COMMENTARY
The scale of the fraud and corruption in the 'Military Industry Complex' is really difficult to comprehend ... and ion my view, what is described in the report is only the tip of a very large iceberg.

Fairly early in my career, back in the early 1970s, I worked with several companies where military contracts were an important part of the business. My role was budgets, cost accounting and helping to build more profit for the company, and though I am a fairly competent and experienced accountant, I could not understand the accounting that was going into the reports being submitteds to the DOD contract offices. It seemed to me that the DOD was getting a story based on a huge amount of creative fiction and rather little that could reconcile with the company accounts.

I had enough time to satisfy myself that there was a problem, but not enough time to 'make a case' and at the time ... more than 30 years ago ... there was a lot of other work that I had to focus on.

Years later I came across another situation with government contracting that was potentially problematic. Again, enough information to satisfy myself that there was a problem, but not enough time to make a case. This related to contracting with USAID. I would love to have had the chance to dig into the issue, but I was not able to.

An accounting system works well when all the people involved have an ethical compass, but does not work at all well when the controllers of the system have fraud in mind. Big companies are sufficiently compartmentalized for huge fraud to take place and nobody any the wiser. Most of the internal checks are very weak and underfunded relative to the profits gained by having fraud go undetected.

From my perspective, it is time for the DOD and other government agencies and their contractors to be considered fraudulent until they can prove that they are not ... an application of the Napoleonic Code idea that you are guilty until proven innocent.

From what I know about cost accounting and production costs, my guess is that if there was serious costing done by the DOD and their contractors, it would be easily possible to cut costs in half without having any impact on the flow of materials and services available to the military. Some other observers, think that the scale of fraud and over-payment is even worse than this.
Peter Burgess

Fraudulent Defense Contractors Paid $1 Trillion

Hundreds of defense contractors that defrauded the U.S. military received more than $1.1 trillion in Pentagon contracts during the past decade, according to a Department of Defense report prepared for Sen. Bernie Sanders. He called the report 'shocking.' He said aggressive steps must be taken to ensure taxpayer dollars aren't wasted. 'The ugly truth is that virtually all of the major defense contractors in this country for years have been engaged in systemic fraudulent behavior, while receiving hundreds of billions of dollars of taxpayer money,' said Sanders. 'With the country running a nearly $15 trillion national debt, my goal is to provide as much transparency as possible about what is happening with taxpayer money.'

The report detailed how the Pentagon paid $573.7 billion during the past 10 years to more than 300 contractors involved in civil fraud cases that resulted in judgments of more than $1 million, $398 billion of which was awarded after settlement or judgment for fraud. When awards to 'parent' companies are counted, the Pentagon paid more than $1.1 trillion during the past 10 years just to the 37 top companies engaged in fraud. Another $255 million went to 54 contractors convicted of hard-core criminal fraud in the same period. Of that total, $33 million was paid to companies after they were convicted of crimes.

Some of the nation's biggest defense contractors were involved.

For example, Lockheed Martin in 2008 paid $10.5 million to settle charges that it defrauded the government by submitting false invoices on a multi-billion dollar contract connected to the Titan IV space launch vehicle program. That didn't seem to sour the relationship between Lockheed and the Defense Department, which gave Lockheed $30.2 billion in contracts in fiscal year 2009, more than ever before.

In another case, Northrop Grumman paid $62 million in 2005 to settle charges that it 'engaged in a fraud scheme by routinely submitting false contract proposals,' and 'concealed basic problems in its handling of inventory, scrap and attrition.' Despite the serious charges of pervasive and repeated fraud, Northrop Grumman received $12.9 billion in contracts the next year, 16 percent more than the year before. A Sanders provision in a defense spending bill required the report and directed the Department of Defense to recommend ways to punish fraudulent contractors. The Pentagon said sanctions already are in place. 'It is not clear, however, that these remedies are sufficient ... to deter and punish fraud when it is detected.

That tone was different than what the Pentagon said in a preliminary report last January, which declared that ‘the department believes that existing remedies with respect to contractor wrongdoing are sufficient.'

Said Sanders: 'It is clear that DOD's current approach is not working and we need far more vigorous enforcement to protect taxpayers from massive fraud.'

Under another Sanders provision in a separate law, a government-wide federal contractor fraud database was opened to the public earlier this year. Access to the Federal Awardee Performance and Integrity Information System had been limited to federal acquisition officials and certain members of Congress. The DOD promises to ramp up monitoring of this database to ensure its contractors' fraudulent actions are accurately and fully disclosed.

Read the Pentagon report » Download the tables