Fraud Fighters Keep Eye on S.D. Defense Contracts

There’s a new crime-busting team in town, sniffing out fraud, corruption and theft.

But they won’t be found knocking down doors or handcuffing burglars.

In fact, it’s hard to find them at all.

Tucked away in an inconspicuous corner of the Veterans Administration Building in Mission Valley is the newly opened San Diego branch of the Defense Criminal Investigative Service, the Department of Defense’s version of a fraud-stopper’s all-star team.

Its purpose: Track down, prosecute and recover millions of dollars in defense contract fraud in the more than $100 billion that is annually awarded private firms by the U.S. Department of Defense.

Although the service was formed three years ago, only in the last two months has San Diego been added as one of its 10 field offices. Two of its 200 agents will be staffed here, although there are plans to add another.

The agents will have their work cut out for them.

“San Diego leads all other California cities in numbers of military and civilian personnel on Department of Defense-related payroll,” said Rodney Hansen, special agent-in-charge of the service’s operations in Southern California, Arizona and Hawaii.

Hansen, based in Laguna Niguel, rides herd over a staff of 15 investigators. He won’t allow photographs of any of the agents.

The San Diego staff includes Bill Burgess, a U.S. Postal Service inspector for 11 years who broke open the Coastal Equities real estate fraud case, and Frank Beatty, a former Secret Service agent who specializes in investigating fraudulent government obligations, bonds and food stamps, and counterfeiting.

More than $3 billion worth of Defense Department contracts are awarded annually to San Diego-based companies. Additionally, more than 80,000 military and civilian personnel depend on that money for jobs. Both figures are the highest of any city in California.

Military and defense-related expenditures have increased under the Reagan Administration, with the biggest increases registered in California. “And the largest of those were in San Diego,” said Hansen.

The service’s job is, simply, to ferret out fraud, waste and abuse in those contracts.

Armed with full law enforcement powers, the service is investigating several San Diego companies and boasts about 100 cases in Los Angeles. Since 1982, six firms have been prosecuted.

Hansen, however, would not reveal the names of the firms that have been prosecuted or under investigation.

Predominant among potential frauds are improper billings and cost charging (such as time cards for non-existent workers), product substitution, price-fixing schemes, bidding irregularities, white-collar procurement crimes and improper use of Champus, the government-backed health care plan for military personnel and their dependents.

The staff receives tips from a variety of sources, including concerned or disgruntled employees, Defense Department auditors, and callers to a federal toll-free hot line established to receive reports of potential fraud.

Staffers then analyze the information and, if warranted, commence an investigation.

“We employ a variety of investigative tools, including undercover work,” said Hansen. If the fraud involves only the Army or Navy, however, those branches use their own investigative teams, he said.

An example of a fraud case, said Hansen, is a company profiting by $5 million on a $10-million defense contract that it had said in its bid would earn it a $2-million profit.

“We might ask the company to give back the money it mischarged, if inadvertent, and then that would be a deterrent factor,” Hansen said.

Or, the service might seek an indictment, file a lawsuit, or seek to remove the firm from bidding on government contracts, either for a prescribed period of time or forever.

The deterrent effect is important because a two-person staff investigating fraud in a $3-billion local industry seems to have an overwhelming task.

“There are more possible cases which could be investigated than they have the resources to investigate,” Assistant U.S. Atty. Robert D. Rose said.

Because of that, the service “will be searching for some way to best use the people they have to get the most efficient work,” he said.

However, Rose, who as head of the U.S. attorney’s fraud division will work closely with Hansen’s staff, said he has “no reason to believe that the detectable fraud is anything but a small percentage of the total defense expenditures. We’re not assuming that everybody is cheating the government.”

Although the public will remain generally unaware of the investigative service in San Diego, the group is spreading the word among contractors--chiefly through seminars and presentations--that the agency is “here and we’re not going to go away.”

“We’re not a hard-core, crime-fighting group,” said Hansen. “This isn’t a door-kicking organization. We’re a sophisticated, white-collar-crime group.”