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DoD OIG Newsletter - April 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:

Joint Enterprise Defense Infrastructure - Cloud Acquisition Investigation 

This investigation examines the process used by the DoD to award the JEDI contract, whether the award of the contract was affected by any outside pressure, whether any DoD officials engaged in ethical misconduct related to the contract, and whether any alleged ethical misconduct affected the integrity of the procurement process.

Evaluation of Health and Safety Hazards in Government-Owned and Government-Controlled Military Family Housing

This evaluation determines whether the DoD and Military Services established policies and programs to manage health and safety hazards in Government-owned and Government-controlled military family housing, and whether installation officials, at eight military installations effectively managed health and safety hazards in Government-owned and Government-controlled military family housing. 

Summary of Reports Issued and Testimonies Made Regarding Department of Defense Cybersecurity From July 1, 2018, Through June 30, 2019 

This audit summarizes unclassified and classified cybersecurity reports and testimonies from the Department of Defense Office of Inspector General (DoD OIG), the DoD oversight community, and the Government Accountability Office issued between July 1, 2018, and June 30, 2019.  The audit also identifies cybersecurity risk areas for DoD management to address based on the five functions of the National Institute of Standards and Technology Cybersecurity Framework, and the audit identifies the open DoD recommendations related to DoD cybersecurity.

Audit of Department of Defense Management of Undefinitized Contract Actions

This audit determines whether the DoD Military Departments properly managed undefinitized contract actions by obligating funds within required limits, ensuring profit was adjusted for costs incurred, and definitizing actions within required time limits.  Undefinitized contract actions are agreements that allow a contractor to begin work and incur costs before the Government and the contractor have reached a final agreement on contract terms, specifications, or price. 

Audit of Physical Security at Department of Defense Military Treatment Facilities

This audit determines whether DoD medical treatment facilities implemented physical security controls to prevent unauthorized access to facilities, equipment, and sensitive areas, such as generator facilities, fuel storage tanks, and restricted areas where medical equipment and pharmaceuticals are stored.

Audit of U.S. Military Equipment Retrograded from Syria 

This audit determines whether the DoD has secured and accounted for U.S. Military equipment retrograded from Syria.  Retrograde is the process of moving non-unit equipment from one theater of operations to another, to a facility for disposition, or to a facility to be repaired for future use.  Equipment retrograded from Syria included items such as vehicles, laptops, and communication devices, and did not include any lethal equipment.

Followup Evaluation on Report No. DoDIG-2014-083, "Insufficient Infrastructure Support to the Fixed Submarine Broadcast System," June 23, 2014

This evaluation determines whether the Navy implemented recommendations made in a prior OIG report, Report No. DODIG-2014- 083, "Insufficient Infrastructure Support to the Fixed Submarine Broadcast System," June 23, 2014. 

This report is classified.

Evaluation of DoD Security Controls for Intelligence Surveillance and Reconnaissance Supply Chains

This evaluation determines whether DoD procurement and security components followed policies, procedures, and guidance for monitoring and mitigating foreign access, control, and influence to DoD intelligence, surveillance, and reconnaissance supply chains. 

This report is classified.

Evaluation of Regional Security Centers

This evaluation determines whether the DoD Regional Centers for Security Studies complied with regulations relating to the vetting of foreign faculty, use of nondisclosure agreements, official travel, and payment of fees for guest lecturers (honoraria). 

Evaluation of Air Refueling Support to U.S. Strategic Command’s Nuclear Deterrence Mission

This evaluation determines whether the Air Force has mission capable aircraft and aircrew to meet U.S. Strategic Command's Operation Global Citadel air refueling requirements.  The evaluation focuses on the KC-135 aircraft nuclear mission readiness, the nuclear mission readiness of associated aircrew, and the required installation support needed to meet U.S. Strategic Command’s KC-135 air refueling requirements. 

This report is classified.

