.  ACAT 2 programs are major systems estimated to cost between $185 million and $480 million for research, development, test, and evaluation (RDT&E), or between $835 million and $2.8 billion for procurement.  ACAT 3 programs are programs that fall below the ACAT 2 minimum thresholds for RDT&E and procurement.  The audit concluded that the Army, Navy, and Air Force cannot accurately account for acquisition programs with total program costs of up to $144.4 billion dollars.  In addition, the Army, Navy and Air Force acquisition officials did not know the total number of ACAT 2 and 3 programs, and their total program costs, within their respective Departments or whether ACAT 2 or 3 programs were within budget and on schedule.

 

Audit of Jordan Border Security Program Oversight
This audit determined that Defense Threat Reduction Agency (DTRA) personnel did not comply with DTRA internal guidance when providing oversight over a contractor performing inspection and inventory of equipment transferred to the Jordanian Armed Forces (JAF).  Specifically, DTRA officials did not oversee the inspection of transferred equipment or properly document JAF’s acceptance of transferred equipment, and did not request JAF to conduct annual inventories of the transferred equipment.  As a result, DTRA officials did not have an accurate record of the exact type, quantity, or condition of $37 million of the $39.5 million in Joint Border Security Program equipment that the DoD provided through the contractor to JAF between 2014 and 2019.  Without an accurate record of equipment transferred to JAF, the DTRA risks not being able to accurately determine whether JAF has sufficient equipment, including spare parts, to maintain full functionality of the Joint Border Security Program.

 

Audit of Cost Increases and Schedule Delays for Military Construction Projects at Joint Region Marianas
This audit determined that military construction projects in Guam experienced schedule delays and cost increases.  The audit reviewed  nine military construction projects valued at $574.4 million at Joint Region Marianas.  The projects had a total of 13 years and 5 months in schedule delays and $37.5 million in increased costs over the programmed budgets for 9 projects.  The projects experienced delays and cost increases for a variety of reasons, including munitions and explosives of concern clearance activities, H-2B visa restrictions, environmental issues, and delays in obtaining dredging permits.  The audit concluded that delays in military construction projects, such as the construction of maintenance hangars and upgrading of the fuel pipeline, hinder readiness in the region and DoD officials’ ability to build a more lethal force capable of protecting defense assets and meeting the goals of the National Defense Strategy. 

 

Audit of the DoD Requirements for the National Maintenance Strategy-Ground Vehicle Support Contract
This audit determined that the Combined Security Transition Command-Afghanistan (CSTC-A) developed requirements for the National Maintenance Strategy-Ground Vehicle Support (NMS-GVS) contract that were not measurable and achievable.  Specifically, CSTC-A did not develop training and mentoring requirements that measured Afghan National Defense and Security Forces (ANDSF) trainees’ progress towards advanced levels of maintenance; develop achievable work split requirements for the ANDSF; or provide the required core software systems needed for the ANDSF to achieve vehicle accountability and maintain maintenance data when the NMS-GVS contract was awarded.  As a result, CSTC-A developed requirements to maintain vehicles and train the ANDSF, and the Army awarded contract support valued at $2.2 billion since 2010 without significant progress in the ANDSF’s ability to independently perform maintenance.  The audit concluded that ANDSF will face challenges in becoming self-sufficient unless CSTC-A develops training and mentoring requirements that measure the ANDSF progression levels, establishes a reasonable work split requirement, and provides required software systems.  Furthermore, if the ANDSF does not become self-sufficient by August 2022, the DoD may have to continue to pay for contractor support to train and perform vehicle maintenance and repairs for the ANDSF after the contract ends.

 

Evaluation of DoD Processes and Procedures for Issuing Post Government Employment Opinion Letters in Compliance with Section 847
This evaluation determined that covered officials and DoD ethics counselors generally complied with the requirements of Public Law 110‑181, “National Defense Authorization Act for Fiscal Year 2008,” Section 847, “Requirements for Senior Department of Defense officials seeking employment with defense contractors,” as amended.  This law establishes the requirements for requesting and issuing ethics opinions related to compliance with post‑Government employment restrictions.  The DoD’s Standards of Conduct Office and the U.S. Army Office of General Counsel developed and distributed guidance on the use of the After Government Employment Advice Repository and the procedures for issuing Section 847 opinions.  Additionally, The DoD’s Standards of Conduct Office and the U.S. Army Office of General Counsel issued periodic reminders and best practices, developed training materials for ethics officials and covered officials related to Section 847 requirements, and provided regular informational training regarding contractor restrictions under Section 847 to DoD contractors.  

