The Department of Defense, which spent about $422 billion on contracts for goods and services in FY 2020, has been the target of contracting-related fraud schemes. For example, one contractor pleaded guilty to defrauding the department by overbilling. DOD is also vulnerable to other types of contract fraud and corruption.
One way DOD tried to fight fraud in FY 2020 was to tap its subject matter experts for a Fraud Reduction Task Force. But we found 11 of 59 DOD organizations hadn't designated task force representatives. We also found DOD could more thoroughly assess and report department-wide fraud risks. We recommended addressing these issues.
What GAO Found
The Department of Defense (DOD) faces numerous types of procurement fraud schemes (see figure). For example, in January 2015, the owner of a contracting firm pleaded guilty to bribing DOD officials and defrauding DOD of tens of millions of dollars by overbilling for goods and services. To combat department-wide fraud risks, DOD has taken initial steps that generally align with GAO's Fraud Risk Framework. However, DOD has not finalized and implemented a comprehensive approach. For example:
- DOD created a Fraud Reduction Task Force—a cross-functional team represented by subject matter experts across the department—to prioritize fraud risks and identify solutions. But its membership is incomplete. A year after formation, 11 of DOD's 59 component organizations, including the Army, had not designated a Task Force representative. Filling vacant Task Force positions would further strengthen DOD's ability to manage its fraud risks.
- DOD uses its risk management program to assess and report fraud risks. But the policy governing the risk management program does not specifically require fraud risk assessments. As a result, DOD may not be identifying all fraud risks, and its control activities may not be appropriately designed or implemented.
- DOD officials told GAO that they share fraud risk information with agencies' risk management officials, but documentation of stakeholders' roles and responsibilities remains incomplete. Such documentation can help ensure these stakeholders understand their responsibilities.
Examples of Procurement Fraud Schemes DOD Faces
DOD has taken steps to ensure components plan for and assess fraud risks. But some selected components did not report procurement fraud risks, as required by DOD. DOD provides guidance, tools, and training to its components to conduct fraud risk assessments and to assess procurement fraud risks. However, GAO found that three of six selected components reported procurement fraud risks in their fiscal-year-2020 risk assessments, and that three—which obligated $180.1 billion in fiscal year 2020—did not. Because DOD consolidates reported procurement risks from the components' fraud risk assessments and uses this information to update the department-wide fraud risk profile, it cannot ensure that its fraud risk profile is complete or accurate.
Why GAO Did This Study
GAO was asked to review issues related to DOD's fraud risk management. DOD obligated $421.8 billion in fiscal year 2020 on contracts. GAO has long reported that DOD's procurement processes are vulnerable to waste, fraud, and abuse. In 2018, DOD reported to Congress that from fiscal years 2013-2017, over $6.6 billion had been recovered from defense-contracting fraud cases. In 2020, the DOD Office of Inspector General reported that roughly one-in-five of its ongoing investigations are related to procurement fraud. This report assesses the steps DOD took in fiscal year 2020 (1) to combat department-wide fraud risks and (2) to conduct a fraud risk assessment and ensure that DOD's component organizations reported procurement fraud risks.
GAO analyzed applicable DOD policy and documents and compared them with Fraud Risk Framework leading practices, interviewed DOD officials, and reviewed fiscal year 2020 fraud risk assessments from six DOD components. GAO selected the six based primarily on fiscal years 2014-2018 contract obligations.
GAO makes five recommendations, including that DOD fill all Task Force positions, update its policy to require fraud risk assessments, and ensure that components assess procurement fraud risks. DOD agreed with some, but not all of the recommendations. GAO continues to believe all the recommendations are warranted and should be implemented.
Recommendations for Executive Action
|Department of Defense||The Deputy Chief Financial Officer should ensure that cognizant DOD components designate representatives to the Fraud Reduction Task Force as expeditiously as possible. (Recommendation 1)|
|Department of Defense||The Comptroller should update DOD Instruction 5010.40 to include fraud-risk-assessment and reporting requirements. Specifically, the instruction should:
|Department of Defense||The Comptroller should update its Statement of Assurance Execution Handbook to clarify that components should report all fraud risks, including fraud risks that are not categorized as a material weakness or a significant deficiency. (Recommendation 3)|
|Department of Defense||The Comptroller should determine and document the fraud-risk-management roles and responsibilities of all oversight officials, including department-wide Assessable Unit Senior Accountable Officials and their Action Officers and the Defense Business Council, and the chain of accountability for implementing DOD's fraud-risk-management approach. (Recommendation 4)|
|Department of Defense||The Comptroller should direct components, as part of the annual statement of assurance process, to plan and conduct regular fraud risk assessments that align with leading practices in the Fraud Risk Framework. Specifically, the assessment process should include: (1) identifying inherent procurement fraud risks, (2) assessing the likelihood and effect of these risks, (3) determining fraud risk tolerance, (4) examining the suitability of existing fraud controls, and (5) compiling and documenting the fraud risk profile. (Recommendation 5)|