 

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

Audit of the Department of Defense’s Ground Transportation and Secure Hold of Arms, Ammunition, and Explosives in the United States 

This audit determined that the DoD and its commercial carriers transported 107,625 arms, ammunition, and explosives (AA&E) ground shipments from October 2016 through March 2019, and that the DoD and commercial carriers did not always transport this AA&E in accordance with the Defense Transportation Regulation.  As a result of packing, tracking, and delivery problems and an accident in 2017, the public was unnecessarily exposed to AA&E that was stolen, damaged, exploded, ignited, or spilled across public highways.  AA&E, when stolen, gives criminals the opportunity to use military grade arms for illegal activities.  In addition, when AA&E is stolen, damaged, or exploded, the DoD must replace that ammunition, which costs time and money and can hamper DoD operations.  

 

Audit of Defense Hotline Allegations Concerning the Defense Microelectronics Activity  

This audit determined that the Defense Microelectronics Activity (DMEA) generally resolved customer requests for microelectronics—such as microchips, printed circuit boards, and technical data packages—using the Advanced Reconfigurable Manufacturing for Semiconductors (ARMS) facilities.  However, the ARMS foundry, one of the ARMS facilities used to produce microelectronic devices, may not be cost-effective.  While the DMEA was able to resolve the majority of customer requests using ARMS facilities other than the foundry, no study or business case analysis has been conducted on the costs and benefits of maintaining the existing ARMS foundry, even though the foundry has been used to provide only 5 customer solutions in the last 5 1/2 years.  During that time, the DMEA spent $32.4 million to maintain the foundry.  The DMEA also budgeted $35.8 million to maintain the foundry from July 1, 2019, through June 30, 2024.

 

Audit of Security Controls Over the Department of Defense’s Global Command and Control System–Joint Information Technology System 

This audit determined that cybersecurity officials at the seven Global Command and Control System–Joint (GCCS-J) critical sites the audit reviewed did not implement all required GCCS-J security controls.  Of the 17 security controls reviewed, cybersecurity officials only implemented 9 of them.  These nine controls included six common controls, one system-specific control, and two hybrid controls.  However, cybersecurity officials did not consistently implement common controls, among other things, and account management.  As a result, inconsistent implementation of the required security controls could leave the GCCS-J vulnerable to malicious activity and hinder its ability to provide critical information to enable global and joint command and control operations.

 

Audit of the Army’s Base Life Support Contract for Camp Taji, Iraq 

This audit determined that for the base life support (BLS) contracts at Camp Taji, Iraq, the Combined Joint Task Force–Operation Inherent Resolve (CJTF‑OIR) did not define DoD and Army‑specific requirements for BLS services.  The Camp Taji BLS contracts include services such as base security, billeting, lodging, meals, potable water, emergency response, fire response and prevention, hazardous material storage, and electric power generation.  This audit also determined that the 408th Contracting Support Brigade and Army Contracting Command–Rock Island each awarded contracts that caused CJTF‑OIR to pay for services that it did not use, and that CJTF‑OIR’s contract oversight personnel did not verify the accuracy of the contractor’s invoices.  As a result of poorly defined contract requirements, inadequate pricing structure, and lack of invoice oversight, CJTF‑OIR has paid $116 million more than necessary since July 2015 for the Camp Taji BLS contracts.  In addition, in the absence of a contract requirement to dispose of solid waste in accordance with U.S. Central Command environmental guidance, the contractor continued to use its commercially available, and Government of Iraq–approved, solid waste disposal method of dumping solid waste at a site in the Camp Taji Amber Zone, which the Iraqis would later burn.  This solid waste disposal method may have contributed to the exposure of U.S. and Coalition personnel to potential long‑term health effects from the burn pit smoke.

 

Followup Audit on Corrective Actions Taken by DoD Components in Response to DoD Cyber Red Team-Identified Vulnerabilities and Additional Challenges Facing DoD Cyber Red Team Missions 