 

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

The Department of Justice Announces Indictment Charging Russians, Italians, and Others with Attempting to Evade Security Sanctions  
On December 2, 2019, a superseding indictment was unsealed which charged Russian and Italian nationals, a U.S. citizen, and various companies for their participation in a conspiracy to evade international trade sanctions and violate the International Emergency Economic Powers Act (IEEPA) and the Export Control Reform Act of 2018 (ECRA).  The indictment charged Oleg Vladislavovich Nikitin; Nikitin’s Russian-based company, KS Engineering (KSE); KSE employee Anton Cheremukhin; Gabriele Villone; Villone’s Italian-based company, GVA International Oil and Gas Services (GVA); and GVA employee Bruno Caparini with violating and conspiring to violate the IEEPA and ECRA.  Additionally, these defendants, Dali Bagrou, and Bagrou’s U.S.-based company, World Mining and Oil Supply (WMO), were charged with conspiracy to commit wire fraud and conspiracy to commit money laundering.  According to the indictment, an unnamed Russian government-controlled business contracted with Nikitin and KSE to purchase a Vectra 40G power turbine from a U.S.-based manufacturer for approximately $17.3 million.  The Vectra 40G was designed and manufactured for integration with gas generators to enable direct drive of high-power gas compressors.  Evidence in the case established the intent of the Russian company to use the Vectra on a Russian Arctic deepwater drilling platform.  For national security reasons, the U.S. Department of Commerce expressly prohibits any unlicensed shipment or transfer of the Vectra to the Russian company for that purpose.  In an attempt to evade U.S. export laws, Nikitin, Cheremukhin, and KSE allegedly hired Villone, Caparini, and GVA to obtain the Vectra on their behalf.  Villone, Caprini, and GVA then employed the services of Bagrou and WMO to procure the Vectra from a U.S.-based manufacturer and to have the Vectra shipped overseas.  The parties conspired to conceal the true end user of the Vectra from both the U.S. manufacturer and the Government by submitting false documentation that stated the Vectra would be used by a U.S. company in and around Atlanta.  Nikitin, Villone, and Bagrou were all arrested in Savannah, Georgia, while attempting to complete the illegal transaction and are awaiting trial.  This is an ongoing investigation with the Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement; the Defense Criminal Investigative Service (DCIS); and the Federal Bureau of Investigation (FBI).

 

Defense Contractor Agrees to Pay $45 Million to Resolve Criminal Obstruction Charges and Civil False Claims Act Allegations
On December 4, 2019, Unitrans International Inc. (Unitrans), a privately held Virginia Defense contractor, agreed to pay $45 million to resolve criminal obstruction charges and civil False Claims Act allegations relating to the illegal transportation of goods across Iran in connection with a contract to provide material and logistical support to U.S. troops in Afghanistan.  As part of the global resolution, Unitrans entered into a non-prosecution agreement (NPA) with the Department of Justice and agreed to pay $31.5 million as a combined criminal monetary penalty and victim compensation payment amount in this matter.  In connection with the NPA, Unitrans admitted that certain of its officers, as well as officers of Anham FZCO (Anham), an associated Dubai Free Zone company incorporated under the laws of the United Arab Emirates, obstructed proceedings pending before the Defense Logistics Agency (DLA).  In June 2012, the DLA awarded Anham a contract to provide material and logistical support to U.S. troops in Afghanistan.  The contract required Anham to certify that it would comply with all executive orders, proclamations, and statutes that prohibit U.S. persons and companies from shipping materials through Iran.  Between November 2011 and May 2012, officers of Unitrans, which provided logistical services to Anham, facilitated the transportation of construction materials to Afghanistan through Iran.  These materials were used in the construction of a warehouse that Anham used to assist in the performance of the troop support contract that Anham had with the DLA.  Unitrans admitted that, at the time of the shipments, high level officers at Unitrans and Anham were aware of the activity and took no action to stop the conduct.  To resolve a related civil matter, Unitrans agreed to pay $27 million to resolve allegations, under the False Claims Act that Unitrans, along with Anham, fraudulently induced DLA and the Army to award wartime contracts for food and trucks by knowingly and falsely certifying compliance with United States sanctions against Iran.  This was a joint investigation with DCIS, the Department of Homeland Security’s Homeland Security Investigations (HSI), and the Special Inspector General for Afghanistan Reconstruction.

 

South Florida Residents and Jet Link, Inc. Sentenced for Roles in Aircraft Parts Fraud Scheme 
On December 6, 2019, several South Florida residents were sentenced in connection with the operation of Jet Link, Inc., an aircraft parts broker in Margate, Florida.  Robert Cantone, Alex Cantone, Brenda Snelgrove, Ronald Burns, and Jet Link, Inc., were sentenced for their roles in an aircraft parts fraud scheme.  The defendants and the corporation previously pleaded guilty for their respective criminal conduct.  The defendants unjustly enriched themselves by fraudulently winning contracts for the supply of military aircraft parts to the Defense Logistics Agency (DLA).  The defendants supplied the DLA with false certifications on their electronic bid quotations Robert Cantone was sentenced to 18 months confinement, followed by 3 years of supervised release, and was ordered the defendant to pay $91,095 in restitution.  Jet Link, Inc., and the co-defendants are prohibited from conducting further business with the DoD and, during the defendants’ terms of supervised release, they are prohibited from the purchasing, selling, distributing, or acquiring of aircraft parts, both commercial and military, and are also prohibited from associating with, or being employed by, any company involved with the purchase or sale of aircraft parts, both commercial and military.  This was a joint investigation with DCIS, the U.S. Army Criminal Investigation Command (Army CID), the U.S. Air Force Office of Special Investigations, and HSI.

