April 10, 2018 —
The DoD OIG newsletter summarizes the reports and investigations released by the Department of Defense Office of Inspector General in the previous month and those we anticipate releasing in the coming month. I encourage you to read these reports and to access our website, which lists reports and investigations by year, subject, and DoD component. You'll also find our project announcements and additional news releases highlighting investigations conducted by the Defense Criminal Investigative Service. Thank you for subscribing to our newsletter.
Significant reports expected to be issued within the next 30 days include:
Acquisition of the Navy’s Mine Countermeasure Mission Package
This audit determines whether the Navy is effectively managing the development of a Mine Countermeasures Mission (MCM) package that will allow the Littoral Combat Ship to detect and neutralize or avoid mines in support of fleet operations. Specifically, this audit focused on the MCM mission package systems that the Navy declared had met their Initial Operational Capability (IOC) requirements. IOC is declared when the selected user has been equipped and trained and is determined to be capable of conducting mission operations. We did not review the effectiveness of the entire development. The Littoral Combat Ship is a Navy ship intended to be reconfigurable to enable the ship to counter submarine, surface, and mine threats and assure maritime access for joint forces.
Noncompetitive Information Technology Contracts at the Defense Health Agency
This audit determines whether the Defense Health Agency properly awarded and provided oversight of noncompetitive Information Technology (IT) contracts, such as contracts for IT‐related products and services, including annual software maintenance service plans for brand name software licenses previously procured, cyber security, data backup, data conversion, programming, and IT support equipment.
Quality Control Review of the Baker Tilly Virchow Krause, LLP FY 2016 Single Audit of National Marrow Donor Program
This review determines whether the Baker Tilly Virchow Krause, LLP FY 2016 single audit of the National Marrow Donor Program was conducted in accordance with auditing standards and the requirements of the Code of Federal Regulations.
Hotline Evaluation of Alleged Safety Violation at Blue Grass Chemical Agent-Destruction Pilot Plant, Explosive Destruction Technology Area
This evaluation addresses allegations that the Program Executive Office, Assembled Chemical Weapons Alternatives, along with the primary contractor, failed to comply with safety requirements at the Blue Grass Chemical Agent Destruction Pilot Plant during the design and construction phases. The Blue Grass Chemical Agent Destruction Pilot Plant is a DoD chemical weapons destruction facility which destroys existing stockpiles of lethal chemical agents and munitions.
Recently Issued Reports of Interest (to view report, if available, please click on title)
The Lead IG Special Report: Observations from Travel to Iraq, Afghanistan, and Qatar | March 2018
This report provides an overview of the second joint trip by the three Inspectors General (IGs) responsible for Lead IG oversight of overseas contingency operations—the Department of Defense IG, Department of State IG, and United States Agency for International Development IG. During this trip, the IGs met with senior United States, Coalition, Iraqi, and Afghan government officials, including military leadership, United States ambassadors, and Afghan President Ashraf Ghani. This report summarizes the IGs’ key observations from the briefings they received on the policies, strategies, and events on the ground related to Operation Inherent Resolve and Operation Freedom’s Sentinel.
DoD Reporting of Charge Card Misuse to OMB
This audit determined that Defense Procurement Acquisition Policy officials reported inaccurate, incomplete, and unsupported quarterly and semiannual purchase card information to the Office of Management and Budget during FYs 2015 and 2016. As a result, Defense Procurement Acquisition Policy and purchase card officials within the DoD purchase card program, which spent $10 billion during the 2 years we reviewed, will not be able to identify patterns of improper transactions, opportunities to improve the program’s efficiencies, or areas where program reviewers should focus their emphasis.
Summary Report on U.S. Direct Funding Provided to Afghanistan
This audit report summarized 7 prior DoD OIG reports which determined that Combined Security Transition Command-Afghanistan’s (CSTC-A) officials did not effectively manage and oversee U.S. direct funding provided to the Afghan Ministry of Defense and Ministry of Interior. CSTC-A management and oversight of U.S. direct funding is intended to increase Afghanistan National Defense and Security Forces) effectiveness and capabilities. Our audits determined that CSTC-A officials did not have assurance that $3.1 billion in U.S. direct funding was used entirely for its intended purposes. In addition, CSTC-A officials did not sufficiently assist in the development of the ministries’ ability to become self-sustaining. As a result, the ministries continue to rely upon CSTC-A to develop future needs for commodities, such as fuel and ammunition.
