FRAUD in the
GOVERNMENT
Bureaucracy
Out of Control
By Ralph Vartabedian
TIMES STAFF WRITER
WASHINGTON
- A string of embezzlements at military installations across the nation is
pointing out serious weaknesses in the Pentagon's control over its multi-billion
dollar contractor payment system, according to three investigative reports due
to be released today. The embezzlements, ranging from $11,000 to $3 million
each, were executed mainly by low-level employees at federal payment centers
exploiting loopholes in the government's troubled accounting system, the reports
found.
In one recent case, an Air Force staff sergeant in
Dayton, Ohio, arranged for his mother and girlfriend to receive more than
$900,000 in government checks, a scheme he executed even after his co-workers
warned managers he should not be trusted, an internal Defense Department memo
states. Weaknesses in the payment system, which is operated by the Defense
Finance and Accounting Service, have played a key role in more than a dozen
known cases of embezzlement in recent years, according to a General Accounting
Office report obtained by The (Los Angeles) Times.
Even clerks are able to manipulate the Pentagon's
computerized finance system to create fictitious contracts and then direct the
Treasury Department to send checks to personal postal boxes, according to a
second GAO report. The string of known embezzlements represents only the tip of
the waste and fraud throughout the Pentagon's financial system, said Sen.
Charles E. Grassley (R-Iowa), who requested the investigations out of growing
concern about "lax internal controls."
"If we can send missiles to a bull's-eye at a
factory in Khartoum and a Bedouin training camp in Afghanistan, we ought to be
able to set up an accounting system at the Defense Department that operates with
precision," Grassley said. "Let's say it takes a rocket scientist to do that;
well, the Pentagon has rocket scientists right there." The problem has been
exacerbated by the Clinton administration's highly touted effort to "re-invent
government," which has curtailed traditional safeguards in an effort to cut red
tape for defense contractors, according to a probe by a Senate subcommittee
staff.
In addition, the Pentagon is cutting back on
audits. In July, the Defense Contract Audit Agency stopped all routine reviews
of contracts under $10 million. Such audits represented the backbone of the
agency's efforts to ferret out fraud and corruption, according to one veteran
auditor. Susan Hansen, a Pentagon spokeswoman, denied that such streamlining has
compromised the integrity of the Pentagon's finances. The Defense Department
wants to eliminate unnecessary layers of bureaucracy that have been building for
decades, she said. She also disputed that embezzlement is commonplace within the
Defense Department. But investigators for the Senate Judiciary's subcommittee on
administrative oversight and the courts, which will issue its own report on the
embezzlements today (28 Sept. 1998), note that the Justice Department
investigated 807 financial crimes against the Pentagon in 1997 alone and
obtained 88 guilty pleas.
The finance service has long been troubled by
serious accounting problems. In 1996, for example, it erroneously paid
contractors $184 million that was not owed. The agency has never been able to
balance its books and has set a goal of producing its first clean financial
statement in 1999, according to a spokeswoman. It was created in the early 1990s
with a mandate to consolidate 332 autonomous payment offices spread across the
military services. It now operates 19 payment centers that disburse $22 billion
per month - or more than $30 million an hour.
Senate investigators for Grasley spent a year
examining the agency's operations and concluded that it routinely makes payments
without proper documentation. The investigators examined 50 random contracts,
selected by Defense officials, and concluded that all of the contracts lacked
the necessary documentation to determine whether the products paid for were ever
delivered. Follow-up investigations indicated that much of the equipment could
not be located. The investigators conducted 15 on-site inspections to check
whether ordered goods actually existed. The list of missing items included
furniture, televisions and computer equipment. No proof existed that services
were performed even after payments were made. In some cases, cheaper goods were
substituted for higher-cost products.
At the same time, the GAO conducted its own review
of the payment system and concluded that serious weaknesses exist in the payment
agency's computer security. As of June, 1800 employees had access to Pentagon
computers that allow them to single-handedly create contracts, delivery orders
and invoices - all of the paperwork necessary to generate a payment check. The
system also allows them to enter new addresses for mailing payments, a loophole
that was exploited in several of the embezzlement cases. "No one individual
should control all key aspects of a transaction or event without appropriate
compensating controls," the report warned. Moreover, the GAO report found that
user identifications and passwords were stored in the computer system in
unsecured files, giving hackers easy access to the payment system.
Today's Senate hearing is expected to focus on the case of Sgt. Robert L. Miller, who was convicted in July of embezzling checks of more than $900,000 at the Dayton finance center. Dayton officials were warned earlier about Miller by investigators who looked into the disappearance of two Treasury checks and cash totaling $7,000 that was under Miller's control at his prior job at Castle Air Force Base, according to an Oct. 26, 1995, investigative memorandum. Dayton officials were warned again in 1995, 1996 and 1997 by three accountants, who repeatedly sought to alert management to what they considered suspicious activity by Miller, according to Senate investigators. "They were warning about this fraudulent activity three years ago, and they were punished and silenced," Grassley said. "In the case of Miller, there was even a memo that preceded him."
SOURCE: Excerpted from the 28 September, 1998, issue of the Los Angeles Times, Orange County edition, from an article entitled, "Thefts Reveal Flawed Pentagon Contract System." Excerpted in the public service of the national interest of the American people.
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