DOD Procurement Fraud

This report examines the two fraud cases cited in the preceding report and testimony. GAO reviews the actions of Mark J. Krenik, a former civilian employee of the Air Force, who was convicted of submitting false invoices and fictitious receiving reports for contractor services and materials. GAO (1) provides detailed information on the schemes that Mr. Krenik used to commit fraud, including the level of involvement by contractor staff, and (2) summarizes internal fraud cases involving the Defense Finance and Accounting Service.

GAO noted that: (1) in the fall of 1992, Mr. Krenik successfully encouraged certain Hughes STX employees to prebill the government over $300,000 for services that were not rendered; (2) he then attempted to obtain these funds by directing Hughes STX employees to bill the government for consulting services from a nonexistent subcontractor by using a bogus subcontractor invoice that he supplied; (3) had this scheme worked, the government would have paid Hughes STX for work performed by the fictitious subcontractor; and Hughes STX would have reimbursed the subcontractor by sending the money to a post office box controlled by Mr. Krenik; (4) when Hughes STX contract administration personnel learned of the participation of Hughes STX employees in the prebilling incident, they conducted an internal investigation and returned the government checks, which the company had not negotiated, for the over $300,000 that had been prebilled; (5) however, they did not notify government authorities of either the extent of the company's involvement in the prebilling incident or the bogus subcontractor invoice; (6) after Hughes STX employees refused to participate in the scheme involving the bogus subcontractor invoice, Mr. Krenik executed another plan in December 1992, without Hughes STX involvement, by which he created and submitted 11 bogus invoices totalling over $500,000; (7) in January 1993, the Air Force issued payment checks for the invoices and mailed them to a post office box that Mr. Krenik had opened in December 1992 without the Air Force's knowledge; and (8) Mr. Krenik's theft was detected after officials of the bank in which he had deposited the checks became suspicious of what they considered to be unusually large transactions and reported them to the U.S. Secret Service.