More Effective Internal Controls Needed To Prevent Fraud and Waste in Military Exchanges

The Department of Defense (DOD) reported that, during the first half of fiscal year 1980, military exchanges accounted for 58 percent of all potential fraud cases referred for investigation. A Department of Justice task force carried out investigations resulting in the conviction of six buyers, a deputy region chief, seven sales representatives and a vendor for kickbacks and other unlawful activities. GAO examined the efforts taken by the military exchange systems, the services, and DOD to prevent fraud and waste in exchange procurement.

GAO found that exchange managers were slow to take corrective action because they lacked information on the extent and nature of fraud in their operations. They did not enforce or monitor the enforcement of standards of conduct and were not aware of the extensive noncompliance with policies and procedures. Since the GAO study began, exchange officials have initiated numerous actions to combat fraud and waste in their operations including: (1) establishing a program to assess vulnerability to fraud and waste; (2) strengthening the internal audit function; (3) establishing a fraud, waste, and abuse hotline; and (4) instituting a registration system to increase visibility of sales representatives. More should be done to strengthen controls. Standards of conduct should be strictly and uniformly enforced. Managers should be held accountable for compliance with policies and procedures. The overseeing organizations of these exchanges have not been aggressive in exercising their oversight responsibilities.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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