Hughes Puts 3 Managers on Suspension : Helicopter Firm Is Under Federal Probe for Defense Billings
Hughes Helicopters, which has come under federal investigation for accounting irregularities and submitting improper charges on defense contracts, has suspended three employees, the company said Wednesday.
Hughes put three managers, including the firm’s director of subcontracts and two of his section managers, on suspension Tuesday pending the outcome of an internal investigation. The company did not say why it took the action.
Hughes is a subsidiary of St. Louis-based McDonnell Douglas.
The firm declined to identify the individuals, saying it would be “inappropriate.” But knowledgeable Hughes sources identified the three individuals as Kenneth Schiefer, manager of major subcontracts; and Curtis Crook and Gordon Healey, section managers in the department. Healey acknowledged the suspensions of the three in a telephone interview.
‘Minor Outgrowth’
Healey called the suspensions “a minor outgrowth” of the federal investigation. He declined to discuss the specific reasons for his suspension. Reached by telephone, Schiefer declined to comment. Crook could not be reached for comment Wednesday.
The Culver City-based contractor is under at least two federal investigations for accounting and subcontracting problems.
Rep. Bill Nickols (D-Ala.), chairman of the House Armed Services investigations subcommittee, said recently that Hughes Helicopters could document fewer than 40% of its Pentagon billings. He termed the company’s accounting system “deplorable.”
In addition, Army officials have said that Hughes has attempted to recover in overhead payments $1.7 million in executive bonuses. The company allegedly submitted the claims twice and was paid once, despite the fact that Hughes had been told that the claims were unallowable, Army officials said.
The Army suspended overhead payments to Hughes on May 17 and has withheld about $50 million since then, according to Jack Cooke, director of external affairs at McDonnell Douglas.
The payment suspensions have cost McDonnell about $500,000 in interest expenses in the past 60 days, and that will rise to a total of $1 million if they continue for another month.
McDonnell Douglas officials have acknowledged that, since it acquired Hughes in January, 1984, it has “become aware that there were problems and had been deficiencies with its accounting system and internal control systems.”
“We believe we have made substantial progress in resolving this issue,” Cooke said Wednesday. “We will make a major progress report at the management level in a meeting with the Army in the next two weeks.”
Hughes is also under investigation by the Defense Criminal Investigative Service for conflicting accounting records, based on evidence given by a former subcontracting administrator, Rod Stillwell.
Stillwell said in an interview that he was forced to resign after confronting Hughes Helicopters officials with what appeared to be duplicate and conflicting paper work on a subcontract.
Stillwell turned over his evidence, including copies of the conflicting memoranda, to the Defense Criminal Investigative Service, which began an investigation. The matter is currently under audit by the Defense Contract Audit Agency, another Defense Department investigatory unit.
Officials in the Defense Department Inspector General’s office have confirmed the existence of the investigation but declined to discuss details.