 

Former U.S. Army Range Director Pleads Guilty in Bribery Scheme
A former senior Army civilian employee pleaded guilty to conspiracy to accept over $100,000 in bribes while serving as the director of the range at Hawaii’s Schofield Barracks and to a related firearms offense.  Victor Garo pleaded guilty to one count of conspiracy to commit bribery and one count of illegally transporting firearms across state lines.  Garo admitted, from 2011 through 2018, while employed as the range director at Schofield Barracks in Oahu, he accepted over $100,000 worth of bribes (including in cash, automobiles, and firearms) from an employee of a Federal contractor that sought and received business from the Army.  In return, Garo used his position to benefit the contractor in securing Army contracts.  Garo is the second public official and third individual to plead guilty as a result of an ongoing investigation into fraud and bribery at Schofield Barracks.  This is an ongoing investigation with DCIS, Army CID, the FBI, with assistance from the Defense Contract Audit Agency (DCAA).

 

Wisconsin Man Sentenced to 78 Months for Fraud Scheme Involving Over $260 Million in Small Business Contracts
On December 16, 2019, Brian Ganos of Muskego, Wisconsin, was sentenced to 78 months confinement for leading a 12-year fraud scheme involving over $260 million in Government contracts intended to benefit small businesses.  The sentence also includes 2 years of supervised release, a $5,000 fine, and forfeiture of assets worth nearly $4 million.  Ganos previously pleaded guilty to one count of wire fraud and one count of mail fraud.  Four other individuals and one corporation have also pleaded guilty to a felony charge in connection with Ganos’s scheme.  The scheme involved operating three construction companies with straw owners who qualified as a disadvantaged individual or as a service-disabled veteran; however, these owners did not actually control the companies.  Ganos then fraudulently obtained small business program certifications to win Government contracts.  For example, Pagasa Construction Company, Inc. was misrepresented to be majority owned and controlled by an unnamed individual (O.M.) in order to obtain certification as a Small Disadvantaged Business from the Small Business Administration.  In reality, O.M. relied on the assistance of Ganos-controlled companies to form Pagasa.  Between 2004 to mid-2016, Ganos and others used the fraudulently obtained certifications to obtain over $260 million in Federal, state, and local contract payments.  These included Federal construction contracts that were set aside for Small Disadvantaged Businesses or Service-Disabled Veteran-Owned Small Businesses.  As part of his plea agreement, Ganos agreed to the forfeiture of various assets, including over $1.9 million seized from accounts; a ski condominium in Winter Park, Colorado; an office building in Milwaukee used to facilitate the scheme; two Disney timeshares; and five vehicles, including a Corvette Stingray Convertible and other classic cars.  This was a joint investigation with DCIS, FBI, Army CID, DCAA, the General Services Administration Office of Inspector General (OIG), the Department of Veteran Affairs OIG, the Department of Transportation OIG, and the SBA OIG.

 

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

Evaluation of the U.S. Military Support of Security Operations at the U.S. Southern Border
The objective of this evaluation is to examine the use of U.S. military personnel and resources in support of security operations at the U.S. southern border.  The scope of this evaluation will include, but is not limited to:

  • the use of US military personnel in support of security operations at the U.S. southern border;
     
  • the training provided to U.S. military personnel, including training on potential contacts with civilians;
     
  • U.S. military personnel coordination and interaction with Department of Homeland Security personnel at the U.S. southern border; and
     
  • the amount of funding the DoD has expended to support the U.S. Military deployment to the southern border, and whether the use of those funds comply with applicable Federal law and DoD policy.

 

Audit of U.S. Army Corps of Engineers Border Infrastructure Contract
The objective of this audit is to determine whether the U.S. Army Corps of Engineers solicited and awarded a contract to design and build border infrastructure in accordance with Federal procurement laws and regulations.  On December 2, 2019, the U.S. Army Corps of Engineers awarded contract W912PL-20-C0004 to Fisher Sand and Gravel Company.  The contract is a $400 million firm-fixed-price contract to design and build border infrastructure along the southern perimeter of the Cabeza Prieta National Wildlife Refuge in Yuma, AZ.

 

Audit of the DoD's Implementation of Software Assurance Countermeasures for DoD Weapon System Programs
The objective of this audit is to determine whether DoD program management offices implemented software assurance countermeasures to mitigate or remediate the vulnerabilities found in all DoD weapon system programs.  Software assurance is the level of confidence that software functions only as intended and is free of vulnerabilities, either intentionally or unintentionally designed or inserted as part of the software, throughout the lifecycle.

 

External Peer Review of the Air Force Audit Agency Special Access Program Audits
The objective of this evaluation is to determine, for the 3-year period ending December 31, 2019, whether the quality control system over Special Access Program audits conducted at the Air Force Audit Agency was adequate.