Safeguarding Procurement: Examining Fraud Risk Management in the Department of Defense

House Subcommittee on Government Operations and the Federal Workforce

2025-06-04

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Summary

The Subcommittee on Government Operations and the Federal Workforce convened a hearing to address the Department of Defense's (DOD) fraud risk management efforts and strategies to combat procurement fraud [ 00:30:43 ]

. The discussion involved subcommittee members, including Chairman Mr. Seto Bagdoyan and Ranking Member Kweisi Mfume, as well as witnesses Mr. Kelly Mayo, Deputy Inspector General for Investigations at the DOD, and Mr. Seto Bagdoyan, Director of Forensic Audits and Investigative Services at the Government Accountability Office (GAO) . The central theme revolved around the pervasive nature of fraud within the DOD and the perceived inadequacy of the department's current measures to address it .

Extent of Fraud and DoD's Acknowledgment

DOD officials initially contended that fraud within the department was not significant relative to its overall spending [ 00:31:13 ]

. However, the GAO reported approximately $10.8 billion in confirmed fraud from 2017 to 2024, while also indicating that the true extent of fraud is likely much higher [ 00:31:53 ] . Committee members and witnesses largely disagreed with DOD's stance, emphasizing that $10.8 billion is indeed a significant problem [ 00:32:18 ] . The confirmed fraud figures only account for cases that have been detected, investigated, and adjudicated, suggesting a substantial amount of undetected fraud [ 00:52:28 ] . Mr. Bagdoyan explicitly stated his suspicion that the total fraud at DOD is higher than the reported numbers .

Impacts of Fraud

The consequences of fraud extend beyond financial losses, posing significant operational and national security threats [ 00:35:21 ]

. Financially, billions of dollars are lost, with an estimated 1% error draining nearly $9 billion from troops, readiness, and modernization efforts [ 00:31:53 ] . Operationally, fraud undermines military readiness and endangers service members [ 00:35:21 ] . Notable examples included the "Fat Leonard" scheme, which overcharged the military by at least $35 million [ 00:34:21 ] . Another case involved falsified documents for a machine gun part, which, despite a financial impact of only $124,000, could have put warfighters' lives at risk [ 00:35:34 ] . Ineligible foreign manufacturers supplying non-conforming parts even led to the grounding of 47 fighter jets [ 01:36:28-01:36:45 ] .

Deficiencies in Fraud Risk Management

The DOD has faced seven consecutive failed audits, leading the GAO to place its business system on a high-risk list for fraud risk management . A major deficiency highlighted was the absence of data analytics in DOD's updated fraud risk management strategy, which could significantly improve fraud detection and prevention [ 00:34:53 ]

. Furthermore, there is a lack of clear roles, responsibilities, and authorities for fraud risk management across DOD components . The DOD has also consistently delayed the implementation of GAO's recommendations, with 13 crucial recommendations remaining open . The "tone at the top," or leadership commitment, is emphasized as critical for effective fraud risk management .

Recommendations and Way Forward

Congress is urged to hold the DOD and its contractors accountable . Key recommendations include fostering leadership commitment throughout the agency, modernizing fraud prevention tools—particularly through data analytics—and enforcing accountability with swift and proportional consequences . The GAO advises the DOD to acknowledge fraud risks, thoroughly assess their extent and implications, and act decisively to implement all recommendations, thereby building a robust fraud risk management capacity . Both the IG community and GAO expressed their commitment to working with the DOD to resolve these long-standing issues [ 00:36:43 ]

. Sustained and regular congressional oversight is deemed essential for progress [ 00:54:35 ] .

Tone of the Meeting

The meeting maintained a serious and urgent tone, driven by the bipartisan recognition of the severe problem of fraud within the DOD [ 00:32:26 ]

. There was palpable frustration among members regarding the DOD's historical reluctance to acknowledge the scale of the problem and its slow implementation of recommended changes . Speakers consistently emphasized the critical importance of protecting taxpayer money and ensuring military readiness, underscoring the severe impact of fraud on these aspects [ 00:33:26 ] . Some members expressed cynicism about the political will to enact meaningful change, fearing that platitudes might overshadow concrete action . Despite this, the chair and ranking member stressed their commitment to bipartisan action and holding the DOD accountable at the highest levels [ 01:58:22-01:58:23 ] .