Andy Biggs Questions Witness Amid Crackdown On DoD Fraud: ‘What Makes A Contract High-Risk?’

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During a House Oversight Committee hearing on Tuesday, Rep. Andy Biggs (R-AZ) questioned Seto Bagdoyen, Director of Forensic Audits and Investigative Services at the U.S. Government Accountability Office, about red flags in Department of Defense contracts.

Transcript

00:00I'd now like to go to the gentleman who was here well early and who I know has other

00:08obligations.

00:09I think it was a gentleman from Arizona, Mr. Biggs, you're now recognized, sir.

00:13Thank you, Mr. Chairman, and I thank you and the Ranking Member for this hearing today,

00:17and thank you, Mr. Mayland, and Mr. Biggoyan for being here.

00:21The DOD spends a ton of money, we've talked about that, yet we're still seeing fraud,

00:27overbilling fake shell companies, bad parts, and the system looks the other way way too

00:31often.

00:32I want to highlight something, Mr. Biggoyan, real quickly that you mentioned.

00:37You talked about 47 aircraft had to be grounded due to nonconforming parts provided from a

00:44foreign company through essentially U.S. cutouts, and this gets to one of the things you talked

00:52about is how you get there.

00:53You've got to get them to acknowledge there's fraud, then you have to extract the nature

00:58and the implications of that fraud.

01:00Now, the implications of this fraud looks to me, and I want to ask this question, is there

01:06any evidence that these nonconforming parts were a malevolent attempt to actually buy some

01:13bad actor to ground our planes or cause us problems?

01:18Or was this simply a scam and they didn't care what happened, they just wanted the money?

01:25Is your mic on?

01:27Apologies for that.

01:29Yeah, we did come up with some detailed information on that particular case.

01:35Let me scurry through and see what I can detect.

01:38But I don't believe there was any malevolent intent.

01:42These parts, they're wing parts, if you will, total cost of the fraud about $180,000.

01:50But the grounding of the aircraft obviously was a national security impact.

01:54But it was a very small part made in India from a non-eligible manufacturer through two

02:02shell companies, which were basically a single person operating out of their residence.

02:07Yeah.

02:08So this is the kind of implication that fraud has on a national security, because you ground

02:14the planes over a very small, simple contract and a scam that should have been caught.

02:20We've been dealing with this type of thing for decades.

02:23In fact, I appreciate Mr. Mfume showing his chart, but as far as my research has shown me,

02:30I've never seen that the Pentagon ever has actually survived and passed a full comprehensive audit.

02:36In fact, I've actually heard them say they're too big to be audited that way.

02:41And so I want to focus on something fairly straightforward here.

02:45What makes a contract high risk?

02:47What red flags do you see again and again?

02:50And most importantly, how do we stop it before the money's already out the door?

02:54So it's not about politics.

02:55This is a bipartisan issue.

02:58We've had this problem for decades under both brands, so we just want to make sure the system

03:03works.

03:04So my question is for you.

03:05I'll begin with Mr. Bagdoyan and then go to Mr. Mayo.

03:08I'm guessing you know that some contracts are more prone to fraud than others.

03:11And what are the common traits that tend to show up in a higher risk contract?

03:15Yeah.

03:16I would say based on what I have seen, the big ticket items seem to be more prone.

03:22And also the subcontractor universe is even more susceptible than the primes, basically.

03:30You know, there's only a handful of prime contractors.

03:33They integrate many, many others.

03:35So the subcontracting may be an area of particular interest.

03:39Mr. Mayo, same question for you.

03:42Yes, sir, and I would agree with my colleague.

03:46Really it's about subcontractors is a significant issue because we don't see down there.

03:50We don't see underneath the contract.

03:52So we don't see what's going with the contractors.

03:55So once those types of high-risk contracts are identified, what's the best way to put a

04:01watchdog on and make sure that you're not going to be prone or actually defrauded?

04:07Well, our audit component does a lot of audits in that regard.

04:11But that's post.

04:13I'm talking about pre.

04:14So you've identified a certain kind of contract is really a problem.

04:17How do you get in there and actually put down guardrails?

04:22I mean, as Mr. Mfume talked about, guardrails.

04:25Yes, sir.

04:26That wouldn't be our role as the investigative agency.

04:28Right.

04:29I would say a robust due diligence process, past history, for example, should be looked at.

04:36And if there is a risk.

04:37Of the contractor.

04:38Of the contractor.

04:39Right.

04:40Forget the contract itself.

04:41Yeah.

04:42It's the player that needs the attention, first and foremost.

04:44Right.

04:45Okay.

04:46And so that leads to some kind of a weird dichotomy here.

04:51In Mr. Mayo's reporting, you've got a massive contractor, defense contractor, and I hate to

04:57even bring it up because they're located in my home state.

05:02But Raytheon, in 2024, paid $950 million to resolve allegations involving defective pricing,

05:09bribery, and export control violations.

05:11Is that accurate, Mr. Mayo?

05:12That is, sir.

05:13That's a billion dollars that one company can pay, afford to pay back after some very egregious

05:20and serious allegations.

05:21And I'm, I see I'm out of time.

05:22I do have a, Mr. Chairman, submission for the record entitled.

05:26Without objection.

05:27Thank you very much.

05:28And with that, thank you for letting me be here, and thank you.

05:29Does the gentleman seek additional time?

05:30Mr. Chairman, I would, I could probably go all day on this.

05:31I've got a whole truckload of questions, but I think I'll submit them in writing to Mr.

05:44Magdouye and Mr. Mayo that way, and then I'll share with the committee the responses.

05:49We respect that and appreciate your line of questioning.

05:53And a gentleman yields back his time, the distinguished gentleman.

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