Tuesday, December 26, 2017

Navy Makes Unauthorized Purchases - Contractors Go To Prision

If you were in the military back in the day and needed something but couldn't get it because the item was not in stock or you weren't authorized to have it, you could sometimes call on a crusty master sergeant to conjure it up. Indeed, one would marvel at that ability to secure something when all other avenues failed. Movies and novels have included such abilities and these master sergeants were praised for finding a way improve comforts, logistics, or save lives. Where did they develop such unique skills and abilities? Perhaps things weren't so much on the "up and up".

The Justice Department just announced prison sentences for two owners of several defense contractors as well as restitution, fines, and back taxes for making false representations to DoD for payment on items they knew had not been sold to the Navy, but which had been substituted with other, unauthorized products. So for example, these contractors and Navy personnel conspired together to order 10,000 "Post-It" notepads while delivering electronic transceivers (i.e. walkie-talkies). You see, the Navy personnel wanted transceivers but were not allowed to purchase them so they found a willing contractor to sell them transceivers but call them Post-It notes on all documentation.

This wasn't a "one-off" deal. It went on for years. In fact, the Justice Department estimated that over 50 percent of 12,000 transactions between 2008 and 2013 totaling $45 million were fraudulent. This scheme was used to purchase televisions, computers, gaming systems, cameras, iPhones and other electronics. A purchase for canvas organizer bags became sky diving gear while an order for motorized plumber snakes became televisions, pink Nintendo gaming systems and PlayStations.

Not only was substitution an issue but there was significant markup on the prices which netted the contractors significant windfalls.

The Justice Department announcement focused only on the contractor side of the conspiracy. There will certainly be some Navy personnel indicted in the scheme.

Read the full Justice Department press release here.

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