Small Business Subcontracting at Two Army Contracting Command Locations
This audit determined that Army Contracting Command (ACC)-Redstone and ACC-Warren contracting officials did not ensure that prime contractors provided small businesses with adequate subcontracting opportunities for 23 contracts, valued at $914.8 million. As a result, small businesses may have been denied subcontracting opportunities that prime contractors were required to make a good‑faith effort to provide. In addition, ACC-Redstone and ACC-Warren contracting officials did not obtain subcontracting reports, did not follow up on reports that showed contractors were not meeting their small business goals, and did not determine whether prime contractors made good-faith efforts to comply with negotiated subcontracting goals. As a result, ACC-Redstone and ACC-Warren may have missed opportunities to recoup liquidated damages of up to $82.3 million.
U.S. Special Operations Command’s Management of Excess Equipment
This audit determined that U.S. Special Operations Command (USSOCOM) did not identify that the Service Component commands’ inventory exceeded their allocation for 3 Special Operations-Peculiar (SO‑P) programs. SO-P equipment is unique to USSOCOM units and funded and managed by USSOCOM. Across the 3 programs with excess equipment, we identified excess SO-P equipment with a value of at least $26.3 million. For example, USSOCOM did not identify that the U.S. Army Special Operations Command had 17,571 handheld radios according to its property records, but was allocated only 13,351 in the capability documents, for an excess of 4,220 radios. Therefore, USSOCOM is not effectively managing excess SO-P equipment. As a result, of USSOCOM officials not identifying excess equipment at the Service Component commands, USSOCOM was not aware that there was excess equipment available for redistribution to the Service Component commands or disposal if all the commands had reached their full allocation of authorized allowances.
Followup Audit: The Defense Enrollment Eligibility Reporting System Security Posture
This audit determined that the Defense Manpower Data Center (DMDC) implemented 28 of the 32 recommendations identified in a 2012 DoD Office of Inspector General report, Report No. DODIG-2012-090, entitled “Improvements Needed to Strengthen the Defense Enrollment Eligibility Reporting System (DEERS) Security.” The report also determined that DMDC did not complete corrective actions for four recommendations. Specifically, the DMDC personnel did not apply the corrective actions because the DEERS servers have limited connectivity to the DoD unclassified network. As a result, until DMDC increases their security posture, the Defense Enrollment Eligibility Reporting System will continue to be vulnerable to increased cyberattacks that could jeopardize the integrity and confidentiality of sensitive personnel and medical data for Uniformed Service members, retirees, and their family members, DoD civilians and DoD contractors.
Logical and Physical Access Controls at Missile Defense Agency Contractor Locations
This audit determined that system and network administrators that managed Ballistic Missile Defense System technical information on their classified and unclassified networks did not consistently implement system security controls in accordance with Federal and DoD requirements for safeguarding Defense information. As a result, if the Missile Defense Agency does not verify and monitor compliance with Federal and DoD requirements, contractors could inadvertently disclose critical technical details of the DoD’s Ballistic Missile Defense System components to U.S. adversaries, allowing them to potentially circumvent the Ballistic Missile Defense System capabilities and leaving the U.S. vulnerable to missile attacks.
Contracting Strategy for F-22 Modernization
This audit determined that the Program Office did not update its contracting strategy for Scaled Agile Framework (SAFe) implementation on F-22 modernization programs. SAFe is a software development method that uses short time periods to develop smaller portions of software that contribute to the final product. As a result, without an appropriate contracting strategy, the Program Office may not deliver F-22 modernized capabilities necessary to sustain air superiority against rapidly evolving U.S. adversaries.
