Defense Procurement:

E-Systems' Reporting of Alleged Wrongdoing to Army's Fraud Division

OSI-96-6: Published: May 16, 1996. Publicly Released: May 24, 1996.

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Pursuant to a congressional request, GAO reviewed a defense contractor's reporting of alleged wrongdoing to the Army's fraud division, focusing on: (1) whether federal laws, regulations, or its administrative settlement agreement required the contractor to disclose suspected violations of procurement law; (2) how many and what types of hotline violations were lodged against the contractor; (3) whether contractor employees altered or reinvestigated hotline complaints to avoid disclosure to the government; (4) the details of three specific hotline cases; (5) why the Army failed to debar the contractor from further government business after the serious allegations that resulted in a May 1994 show-cause letter; and (6) what loss the government sustained as a result of the contractor's actions.

GAO found that: (1) the contractor's two administrative agreements and its own business ethics standards required it to report suspected procurement law violations to the Army's fraud division; (2) the contractor did not fully detail allegations in its Army reports under its settlement agreement or report 39 pre-agreement cases or 16 cases that occurred between the two agreements; (3) all of the 202 hotline complaints from August 1990 through August 1993 were reported to the Army; (4) 41 percent of the cases involved alleged federal contract violations and the rest involved management and employee relations issues; (5) from July 1994 through November 1994, the contractor reported three hotline cases, one of which involved procurement law violations; (6) in three specific cases, the contractor did not report its findings or all relevant information to the Army; (7) there was no evidence that the contractor altered internal investigation reports or reinvestigated hotline complaints to avoid disclosure to the government; (8) although the Defense Logistics Agency found that the contractor violated the agreement, it did not debar the firm because there was insufficient evidence to prove that it intentionally withheld information from the government; (9) the contractor's second administrative settlement agreement requires it to provide the Army with more details of allegations and resolutions than did the first agreement; and (10) the government sustained a potential loss of about $228,000 in one case involving time mischarging and an unknown amount in a case involving parts scrapping.

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