Thursday, March 7, 2013

Navy Contractors Found Guilty in Bribery Case

An amazing story appeared earlier this week in a San Diego newspaper about Government contractors and bribery. It wasn't the bribery that was amazing - we read and hear about that all the time. The amazing part was the lack of Government oversight over the work and practices of its contractors allowing corruption to go undetected for eight years. It would probably still be going on if not for an anonymous hotline tip.

Based on this news story, the Navy put a contractor in charge of writing Navy contracts. Then, the same guy that wrote, evaluated, and negotiated the contract was able to make purchases under the contract (ostensibly for the Navy's use).  One really has to marvel at the lack of internal controls built into that system - a contractor to the Navy, issuing contracts to other Navy contractors and then makes purchases under the contract he just issued. This violates a fundamental segregation of duties internal control principle.

During the trial, the defendant tried blaming the Navy noting that the scheme went undetected for years. Perhaps the Navy should have discovered it sooner but that doesn’t justify fraud and the jury didn’t buy the argument.

No one really knows how much taxpayer money was lost. Investigators turned up $4 million in fraudulent billings of which $1 million went back to the two men that orchestrated the fraud in bribes. Probably, as in most of these kinds of cases, this was only a fraction of the real taxpayer loss.

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