Procurement Fraud: America’s Secret Deficit Booster

April 2008

IN THIS ISSUE

— Friends in High Places: When Divided Loyalties Can Lead to Fraud
— Taking Action Against Contract & Procurement Fraud
— In the next issue

GREETINGS!

Welcome to the April 2008 edition of our newsletter. In this issue, as the presidential campaigns take shape, we’ll examine a shadowy problem plaguing state and federal governments: contract and procurement fraud.

FRIENDS IN HIGH PLACES: WHEN DIVIDED LOYALTIES CAN LEAD TO FRAUD

Darleen Druyun had been an anonymous member of a faceless Air Force bureaucracy during most of her decade as a military procurement officer. If she had any reputation, it was one for toughness, so much so that her nickname was “The Dragon Lady.”

Beneath that Dragon Lady’s tough exterior was an equally cunning fraudster that was looking out for herself and her family — rather than the taxpayers that paid her salary and may still pay her retirement pension. Over her career, Druyun steered contracts for tanker aircraft (which has again become a hot-button issue) and other projects to Boeing, in exchange for jobs for herself, her daughter, her daughter’s fiance, after her retirement from civilian government service. In June 2004, after a federal trial in Virginia, Druyun was sentenced to nine months in prison and fined $5,000. More recently, after a series of recent cases of contract fraud related to the Iraq war, the U.S. military opened 83 separate contract fraud investigations.

TAKING ACTION AGAINST CONTRACT & PROCUREMENT FRAUD

The Druyun case spurred the U.S. Justice Department into greater action in combating contract fraud, often investigated by a federal agency’s inspector general. Paul McNulty, who prosecuted the Druyun case as U.S. Attorney for the Eastern District of Virginia, spear-headed the formation of the National Procurement Fraud Task Force in October 2006. The office has yet to compile national statistics on the impact of contract fraud but, as McNulty said, “At a time of heightened concern for our nation’s security, every tax dollar is precious.”

The question remains: what can your organization do to keep from being harmed by contract fraud when soliciting bids? One step may be to prepare investigative profiles of companies submitting bids, to determine if the companies or individuals running them have been sanctioned for bid-rigging or influence peddling in the past. In addition to analyzing litigation and media about competitors, one good resource to consult is the federal Excluded Parties List System, which lists contractors no longer allowed to solicit federal contracts. If individuals associated with a current company were previously associated with a debarred company, but not debarred themselves, that can be a predicator of future contract fraud.

IN THE NEXT ISSUE

In the May issue we’ll examine the growing field of pension fraud, how to detect it and ways to keep retirement savings safe.