Why Is the Government’s Best Weapon Against Fraud So Rarely Deployed to Combat Defense Fraud
Sometimes the numbers don’t add up. Like when we’re talking about fraud involving the Department of Defense (DOD).
– “DOD obligated[1] more money on federal contracts ($415 billion in current dollars) than all other government agencies combined spent on contracts.”
– Five companies (Boeing, General Dynamics, Lockheed Martin, Northrup Grumman, and Raytheon) typically receive a majority of DOD contract obligations each fiscal year.
– 49% of total DOD contract obligations were for services and 51% of DOD contract obligations were for goods, or products.
That same year DOD failed its fifth consecutive Government Accountability Office audit, unable to account for sixty-one percent of its $3.5 trillion in assets. In March 2023 the House Committee on Oversight and Accountability opened a congressional probe to address “serious concerns about DOD’s stewardship of taxpayer dollars” amid DOD’s documented failures to prevent fraud, waste and abuse.
Sadly, this is nothing new. Fraud against DOD is as old as the False Claims Act, which was passed during the Civil War to protect the Union Army against unscrupulous defense contractors. More than 100 years later the modern amendments to the FCA were enacted at a time when 9 of the top 10 DOD contractors were under investigation for fraud. Notwithstanding the pervasive history of fraud in this massive segment of government contracting, enforcement actions against defense contractors using one of the government’s most important weapons for fighting fraud, have steadily declined for the last thirty years, while spending has increased dramatically.
According to DOJ’s fraud statitics, the amount clawed back over more than thirty years of enforcement isn’t even covering the cost of a single contract DOD recently awarded to service just 20 planes, and that contract is only the tip of the DOD iceberg. In FY2024, Congress allocated $2.13 Trillion in budgetary resources to DOD. As of May 30, 2024, DOD had made obligations of $894.85 Billion, or 42% of those budgetary resources. Meanwhile, the congressional probe of DOD’s inability to track its own resources remains open.
As has been the case in the past, and as is the case in the healthcase industry, the government’s most effective weapon against fraud should not be deployed so sparingly in the department that has more contractors than every other agency combined, and is responsible for the country’s arsenal. As GAO and a Congressional Committee have both documented, DOD isn’t able to police fraudulent conduct by its contractors on its own. DOD needs to put out a much larger welcome mat for whistleblowers who can expose its dishonest contractors.
Kathleen Scanlan is a Founding Attorney at Keller Grover
[1] Congress approves financial resources to the Department of Defense in the form of budgetary resources. DOD then spends its resources by making obligations. Obligations occur when the U.S. government enters a binding agreement to award funding, including, “for example, when it places an order, signs a contract, awards a grant, purchases a service, or takes other actions that require it to make a payment.”
