59 Defense Contractors Are Subjects of Fraud Inquiries

Fifty-nine of the top 100 defense contractors currently are subjects of procurement fraud investigations, the Pentagon’s acting inspector general said Friday, compared with 40 of the top 100 companies two years ago.

The official, Derek Vander Schaff, told a news conference that the rise in the number of major investigations--from 140 in 1984 to about 300 now--results in part from increased Pentagon aggressiveness and voluntary disclosures by contractors who came forward to disclose irregularities.

“The industry is turning around and has begun to clean its own house,” Vander Schaff said. “The situation with the major contractors is very upbeat, despite some of the statistics you might see in my report. These major contractors have, for the most part, gotten serious about what we’re doing.”

Firms Not Identified

None of the companies under investigation was identified by Vander Schaff, who estimated that three-fourths of the cases involve mischarging or giving false estimates of costs. Based on historical data, he said it was likely that about one-third of the investigations will result in criminal prosecution or civil or administrative action.

Vander Schaff’s report showed that the Justice Department obtained 282 convictions involving defense contractors in fiscal 1986, compared with 256 the previous year, and that contractor suspensions or debarments increased from 582 to 885 during the same period.

The Pentagon’s crackdown on procurement fraud dates from the “horror stories” of three years ago--such disclosures as the $435 hammer purchased by the Air Force and the $640 aircraft toilet seat bought by the Navy.

Vander Schaff released a follow-up audit report on spare part procurement and said it showed “major progress” in weeding out overpricing.

Overpriced Spare Parts

He said auditors found overpricing in 28% of the spare parts sampled this year, compared with 38% in 1984. That “is not enough progress to satisfy me and not enough progress to satisfy Defense Secretary (Caspar W.) Weinberger,” said Vander Schaff, adding that he hoped the figure could be cut to 10% in another two years.

Auditors discovered that most overpricing now occurs in small contracts worth less than $25,000, he said. “We found that we had major progress on the high dollar-value item,” he said. “We’ve gone after the worst of the problem . . . where the dollars really add up.”

Vander Schaff, in discussing congressional testimony by the General Accounting Office that the Air Force could not locate one-third of the spare parts in its supply system, said that “we do have problems with records” but contended that reports of large-scale shortages are “misleading and erroneous.”

No ‘Wholesale Thievery’

“We have no evidence whatsoever that there is wholesale thievery in the supply system,” he said.

Meanwhile, Sen. Pete Wilson (R-Calif.), who headed a congressional inquiry into military supply problems last year, said he was expanding the investigation to include the nation’s 6,500 reserve units.

Wilson said he had asked the GAO to conduct the review after receiving an Army audit report showing “a glaring lack of accountability for parts and supplies at the unit level and gross mismanagement at the command level.”