Wednesday, May 16, 2018

Fraud Conspiracies are Hard to Detect

Contractors are required by contract to have codes of ethical conduct, sound internal controls in business systems used in Government contracting, and procedures to detect and prevent fraudulent activities. Segregation of duties and levels of approvals are controls that will help prevent fraud. However, conspiracies (two or more people acting in concert to override existing internal control systems) are much more difficult to detect and tend to go on for a long time.

Consider the case of Clayton Pressley, a (former) Senior Chief Petty Officer in the Navy. Besides his full-time sailor duties, he owned or managed several businesses and was named the COO (Chief Operating Officer) of another company (referred to in Court documents as "Firm G". Mr. Pressley found himself three other conspirators (two contractors and one Navy) and together they created a scheme whereby they would order supplies under DLA's (Defense Logistics Agency's) Electronic Mall System (E-Mall) or DLA's Tailored Logistics Support Program (TLSP) for the Navy.

However, the supplies were never shipped to the Navy. The Navy conspirator falsified documentation saying the goods were received, the Navy would pay for the supplies, and the four conspirators would distribute the money. Before the scheme was halted, the conspirators got about $2.3 million. Mr. Pressley and the other Navy conspirator received the biggest chunk - 40% each.

Investigators were able to piece together some of Pressley's use of the ill-gotten money. Good times included hotels, expensive meals (one costing $938), Casinos, clothing, and of course, an expensive car (a Porsche).

We were unable to determine how the fraud was uncovered. Mr. Pressley was already serving time for using his position as a senior enlisted member to access personal identity information and identification documents of members of his command, using that information to secure several loans. Investigators also found identity documents for eight other members at Mr. Pressley's personal residence. Perhaps it was this that led investigators to dig a bit deeper into Mr. Pressley's activities.

There was one clue that could have, and perhaps should have, alerted someone to what was going on. The conspirators used a contractor that held legitimate E-Mall and TLSP contracts, directing the company to use a specific subcontractor for the supplies. This should never happen. The Government should not normally direct a contractor to utilize specific vendors because to do so, would require that contractor to violate its own purchasing policies and procedures.

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