In Report No.DODIG-2013-035, “Better Reporting and Certification Processes Can Improve Red Teams’ Effectiveness,” the DoD OIG determined that DoD Cyber Red Teams did not effectively report the results of their assessments.  DoD Cyber Red Teams are DoD personnel that are certified, accredited, and authorized to identify vulnerabilities that impact the confidentiality, integrity, or availability of DoD systems and networks by portraying the tactics, techniques, and procedures of adversaries.  The prior report also determined that DoD Components did not effectively correct or mitigate cyber Red Team-identified vulnerabilities and did not track or report the vulnerabilities on a plan of action and milestones.  This followup audit determined that DoD Components did not consistently mitigate or include unmitigated vulnerabilities in plans of action and milestones.  The unmitigated vulnerabilities were identified by DoD Cyber Red Teams in both the prior audit and this audit.  This followup audit also determined that the DoD did not establish a unified approach to prioritize DoD Cyber Red Team missions.  As a result of not mitigating vulnerabilities, not including unmitigated vulnerabilities in a plan of action and milestones, and not having an enterprise-wide solution to staff, train, and develop tools for DoD Cyber Red Teams to prioritize their missions, DoD Cyber Red Teams cannot meet mission requests.  In addition, the DoD cannot determine the number and staffing of DoD Cyber Red Teams needed to support mission needs, which will impact the DoD’s ability to limit malicious actors from compromising DoD operations.

 

Evaluation of the Department of Defense’s Handling of Incidents of Sexual Assault Against (or Involving) Cadets at the United States Military Academy

This evaluation determined that cadet-victim reports of sexual assault at the United States Military Academy (USMA)  were accurately reported to Congress, as required by Public Law 109-364; that Army Criminal Investigation Command agents generally responded to, and investigated reports of sexual assault in accordance with DoD, Army, and CID policy; and that USMA commanders and decision makers did not retaliate against cadet-victims by separating them from the USMA for reporting sexual assault.  However, the evaluation determined that USMA Sexual Harassment, Assault Response and Prevention (SHARP) personnel did not have a process or system to document “contacts and consults” 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.  In addition, the Army Defense Sexual Assault Incident Database Program Administrator did not have a process to document the reason that reports were archived in the Defense Sexual Assault Incident Database. 

 

Quality Control Review of the Defense Contract Audit Agency and Deloitte & Touche Fiscal Year 2016 Single Audit of the Aerospace Corporation

This quality control review determined that the Defense Contract Audit Agency (DCAA) did not comply with auditing standards in the single audit of the Aeropsapce Corporation because DCAA auditors did not sufficiently document professional judgments they made to support the audit report opinion that they issued.  This review also determined that Deloitte & Touche (D&T) generally complied with auditing standards and Federal requirements except for two deficiencies that must be corrected to improve future audits.  

 

Evaluation of Niger Air Base 201 Military Construction

This evaluation determined that U.S. Africa Command (USAFRICOM) and the Air Force did not effectively plan, design, and construct Air Base 201 in Niger to provide airfield and base support infrastructure in support of USAFRICOM operations in West Africa.  Air Base 201 is a military installation in the desert in Agadez, Niger.  The evaluation identified problems with, among other things, runway shoulders that were built without congressional authorization, and certain infrastructure that did not meet DoD, Air Force, and USAFRICOM directives. These problems occurred because USAFRICOM and the Air Force did not adequately oversee and coordinate with stakeholders on the delivery of Air Base 201.  As a result, the airfield and base camp needed to support the USAFRICOM intelligence surveillance and reconnaissance mission was delayed by almost three years from the original date of completion.  In addition, the problems related to the infrastructure could lead to increased risk in safety and security for personnel operating at Air Base 201.

 

Evaluation of DoD Voting Assistance Programs for Calendar Year 2019

This evaluation summarized the annual review by the Inspectors General of the Army, Navy, Air Force, and Marine Corps on the effectiveness and compliance with Federal statute of their Service’s voting assistance programs.  In addition, this evaluation determined that actions by the Federal Voting Assistance Program office and the Services ensured that eligible voters assigned to the Office of the Secretary of Defense, including family members, had the information necessary to participate in the voting process. However, the Joint Staff did not have a written voting policy as required by DoD Instruction.  Without a written policy, the Chairman of the Joint Chiefs of Staff cannot ensure the Joint Staff meets the intent of the Federal Voting Assistance Program.

