Bell Helicopter to Repay $90 Million to U.S. in Fraud Case
Bell Helicopter Textron Inc. has agreed to return $90 million to the U.S. government to resolve a Justice Department investigation into allegations that it fraudulently overcharged the Army on helicopter spare parts, sources said Wednesday.
The agreement was described by a Pentagon official Wednesday as the largest settlement of a defense contracting fraud case to date. It is scheduled to be announced by U.S. Atty. Marvin L. Collins in Ft. Worth soon, possibly as early as Friday, sources said.
The settlement marks the end to a four-year dispute between Bell Helicopter and the Army that grew out of findings by Pentagon auditors of numerous accounting and inventory irregularities at the Ft. Worth company. During the investigation, there also were allegations that Bell Helicopter officials shredded documents, altered computer entries and covered up evidence of deliberate overbillings to the government.
But federal prosecutors decided that the accounting issues that underlay the alleged cover-ups were so complex that it would have been difficult to successfully explain them to a jury, sources said Wednesday.
As part of the settlement, Bell Helicopter will write a check for $69 million to the U.S. Treasury, sources said. In addition, it will turn over to the Army about $11 million worth of its inventory and agree not to charge the service for several allowable costs, including about $3.5 million of its legal defense fees. Much of that amount went to the Washington firm of McKenna Conner & Cuneo, which has specialized in representing defense contractors under investigation by the government. Also offsetting the $90 million will be about $5 million in interest the company is due on monthly progress payments that the Army improperly withheld in 1984.
As part of the settlement, prosecutors have agreed to drop any potential criminal or civil charges against the company. Bell Helicopter will not acknowledge any wrongdoing, according to sources.
But the investigations subcommittee of the House Energy and Commerce Committee is continuing its own review of the case and plans hearings sometime this spring, a staff member said Wednesday. Among the issues the panel is exploring is why the Army continued to award contracts to the company after the Defense Contract Audit Agency and the General Accounting Office had identified the overbilling, the staffer said.
A recent staff memo identified several instances of “possible undue influence,” including one in which the Army plant representative who approved the contracts later was hired as the company’s manager for government marketing.
Assistant U.S. Atty. Ronald C. H. Eddins in Ft. Worth said he could not comment on the resolution of the case. Carl Harris, a spokesman for Bell Helicopter, confirmed that “a settlement is in the offing,” but added that company could not comment “until a final agreement is reached.”
Harris also said the terms under discussion “will not have a material effect on Bell Helicopter Textron in 1988.”
Bell Helicopter is a wholly owned subsidiary of Textron Inc., a diversified conglomerate based in Providence, R.I. In fiscal 1986, the parent company ranked as the Pentagon’s 14th-largest contractor, with $1.6 billion in defense work.
Bell Helicopter holds contracts from the Army for such major helicopter programs as the AH-1 Cobra attack helicopter, the UH-1 Iroquois utility helicopter and the OH-58D Kiowa light helicopter.
According to sources familiar with it, the $90-million settlement covers most of the $107 million in overcharges that the Defense Contract Audit Agency had identified at Bell Helicopter between the years 1982 and 1986. The largest part of the settlement, about $46 million, involves alleged violations of so-called savings clause contracts that the Army required be attached to Bell Helicopter contracts to limit overcharges by the company in early 1984.
While the savings clauses limited profit rates to 12% to 13%, Bell Helicopter was actually receiving substantially more than that, sources said.
That happened because it frequently billed the Army for supposedly newly made spare parts, such as helicopter blades, when it actually supplied blades that already were in its inventory.
Auditors also found that the company commingled its government and commercial manufacturing operations in such a way that it may have been charging the Army for parts that had already been paid for by commercial contractors.
This alleged violation, which accounts for about $9.1 million of the settlement, was described by an auditor as “potential double billing.”
“They simply had a flawed accounting system and they could not justify the costs they were charging to the Army,” one source said.
Stored in Computer System
When Army auditors began to challenge the company’s costs, however, they discovered that hard copies of some of its manufacturing records had been destroyed, the source said.
Company officials said that all the inventory information on the destroyed records had been entered into its computer system.
But according to sources, government auditors found that hundreds of entries into the computers had been altered, making it impossible for them to trace back the original entries.
One focus of the House subcommittee investigation will be the role of Bell Helicopter’s outside auditors, Arthur Young & Co., which never objected to the firm’s accounting controls.
A spokesman for Arthur Young said Wednesday that the firm would have no comment.