TRICARE North Region Payments for Applied Behavior Analysis Services for the Treatment of Autism Spectrum Disorder
This audit determined that the Defense Health Agency made improper payments for applied behavior analysis services to companies in the TRICARE North Region, and the Defense Health Agency lacked assurance that payments for covered applied behavior analysis services provided in the TRICARE North Region were accurate and appropriate. Applied behavior analysis services include assessments to create individualized treatment plans, treatment plan development updates, and other direct one-on-one covered services such as therapy sessions. As a result, our statistical projections indicate that the Defense Health Agency improperly paid $81.2 million for applied behavior analysis services to the applied behavior analysis companies in the TRICARE North Region in 2015 and 2016.
The U.S. Army Civilian Pay Budget Process
This audit determined that Army budget officials did not fully justify the FY 2017 civilian pay budget request in the Army’s Budget Estimate Submission. As a result, Army budget officials overstated the FY 2017 Operation and Maintenance appropriation budget request by $356.8 million. In addition, including overtime paid in the execution data provided to Congress, but not including it in the Army’s budget, caused the Army to appear to over-execute its civilian pay budget in FYs 2015 and 2016, while under-executing its Full-Time Equivalents in the FY 2017 Budget Estimate Submission. Additionally, Army budget officials over estimated the civilian Full-Time Equivalents requirements in the FY 2017 Budget Estimate Submission that the Army intended to execute. Specifically, Army Command officials intentionally did not hire up to the Army’s authorizations, and thereby created excess CIVPAY funding that the Commands used to pay for non-pay expenses.
DoD Emergency Management Programs in U.S. Africa Command
This audit determined that U.S. Africa Command (USAFRICOM), the Military Departments, and Combined Joint Task Force-Horn of Africa Emergency Management officials did not develop Emergency Management programs for locations in the USAFRICOM area of responsibility. In addition, the Navy and Air Force EM officials did not implement all DoD Emergency Management Program requirements for the locations with programs that we visited. As a result, without an Emergency Management program, DoD installations in the USAFRICOM area of responsibility do not have a formal and coordinated method to prevent, prepare for, respond to, and recover from an attack or natural emergency. This could ultimately threaten the lives of personnel and property on DoD installations and impede the DoD’s ability to successfully complete mission operations in those locations.
Army Internal Controls Over Foreign Currency Accounts and Payments
This audit determined that the Army did not properly record foreign currency payments, fluctuations from exchange transactions, and related gains and losses for four disbursing offices. We projected that the Army incorrectly recorded 11,173 of 52,632 or 21% of the fluctuation transactions. Army management did not have procedures in place over their local national employee payroll, disbursing, and vendor pay processes to prevent or identify the inaccuracies. As a result, the Army incorrectly recorded a projected absolute value of $30 million to the foreign currency fluctuation accounts in FY 2016 and first quarter FY 2017. Army disbursing officers did not effectively manage the 10 Limited Depositary Checking Accounts (LDAs), which are checking accounts used by overseas disbursing offices to account for foreign currency payments. Of the 10 LDAs, eight maintained balances that were $126.5 million higher than the approved cash holding authority limit, and 6 of those 10 held a total of $112.1 million more than the 7-day supply of funds limit. Additionally, disbursing office personnel from the Army 176th Financial Management Support Unit did not protect sensitive financial information of Korean Nationals when processing payments through the LDA.
Defense Human Resources Activity Reimbursable Agreements
This audit determined that Defense Human Resources Activity (DHRA) personnel did not adequately prepare 36 reimbursable agreements, valued at $207.4 million. Reimbursable agreements are used to provide goods and services to federal organizations in the most efficient and cost effective manner. In addition, DHRA personnel did not perform the required annual review for 27 of the 32 reimbursable agreements that were at least 1 year old and did not perform the required triannual review of all 10 reimbursable agreements that were more than 3 years old. As a result, DHRA management could not demonstrate that all active reimbursable agreements had the appropriate legal and funding authority. In addition, DHRA personnel did not properly execute DHRA reimbursable agreements, resulting in potential Antideficiency Act violations.
