00:00And the federal workforce will come to order.
00:03Good morning and welcome to the not only the members who are here today and the staff,
00:08but also those people in the audience in support of the discussion that we will have today.
00:15Without objection, I may declare a recess at any time.
00:19I recognize myself for the purpose of making an opening statement.
00:53The percentage would be significant.
00:57From 2017 to 2024, DOD reported that about $10.8 billion could be confirmed as fraud.
01:07$10.8 billion, when compared to a trillion, is not what they would consider to be a relative problem.
01:21We do.
01:21The people who are gathered today, including members of Congress on a bipartisan basis,
01:28do consider that $10.8 billion of confirmed fraud is a problem.
01:35This figure mostly relies on dollars that were recovered.
01:39According to GAO, confirmed fraud and the amount recovered may only reflect a small fraction of the extent of fraud within DOD.
01:49To accomplish its global mission, DOD relies on contractors for goods and services.
01:56In fiscal year 2023, DOD reported about $431 billion, or 71 percent, of total defense spending went to contractors for various products and services in support of the warfighter.
02:14For years, GAO has reported that DOD has struggled to accurately account for the government property that contractors possess.
02:28This longstanding issue affects the DOD's ability to produce fully auditable financial services, as we have discussed in this subcommittee and in the committee under our young chairman, James Comer, for a number of years.
02:45It affects our ability to ensure that taxpayer money is being spent appropriately, and our service members are getting actually what they need because the taxpayer of this country is paying that bill.
03:00It affects our ability to prevent bad actors from exploiting vulnerabilities in the contracting system.
03:07In essence, it keeps people honest because they know people are looking.
03:12There have been some notable cases over the years that highlighted how far fraudsters will go to line their pockets by defrauding the federal government.
03:21In the early 2000s, Fayette Leonard orchestrated the worst corruption scheme in U.S. Naval history.
03:28He bribed naval officers to steer businesses towards his company, Glenn Defense Marine Asia.
03:38This company offered services to the United States Navy, its ships, and it overcharged the military by at least $35 million.
03:48The scheme went on for over a decade.
03:52This case is still being investigated, so the full scope of damage is going to be put together, and yet today we do not have the final figure.
04:02As far back as 2006, Navy criminal investigators opened and closed 27 separate investigations into Glenn Defense Marine Asia.
04:14GAO recently reported that DOD's updated fraud risk management strategy does not include data analytics.
04:23Data analytics would make it easier and clearer for personnel to verify information and determine eligibility for contractors to receive federal awards.
04:35It would also help connect the dots between suspicious activities and those which were legitimate.
04:42Had investigators and the DOD contracted personnel using data analytics back to 2006, perhaps Fat Leonard could have been stopped years before.
04:56Examples like this are horrible, but fraud within the DOD just doesn't threaten their financial positions, but it undermines the opportunity for them to know what they have,
05:09where it's located, and where the service is properly provided.
05:13There are real operational impacts that can pose a threat to our service member.
05:18One such case involved Defense Criminal Investigator Service involved in working against a fraudster that purportedly falsified documents.
05:30These documents, including a fraudulent certificate to conceal the fraudster's company and failure to maintain required manufacturing standards, were for a machine gun part.
05:43This financial impact was only $124,000, but the non-financial impact was more troubling.
05:52A military engineer testing one of these machine gun parts saw several deficiencies.
05:58These deficiencies could have harmed our warfighters, not just in protecting this nation, but also their lives.
06:08Our sons and daughters are fighting for our country, and they should not have to worry about whether or not a contracted part for their weapon will function as it was correctly manufactured.
06:21This subcommittee is continuing to have conversations with not only GAO, but also those within the Defense Department, including the Inspector General community.
06:33We are there to make sure that we work with them.
06:37We want to make sure agencies understand their responsibility to make sure taxpayer money is wisely spent.
06:46One of our first hearings this Congress was focused on preventing fraud rather than chasing fraudsters who have already run away with taxpayers' hard-earned dollars.
06:56Shining a light on contracting fraud within DOD and highlighting some common-sense strategies that can prevent this fraud is also what this conversation is about today.
07:11Eliminating the amount of fraud within DOD is a hard task, but we are up to that, and I hope that this conversation, as well as those that we're giving to the two witnesses that we have today,
07:27where they will understand that we will join with them in making sure that the United States Congress speaks with one voice to say that we don't just expect this to be done, we want it done now.
