For reasons I hope to explain more fully in a future column, there could be a perfect storm forming for reinvigorated grant fraud and procurement fraud enforcement (GFPFE) in a Trump Adminisitration. Assuming that is the case, and we wont know for sure for at least another six months, it becomes very important to keep an eye on OIG audits like this one (DOS-OIG Armored Car Audit Report) because audit reports can signal the deployment of investigative resources. Audits can also become a platform for an expanded enforcement initiative or provide a low cost basis for new investigative activity even by other agencies. Armored vehicles is a product market where the government has found procurement problems for close to 15 years and government enforcement agencies have had success at bringing cases in these areas. This is a toxic mix for contractors who should consider doing internal investigations and brushing up on their compliance programs. If they find a problem they should carefully consider a voluntary disclsoure to the appropriate agency(ies).
A Department of State OIG (DOS-OIG) audit is of particular interest because the DOS-OIG is headed by Steve Linick who, prior to standing up FHFA-OIG and getting that agency to operational effectiveness in record time, he was the Executive Director of the Financial Crimes Enforcement Task Force and, prior to that, Director of the National Procurement Fraud Task Force. Since assuming command of DOS OIG its productivity and effectiveness has ballooned. He was also successful at attracting some of the best talent in the business which is evident from the quality of the workmanship in the audit report.
In prior assignments, Linick was an advocate for audit components identifying indicia of fraud during the audit process and he encouraged IG’s to stream line communications between audit and investigations components in the IG community to ensure that fraud red flags were properly referred for investigation. You can read some tea leaves about this in the very comprehensive audit report, but we can’t know for sure.
Linick also was a proponent of having investigators develop leads from audits. This is a comprehensive and thorough audit that provides an accurate picture of the procurement, maintenance, administration of the armored vehicle program worldwide from acquisition to destruction at the end of life cycle. Much work has already been expended by DOS-OIG auditors to define the product market and understand how the procurement process works. It has probably expended resources to gather and centralize the contracts–certainly to ensure that the records are preserved. The auditors would have reviewed the contracts and administration of contracts and would have conducted extensive interviews. In short, what Linick has done is made this industry accessible to investigators. DOS-OIG also has already done much of the work, it has resulted in DOS-OIG staff becoming experts in this industry and this makes it easy for some other investigative or prosecutorial agency to pick up the baton and continue investigating other angles that are found in the audit report. Other angles are obvious form the report. This is NEVER a good dynamic for contractors.
Even worse, the auditors found serious lapses and it looks like cases have already bee referred out:
“Moreover, the program continues to be at significant risk for fraud, waste, and abuse. Indeed, during a related OIG investigation, evidence suggested that an individual within DS/PSP/DEAV had misappropriated at least fifteen Department-owned vehicles; relatedallegations were included in court documents associated with the recent guilty plea by the manager of an auto restoration and collision center.”
During the course of the audit, a related investigation discovered information suggesting that a DS/PSP/DEAV employee had misappropriated at least fifteen Department owned vehicles, valued at over $500,000. Court documents associated with the recent guilty plea of a non-Department employee included allegations that, from 2011 to 2015, the DS employee executed multiple schemes to defraud the U.S. Government. These documents moreover included contentions that the employee misappropriated the vehicles and provided them to another individual, who sold those vehicles and paid kickbacks to the employee in the form of cash and other vehicles. Furthermore, also according to allegations in the court documents, the 40 “Department of State Vehicle Fleet Management Study Report,” December 2006. SENSITIVE BUT UNCLASSIFIED AUD-SI-17-21 12 SENSITIVE BUT UNCLASSIFIED employee embezzled tractor-trailer loads of Department-owned tires and wheels and provided them to the individual, who again sold the items for his own personal benefit.”
Did this audit spawn other investigations that are not public and are they continuing as we speak? Have other investigative agencies picked up this audit report and started scrutinizing it from their vantage point that do not have the vast territory to cover for which the DOS-OIG is responsible (did I mention that DOS-OIG could be doubled or even tripled in size and it would still not have enough resources? See a supplemental comment about this issue here)? Will an agency like USAID-OIG look at it from its angle? Will the Antitrust Division review this audit from the perspective of how this procurement system operated and how contractors may have collaborated or communicated on price, terms, specs, etc. Will some FBI ALAT in a Rule of Law component show a personal interest because she believes her people are at risk? Will she cut a lead referral back to FBI headquarters? Will this prompt DOD to look at how it procures armored civilian vehicles. Will DCIS, Army CID, USAF-OIG and NCIS start contacting procurement centers and start working DCAA auditor contacts? These are the questions contractors in this industry must ask. If turns out that the Trump Administration is taking an enforcement interest in combating fraud, waste and abuse then this can add strong tail winds stimulating interest and willingness to expend investigative resources. Not good.