 

 

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

Upstate New York Businessman Pleads Guilty to Wire Fraud, Pays More Than $700,000 to Resolve False Claims Act Liability

On March 10, 2020, Daren Arakelian, of Rensselaer, New York, pleaded guilty to wire fraud for a scheme to import Chinese goods into the United States and then causing his company, Great 4 Image, Inc., to fraudulently market and sell those goods to Federal agencies as U.S.- made.  Arakelian also agreed to pay $702,000, plus interest, to the United States to resolve his civil liability for his submission of false claims for payment to the Government.  Arakelian owned and operated Great 4 Image, a company that contracted with various Federal agencies, including the DoD, to produce backpacks, duffle bags, cinch bags, hydration packs, t-shirts, and individual suspension trainers.  Each of the company’s contracts required Great 4 Image to comply with the Buy American Act, or the Trade Agreements Act, laws that Congress enacted for the purposes of promoting the United States’ trade interests.  As part of the civil settlement and guilty plea, Arakelian admitted that he devised and implemented a scheme to defraud the Federal government by causing Great 4 Image to import goods, including thousands of backpacks and suspension trainers, that were made in China into the United States and then passing them off as compliant with the Buy American Act and the Trade Agreements Act.  In carrying out this scheme, Arakelian made various verbal and written statements to Federal officials falsely claiming to have domestically manufactured the goods that he knowingly imported from China.  This case was investigated by the Defense Criminal Investigative Service (DCIS), the General Services Administration Office of Inspector General (OIG), the Department of Homeland Security OIG, and the Army Criminal Investigative Command, along with assistance from the Department of Treasury OIG.

 

Louisville Psychiatrist Pleads Guilty To Distributing Controlled Substances Without a Medical Purpose

On March 11, 2020, Louisville psychiatrist Dr. Peter Steiner pleaded guilty to intentionally distributing schedule II, III, and IV controlled substances without any legitimate medical purpose and outside the course of professional medical practice.  Steiner was initially indicted in June 2018 for charges related to Dr. Steiner’s operation of Kentuckiana Mental Health Associates, a mental health and opioid addiction practice, where Dr. Steiner prescribed medically unnecessary drugs to individuals, some of whom were Tricare beneficiaries, which were also prescribed outside the usual course of professional practice.  He illegally prescribed thousands of units of stimulants and Buprenorphine, an opioid-based drug used to treat pain and opioid use disorder.  He also unlawfully distributed opiates.  Steiner pleaded guilty to conspiracy to distribute controlled substances and admitted that, between August 2012 and March 2018, he conspired with others to knowingly and intentionally distribute schedule II – IV controlled substances, without any legitimate medical purpose and outside the course of professional medical practice.  Steiner also prescribed, in exchange for sexually graphic photos and videos, prescribed controlled substances not typically associated with psychiatric complaints, and prescribed dangerous combinations of controlled substances.  This was a joint investigation with DCIS, the Drug Enforcement Administration, The Federal Bureau of Investigation, the Kentucky State Police, the Louisville Metro Police Department, and the Cabinet for Health and Family Services OIG.

 

Jury Finds Los Angeles Businessman Guilty in $1 Billion Biodiesel Tax Fraud Scheme

On March 16, 2020, A Federal jury in Salt Lake City, Utah, convicted California businessman Lev Aslan Dermen, also known as Levon Termendzhyan, of criminal charges relating to a $1 billion renewable fuel tax credit fraud scheme.  According to evidence presented at a seven-week trial, Dermen was the owner and operator of Noil Energy Group, a California-based fuel company; SBK Holdings USA, a Beverly Hills real estate investment company; and Viscon International, a Nevada fuel additive corporation.  From 2010 to 2016, Dermen conspired with the owners and operators of Washakie Renewable Energy (Washakie), a Utah-based biodiesel company, including its Chief Executive Officer Jacob Kingston, his brother, Chief Financial Officer Isaiah Kingston, and others, including their mother, Rachel Kingston, and Jacob Kingston’s wife, Sally, to fraudulently claim more than $1 billion in renewable fuel tax credits from the Internal Revenue Service (IRS).  The IRS administers refundable Federal tax credits designed to increase the amount of renewable fuel used and produced in the United States.  As part of their scheme, Dermen and Jacob Kingston shipped millions of gallons of biodiesel within the U.S. and from the U.S. to foreign countries and back again to create the appearance that qualifying renewable fuel was being produced and sold.  They also doctored production and transportation records to substantiate Washakie’s fraudulent claims for more than $1 billion in IRS renewable fuel tax credits and credits related to the Environmental Protection Agency’s (EPA) renewable fuel standard.  To further create the appearance that they were buying and selling qualifying fuel, the co-conspirators cycled more than $3 billion through multiple bank accounts.  As a result of the fraudulent claims, the IRS paid more than $511 million to Washakie and the Kingstons that was distributed between them and Dermen.  Jacob and Isaiah Kingston sent more than $21 million in fraudulent proceeds to SBK Holdings USA, Inc., Dermen’s California-based company, and sent $11 million to an associate of Dermen’s at his request.  The defendants also sought to launder money through a company owned and operated by the defendants that was concurrently a U.S. Government contractor providing small arms weapons to the U.S. military.  Jacob Kingston used $1.8 million of the fraud proceeds to buy Dermen a 2010 Bugatti Veyron, and they exchanged gifts including a chrome Lamborghini and a gold Ferrari.  The jury found Dermen guilty of conspiracy to commit mail fraud, conspiracy to commit money laundering, and other money laundering related charges.  This was a joint investigation with DCIS, IRS Criminal Investigation, and the EPA OIG. 