DoD Voting Assistance Programs for Calendar Year 2017
This evaluation determined that the Navy and Air Force voting assistance programs did not comply with Federal law and DoD policy, which require at least 1 trained military member to be appointed as a unit voting assistance officer in every military unit of 25 or more permanently assigned personnel. The evaluation also determined that only 3 of 19 DoD agencies had written voting-related policies, as required by DoD policy. In addition, DoD policy did not provide sufficient clarity and guidance to the services and agencies regarding what written voting-related policies should contain.
External Peer Review on the Defense Finance and Accounting Service Internal Review Organization
This review determined that the Defense Finance and Accounting Service Internal Review organization’s system of quality control for the period ending June 30, 2017, provided reasonable assurance of conformance to government auditing standards. The DoD OIG therefore issued a peer review opinion of pass. Additionally, the DoD OIG issued a Letter of Comment that provided findings and recommendations for certain noted findings that were not significant enough to affect the pass opinion.
System Review Report for the Army Audit Agency
The DoD OIG reviewed the results, conclusions, and recommendations of the Air Force Audit Agency's peer review of the Army Audit Agency in coordination with the DoD OIG review of the Special Access Program audits
in effect for the period ending December 31, 2016. The DoD OIG determined the Army Audit Agency’s system of quality control provided reasonable assurance of conformance to government auditing standards. The DoD OIG therefore issued a peer review opinion of pass.
Hotline Allegations Regarding the Actions of Department of the Navy Officials on the Naval Audit Service Audit of Alleged Sexual Assault Victims’ Career Paths
This evaluation addressed allegations received by the DoD Hotline regarding a Naval Audit Service audit of “Alleged Sexual Assault Victims’ Career Paths.” Specifically, the DoD OIG evaluated whether the actions of senior Navy officials violated Government Auditing Standards and adversely impacted the independence of the Naval Audit Service and its auditors. The DoD OIG did not substantiate the most serious allegation that the actions of the Auditor General of the Navy and the Navy Deputy General Counsel violated, and required auditors to violate, Government Auditing Standards independence standards. However, the DoD OIG identified a structural threat to the Naval Audit Service’s independence that resulted from the Navy Auditor General reporting through the General Counsel to the Secretary of the Navy. To comply with Government Auditing Standards, the Auditor General should report directly to the Secretary or Undersecretary of the Navy. The Navy agreed to implement corrective actions and already resolved the independence issue by realigning the Navy Auditor General to report directly to the Undersecretary of the Navy.
Technology Readiness of the Navy’s Next Generation Jammer Program
This evaluation determined that the Navy adequately planned and performed a technology readiness assessment of the critical technologies for the Next Generation Jammer program. The Next Generation Jammer is an external, aircraft-mounted tactical jamming system intended to disrupt enemy air defenses and communications networks. A technology readiness assessment is a systematic assessment of the critical technologies to be incorporated into a weapons system.
Followup Audit: Prior Recommendations to the Department of Navy Regarding the Triannual Review Process for Financial Transactions
This follow-up audit determined that the Navy Office of Budget took corrective actions to implement 2 of the 11 open recommendations from previous DoD OIG reports concerning process improvements at three Navy budgeting offices and the Navy’s Triannual Review process. Specifically, the Navy trained Budget Submitting Office personnel regarding their Triannual Review roles and responsibilities. The Navy also developed a Triannual Review standard operating procedure. However, the Navy did not implement changes to its standard operating procedure to improve key processes, such as uniformly collecting complete financial transactions and consistently reporting the Triannual Review results to the Office of the Under Secretary of Defense (Comptroller). As a result, the DON may not identify financial obligations that can be canceled or used for another purpose before the funds expire. Additionally, the Triannual Review, as currently implemented, is not an effective internal control for monitoring financial transactions; as a result, the amounts reported on the DON financial statements might be inaccurate. The Triannual Review is an internal control practice that checks the timeliness, accuracy, and completeness of commitments, obligations, accounts payable, accounts receivable, and unfilled customer orders.
