Date of Award

Summer 8-31-2016

Degree Type

Thesis

Degree Name

Master of Science (MS)

Department

Computer Science

First Advisor

Steve Hilkowitz

Abstract

The 2016 Global Economic Crime Survey conducted by PricewaterhouseCoopers LLP (2016), states that twenty-two percent of companies have experienced procurement fraud. The statistics have actually decreased since 2014 when twenty-seven percent of companies had experienced procurement fraud. However, procurement fraud is still one of the most costly fraudulent schemes. Despite the reduction, the Department of Defense continues to experience large procurement fraud cases, both in number and dollar value. A recent example is the Supreme Foodservice fraud case, which cost the Defense Logistics Agency $757 million dollars in fraudulent charges. (Jahner, 2014) The Department of Defense Office of Inspector General (OIG) handles most of the audits, of all types, for civilian agencies within the Department of Defense. It works to ensure the programs and operations of the agency are following all current legislation, regulation and procedures, and that fraud, waste, and abuse are mitigated and handled properly. When the OIG discovers fraud, the case is referred to its investigative arm, the Defense Criminal Investigative Service (DCIS). This organization is specifically built to investigate potential criminal, civil and administrative misconduct in Department of Defense procurement actions. The OIG has specific procedures regarding fraudulent schemes. This is DCIS’s top priority. Although not part of the Department of Defense, the Justice Department (DOJ) works closely with the OIG and DCIS in initiating civil and criminals cases dealing with fraudulent activity in DOD. DOJ has made major advances in recovering large sums of restitution in DOD and other agencies within the Executive Branch, using the False Claims Act, and has also made procurement fraud a major priority. It has recovered about $26.4 billion since January of 2009. (Department of Justice Office of Public Affairs, 2015) Unfortunately, regardless of these agencies’ efforts, procurement fraud is still a significant cost to the Department of Defense. The agencies are fighting an uphill battle, doing more “clean up” investigations rather than proactive work. Although the misconduct is being discovered, it is after millions, sometimes billions, of dollars have already been lost. The Association of Certified Fraud Examiners disclosed in their 2016 Report to the Nations on Occupational Fraud and Abuse there was a total cost of $6.3 billion dollars over 1038 cases in the United States. The report also states that corruption cases have an average cost of $200k to companies that experience fraud. (Association of Certified Fraud Examiners, Inc., 2016) The OIG states in its Semiannual Report to the Congress states as of September 2015 there were 1,625 open investigations being investigated by DCIS. (Association of Certified Fraud Examiners, Inc., 2016) Based on the statistics given by ACFE and the DOD IG, the minimum potential cost incurred in these cases is $325 million, although most of the large procurement cases greatly exceed this amount as evidenced by the Supreme case. These losses are also being duplicated, and sometimes overshadowed, by the losses in the non-DOD agencies. Government agencies are in need of new tools and additional resources to properly deter this misconduct and reduce the losses. In an article posted on Publicintegrity.org regarding national security, the author states that procurement fraud was not a priority during the years President George Bush was in office even though government contracting grew by $200 billion dollars in the matter of fifteen years. President Obama has since implemented a high priority on procurement fraud, and created the National Procurement Fraud Task Force. Yet, we are still trying to recover money for the damages already incurred. (Schwellenbach, 2009) So how does the Department of Defense begin fighting procurement fraud in an offensive approach rather than a defensive approach? This paper will explore what procurement fraud is, and what the government is currently doing to fight the scheme, and its accomplishments. Finally this paper will explore how to improve these tactics, and how to begin preventing and detecting future procurement fraudsters.

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