 

Jacksonville-Area Doctor Pays $850,000 to Settle Allegations She Received Kickbacks to Prescribe the Fentanyl Drug Subsys

On March 20, 2020, Dr. Parveen Khanna agreed to pay the United States $850,000 to resolve a civil False Claims Act investigation into whether she submitted false claims to Tricare and Medicare programs that were incentivized by illegal kickbacks.  For many years, Insys Pharmaceuticals, Inc. (Insys) ran a wide-ranging scheme to increase the sales of its signature drug Subsys, a sublingual fentanyl spray that is a powerful, but highly addictive, opioid painkiller.  In 2012, Subsys was approved by the Food and Drug Administration for the treatment of persistent pain in adult cancer patients who were already receiving, and tolerant to, around-the-clock opioid therapy.  Insys used “speaker programs” purportedly to increase brand awareness of Subsys through peer-to-peer educational lunches and dinners.  However, the programs were actually used as a vehicle to pay bribes and kickbacks to targeted practitioners in exchange for increased Subsys prescriptions to patients and for increased dosage of those prescriptions.  Dr. Khanna received money from Insys as part of its speaker program.  The settlement resolves allegations that Dr. Khanna knowingly received kickbacks from Insys in exchange for prescribing Subsys and she has agreed to pay $850,000 as part of the settlement.  This case was investigated by DCIS and the Department of Health and Human Services OIG.  

 

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

Audit of the Accuracy of the Improper Payment Estimates Reported for the Mechanization of Contract Administration Services System  

The objective of this audit is to determine whether the Defense Finance and Accounting Service (DFAS) accurately identified and reported improper payments from payments processed through the Mechanization of Contract Administration Services (MOCAS) system.  MOCAS, an entitlement and disbursing system in the DFAS Commercial Pay program, is an integrated disbursing system that supports post-award contract administration.  MOCAS pays more complex DoD contracts, including high-dollar contracts, multi-year contracts, contracts with multiple deliverables, contracts with foreign currency, or contracts for foreign military sales.  According to DFAS documentation supporting the FY 2019 Agency Financial Report, 12 million commercial payments made up the $315 billion reported for the Commercial Pay program for the year.  Of those transactions, MOCAS processed approximately 723,000, totaling $181 billion, and DFAS personnel identified zero improper payments.

 

Evaluation of the Operational Support Capabilities of Naval Support Activity Bahrain Waterfront Facilities

The objective of this evaluation is to determine whether the Ship Maintenance Support Facility and Mina Salman Pier in Bahrain, which the Navy accepted in 2019, meet the Navy’s operational requirements.  The evaluation will also review whether the Ship Maintenance Support Facility meets staging and scheduled maintenance requirements and the Mina Salman Pier meets berthing requirements for homeported and deployed vessels.

 

Evaluation of Kinetic Targeting Processes in the U.S. Africa Command Area of Responsibility

The objective of this evaluation is to determine whether U.S. Africa Command (USAFRICOM) and U.S. Special Operations Command (USSOCOM) followed DoD procedures for conducting airstrikes and military operations against violent extremists in the USAFRICOM area of responsibility in order to reduce civilian casualties and collateral damage.  The evaluation will also review whether USAFRICOM and USSCOCOM followed civilian casualties reporting procedures.