Lack of controls leads to DoD fraud

Lack of controls leads to DoD fraud

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Lax internal controls at the Defense Finance and Accounting Service allowed employees to steal millions of dollars from the government, investigative reports released Monday revealed.

In two reports, the General Accounting Office described more than a dozen cases of fraud over the last decade involving DFAS, the agency that pays the military's bills. Sen. Charles Grassley, R-Iowa, whose committee held a hearing on Defense Department fraud Monday, said the cases point to a lack of managerial checks and balances to prevent government employees from stealing money.

"Pentagon managers seem clueless," Grassley said. "The defense accounting system is upside down."

In one case, a Pentagon employee created and submitted 11 fake invoices totaling more than $500,000 for which DFAS issued payment checks. The scheme was not discovered until officials at the employee's bank became suspicious of the large sums of money flowing into the employee's account.

In another case, a staff sergeant working at Castle Air Force Base in California and later at the DFAS office in Dayton, Ohio, was convicted of embezzling more than $435,000 and attempting to steal more than $500,000. In two instances, the staff sergeant used the computer password of another DFAS employee to swindle the government.

GAO said DFAS gave many employees too much access to the agency's payment system.

"Employees with supervisor and subsupervisor access to the vendor payment system could make fraudulent payments without detection," GAO said.

The agency should limit employees' access levels on the system to the minimum levels necessary to perform their jobs, GAO said.

GAO also found other accounting control failures. For example, DFAS employees altered invoices so the agency could avoid paying late fees to contractors. Contract documents were altered or missing in several cases. And DFAS paid contractors without verifying that the government had received the goods the agency was paying for.

"DFAS needs to make certain that each accounts payable file is complete and accurate," Grassley said at the hearing, held before the Senate Judiciary Subcommittee on Administrative Oversight and the Courts. "Only care and patience are needed to accomplish that."

A. Ernest Fitzgerald, management systems deputy for the Air Force, testified that Pentagon managers do not consider fraud a serious enough problem. Fitzgerald said one manager admitted that in order to get checks out quickly, he approves payments even when he hasn't verified that goods have been received.

Grassley said DFAS' emphasis on getting money disbursed quickly increases chances for fraud.

"The big check-writing machine is out of control," Grassley said.

John Nabil, director of the DFAS center in Columbus, Ohio, said the agency is strengthening its internal controls.

"There have been improprieties and although these improprieties were detected, they were not detected as quickly as they should have been," Nabil said. "We will strive to be more vigilant."

Grassley's scrutiny of DFAS comes on the heels of Senate Governmental Affairs Committee hearings last week showing that internal security weaknesses at the Social Security Administration and the Department of Veterans Affairs allowed employees too much access to sensitive data on citizens. GAO testified that internal security is a problem at every major federal agency.

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