DEFENSE CRIMINAL INVESTIGATIVE SERVICE HIGHLIGHTS (to view DOJ press release, if available, please click on title)
Owners Of Pasco County Marketing Firm Indicted For Paying Healthcare Kickbacks And Money Laundering
An indictment has been unsealed charging Frank V. Monte and Kimberley S. Anderson with one count of conspiracy, five counts of paying healthcare kickbacks, one count of conspiracy to commit money laundering, and 3 counts of illegal monetary transactions. Monte is also charged with 2 counts of making false statements. According to the indictment, in May 2014, Monte and Anderson, acting on behalf of their marketing company Centurion Compounding, Inc., entered into a marketing agreement with the owners of a Pinellas County-based pharmacy called Lifecare. Centurion employed sales representatives to market compounded medications, specifically creams for pain and scars, among others, to beneficiaries of healthcare plans, especially TRICARE. These creams typically ranged in price from $900 to $21,000 for a 1-month supply. Between May and November 2014, Monte and Anderson directed the patients that Centurion sales representatives had recruited and the physicians in their network to send all of their compounded cream prescriptions to Centurion, which then transmitted them to Lifecare to fill. During this same period, the owners of Lifecare, Carlos Mazariegos and Benjamin Nundy, entered into an agreement with the principals of Centurion to pay illegal kickbacks to Dr. Anthony Baldizzi, a Centurion in-network physician. Lifecare and Centurion agreed to pay Dr. Baldizzi 10% of each paid claim resulting from a prescription for compounded cream written for his patients and filled at Lifecare. These prescriptions were often billed to TRICARE. This case was investigated by the Federal Bureau of Investigation, U.S. Health and Human Services - Office of Inspector General, the Defense Criminal Investigative Service, the U.S. Air Force Office of Special Investigations, and the Drug Enforcement Administration.
Ambulance Company To Pay $9 Million To Settle False Claims Act Allegations
Medical Transport LLC, a Virginia Beach-based provider of ambulance services, agreed to pay $9 million to resolve allegations that it violated the False Claims Act by submitting false claims for ambulance transports. The government alleged that Medical Transport submitted false or fraudulent claims to Medicare, Medicaid, and TRICARE for ambulance transports that were not medically necessary, that did not qualify as Specialty Care Transports, and that were billed improperly to the federal health care programs when they should have been billed to other payers.
Alere To Pay U.S. $33.2 Million To Settle False Claims Act Allegations Relating To Unreliable Diagnostic Testing
Massachusetts-based medical device manufacturer Alere Inc. and its subsidiary Alere San Diego (Alere) agreed to pay the United States $33.2 million to resolve allegations that Alere caused hospitals to submit false claims to Medicare and other federal healthcare programs relating to the use of unreliable point-of-care diagnostic testing devices. The United States alleged that between January 2006 and March 2012, Alere knowingly sold materially unreliable rapid point-of-care testing devices marketed under the trade name Triage. The Triage devices aid in the diagnosis of acute coronary syndromes, heart failure, drug overdose, and other serious conditions, and the devices are frequently used in emergency departments where timely decisions are critical to ensuring proper patient care. According to the government’s allegations, Alere knew that certain devices it sold produced unreliable results that had the potential to create false positives and false negatives that adversely affected clinical decision-making.
Defense Contractor And Civilian Employee At U.S. Military Base Admit Bribery Scheme Involving Government Contracts
On March 20, 2018, Irene Pombo, and her daughter, Nicole Pier, pleaded guilty in Newark federal court to separate informations charging them with conspiracy to give or accept anything of value in return for favorable assistance with government contracts and with making false claims against the United States. Pombo worked for a Defense contractor at Picatinny Arsenal, a U.S. Army installation in Morris County, New Jersey. Pier was a civilian employee at Picatinny Arsenal. From January 2006 through December 2017, Pombo and fellow employees conspired and offered a variety of gifts, totaling from $150,000 to $250,000, to numerous individuals employed at Picatinny Arsenal, including Pier, in order to obtain and retain contracts and other favorable assistance. The gifts ranged from Apple products to tickets to a luxury sky-box at professional sporting events. Pombo and her fellow employees attempted to conceal the scheme when they filed false bills to the United States writing off the cost of the bribes as “materials” needed on government contracts. Sentencing for both defendants is scheduled for June 19, 2018. This was a joint investigation with the Federal Bureau of Investigation and the U.S. Army, Major Procurement Fraud Unit, Criminal Investigation Command.
