Defense Contracting Fraud: A Persistent Problem

During the five year period from 2013-2017, there were 1,059 criminal cases of defense contracting fraud resulting in the conviction of 1,087 defendants, including 409 businesses, according to a newly released Department of Defense report to Congress. There were another 443 fraud-related civil cases resulting in judgments against 546 defendants.

During that same period, the Department of Defense entered into more than 15 million contracts with contractors who had been indicted, fined, and/or convicted of fraud, or who reached settlement agreements. The value of those contracts exceeded $334 billion, according to the DoD report. See Report on Defense Contracting Fraud, DoD report to Congress, December 2018.

The report was prepared in response to a requirement in the FY2018 defense authorization act at the initiative of Sen. Bernie Sanders. It was released this week under the Freedom of Information Act.

A previous report covering the period of 2001-2010 was produced by the Department of Defense in 2011, also at the request of Senator Sanders. The earlier report likewise found extensive fraud including criminal and civil offensive in defense contracting.

“Simply put, the Pentagon continues to be riddled with waste, fraud and abuse of taxpayer funds to a degree unmatched across the federal government,” Sen. Sanders said in 2017. “It is unacceptable that the Department of Defense continues to lose vast sums of taxpayer money because of fraud perpetrated by major defense contractors. This has got to end.”

The 2011 report listed dozens of defense contracting firms that had been convicted of criminal fraud, and hundreds more that had been subject to civil judgments.

The latest report names nine firms that were debarred or suspended but otherwise does not identify the criminal or civil defendants from the 2013-2017 period covered by the report. But much of this information can be gleaned from the Federal Contractor Misconduct Database (FCMD) maintained by the Project on Government Oversight.

Several recent instances of defense contractor fraud are described in the latest Semi-Annual Report from the Department of Defense Inspector General.

“Procurement fraud includes, but is not limited to, cost and labor mischarging, defective pricing, price fixing, bid rigging, and defective and counterfeit parts,” the DoD IG report said. “The potential damage from procurement fraud extends well beyond financial losses. This crime poses a serious threat to the DoD’s ability to achieve its objectives and can undermine the safety and operational readiness of the warfighter.”