Waltham Couple And Company Indicted For Conspiracy To Illegally Obtain U.S. Goods For Syria, Syrian Manager Of EKT Electronics Named As Co-defendant
On March 21, 2018, a Waltham Massachusetts couple, Anni Buerklian and Antoine Ajaka; their company, Top Tech US, Inc., and a Syrian national, Amir Katranji, were indicted in federal court in Boston in connection with a scheme to smuggle goods out of the United States and to supply services to Syria. The company and the defendants also conducted business with EKT Electronics (EKT), operated and managed by Katranji, which was involved in the acquisition and development of explosive devices used against U.S. troops in Iraq and Afghanistan. From 2012 until January 2018, Buerklian and Ajaka operated Top Tech, an export business, out of their residence. Top Tech procured U.S. goods and exported to EKT in Syria. EKT and its owner, Mohammad Katranji (Amir Katranji’s father), are on the Department of Commerce’s Entity List for involvement in activities related to the development of improvised explosive devices, which were being used against U.S. and Coalition troops in Iraq and Afghanistan. Buerklian, Ajaka, and Top Tech face multiple charges and could face significant years of imprisonment and supervised release as well as millions of dollars in fines and sanctions. This was a joint investigation with Homeland Security Investigation; the Federal Bureau of Investigation; and the Department of Commerce, Office of Export Enforcement.
Pharmacist and Pharmacy Employee Sentenced For Involvement In Over $30 Million Health Care Fraud
On March 9, 2018, Serge Francois was sentenced in federal District Court in Florida to 204 months in prison to be followed by 3 years supervised release. Francois was also ordered to pay $31,259,252 in restitution. Patrick Tonge was sentenced to 188 months in prison, to be followed by 3 years of supervised release. Tonge was also ordered to pay $31,259,252 in restitution. On Sept. 5, 2017, a federal jury found Francois and Tonge each guilty of multiple violations, including conspiracy to commit health care fraud, health care fraud, and money laundering. The scheme, targeted at TRICARE, caused over $31 million in loss to the federal Tricare program and the Federal Employee Health Benefit Program (“FEHBP”), with over $30 million in loss to Tricare alone. Francois, a pharmacist and owner of Atlantic Pharmacy and Compounding, and his assistant Tonge, conspired with so-called marketers who paid physicians to write prescriptions for expensive topical medications that cost up to $17,000 a bottle. Francois manufactured the topical medications at his pharmacy. Francois, Tonge, and their co-conspirators agreed to automatically refill the prescriptions, sending numerous refills to patients who did not request them and not charging a co-pay. Atlantic Pharmacy submitted thousands of claims, which led Tricare and FEHBP to make payment to Atlantic Pharmacy and Compounding in the approximate amount of $31,259,252. This was a joint investigation with the U.S. Postal Service Office, Office of Inspector General; the U.S. Army Criminal Investigation Command; Food and Drug Administration, Office of Criminal Investigations; and the United States Office of Personnel Management, Office of Inspector General.
ANNOUNCED PROJECTS (to view the announcement letters, if available, please click on the title)
Audit of the Foreign Military Sales Trust Fund
The objective of this audit is to determine whether the Defense Security Cooperation Agency and the Defense Finance and Accounting Service implemented effective controls over financial reporting for the Foreign Military Sales (FMS) Trust Fund.
FMS is a Security Assistance Program, and includes government-to-government sales of defense articles and services from DoD stocks or through new procurements under DoD-managed contracts. FMS customers are generally required to pay, in advance, amounts necessary to cover costs associated with the services or items purchased from DoD. The Department of Treasury holds these advance payments in the
FMS Trust Fund.