▶ 0:00:04Oh, okay. Mic check. One, two, one, two.
▶ 0:22:17Subcommittee on government operations and the federal workforce will come to order. Good morning and welcome to the uh not only the members who are here today and the staff but also those people in the audience in support of uh the discussion that we will have today. Okay, without objection, I may declare a recessing time. I recognize myself for the purpose of making an opening statement.
▶ 0:22:45Today's hearing on the Department of Defense's fraud risk management efforts and how they work to combat fraud. In 2024, DoD officials told the GAO that they didn't believe there was much fraud within their department relative to their overall spending. Reports show that DoD spends over $1 trillion annually.
▶ 0:23:10So, as you can tell, even a small percentage would be significant. From 2017 to 2024, DoD reported that about 10.8 8 billion could be confirmed as fraud. $10.8 billion when compared to a trillion is not as they what they would consider to be relative problem.
▶ 0:23:40We do the people who are gathered today including members of Congress on a bipartisan basis do consider that $10.8 8 billion of confirmed fraud is a problem. This figure mostly relies on dollars that were recovered. According to GAO, confirmed fraud and the amount recovered may only reflect a small fraction of the extent of fraud within DoD.
▶ 0:24:09To accomplish its global mission, DoD relies on contractors for goods and services. In fiscal year 2023, DoD reported about 431 billion or 71% of total defense spending went to contractors for various products and services in support of the war 71%.
▶ 0:24:37For years, GAO has reported that DoD has struggled to accurately account for the government property that possess. This long-standing issue affects the DoD's ability to produce fully auditable financial services.
▶ 0:24:56As we have discussed in this subcommittee and in the committee under our young chairman James Comr for a number of years, it 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 c country is paying that bill. It affects our ability to prevent bad actors from exploiting vulnerabilities in the contracting system.
▶ 0:25:27In essence, it keeps people honest because they know people are looking. There have been some notable cases over the years that highlighted how far fraudsters will go to line their pockets by defrauding the federal government. In the early 2000s, Fat Leonard orchestrated the worst corruption scheme in US naval history.
▶ 0:25:49He bribed naval officers to steer businesses towards his company, Glenn Defense Marine Asia. This company offered services to the United States Navy, its ships, and it o overcharged the military by at least $35 million. The scheme went on for over a decade.
▶ 0:26:12This case is still being investigated for the so this full scope damage is going to be put together and yet today we do not have the final figure. As far back as 2006, Navy criminal investigators opened and closed 27 separate investigations into Glenn Defense Marine Asia.
▶ 0:26:34GAO recently reported that DoD's updated fraud risk management strategy does not include data analytics. Data analytics would make it easier and clearer for personnel to verify information and determine eligibility for contractors to receive federal awards. It would also help connect the dots between suspicious activities and those which were legitimate.
▶ 0:27:03Had investigators in the DoD personnel using data analytics back to 2006, perhaps Fat Leonard could have been stopped years before.
▶ 0:27:16Examples 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, where it's located, and where the service is properly provided. There are real operational impacts that can pose a threat to our service member.
▶ 0:27:39One such case involved defense criminal investigator service involved in working against a fraudster that purportedly documents. These documents including a fraudulent certificate could conceal the fraudster's company and failure to maintain required manufacturing standards were for a machine gun part.
▶ 0:28:04This financial impact was only $124,000, but the non-financial impact was more troubling. A military engineer testing one of these machine gun parts saw several deficiencies. These deficiencies could have harmed our war fighters, not just in protecting this nation, but also their lives.
▶ 0:28:28Our 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 as it was correctly manufactured. This subcommittee is continuing to have conversations with not only GAO but also those within the defense department including the inspector general community. We are there to make sure that we work with them.
▶ 0:28:58We want to make sure agencies understand their responsibility to make sure taxpayer money is wisely spent. One of our first hearings this Congress was focused on preventing fraud rather than chasing fraudsters who've already run away with taxpayers hard-earned dollars.
▶ 0:29:17Shining a light on contacting contracting fraud within DoD and highlighting some common sense strategies that can prevent this fraud is also what this conversation is about today. Eliminating the amount of fraud within DoD is a hard task, but we are up to that.
▶ 0:29:39And I hope that this conversation as well as those that we're giving to the the two witnesses that we have today where 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. Time must be on our side at this time.
▶ 0:30:08Uh I would like to yield to the distinguished rank member, Mr. Infume, uh for any opening statement he'd like to make. And I'm delighted that you're here. And good morning. We made a determination, as I told our witnesses yesterday, that Mr. Infume and your side, the Democratic Party, intends to forthrightly address this issue, come up with real answers, and we're going to work together on this.
▶ 0:30:38The gentleman's Thank you very much uh Mr. Chairman. Thank you for your remarks also. And you know working together is something that we on this side of the aisle look forward to particularly when we are able to discern as we have been a great deal of problems with the department of defense in this case. Uh but thank you.
▶ 0:31:00I want to say good morning to you and to uh our witnesses and to everyone else who's here in the the meeting room as well as my my colleagues who've taken time to be here today. All of this comes against a backdrop of seven straight failed audits by the def department of defense which is really hard to fathom.
▶ 0:31:21Some of you may be hearing this for the first time, but seven straight audits deserves an exclamation point behind it because when we're dealing with the largest appropriation within our nation's budget, uh we deserve to be served correctly. Oversight of the public purse, it really is not a partisan talking point.
▶ 0:31:43It is indeed a constitutional promise that we make to every taxpayer and to every service member who wears the uniform. No federal agency, as I indicated, spends more on contracts than the Department of Defense. In fiscal year 2023, it obligated roughly billion, well over half of all contract dollars.
▶ 0:32:10And the current continuing resolution boosts defense discretionary spending to $892 billion. It's kind of hard to get your arms around a number like that, but that is the case. 892 billion.
▶ 0:32:26When a balance sheet is obviously that large, even a 1% error drains nearly $9 billion from our troops, our readiness, and our Yet, the Government Accounting Office still places DoD's business system on a fraud risk management of, as the chairman said earlier, a high risk list, confirming that at least $10 billion in fraudulent payments uh have gone out since
▶ 0:32:572017 and then further warning us that the full extent is far higher than that. Go's message is really rather blunt. Until senior leadership sustains a commitment to every defense dollar, all defense dollars remain at risk.
▶ 0:33:17The leadership gap should concern this committee, contracting officers across the services uh and others because although there are many that do historic or heroic, I should say work, they need clear direction from the top. And right now that is not where they are essentially getting it.
▶ 0:33:37Congress must therefore hold DoD and all of its contractors accountable when fraud erodess readiness, when it squeezes small businesses, and when it undermines the public trust.
▶ 0:33:50Disturbingly, the Trump administration has moved us in the wrong direction on this matter because within days of taking office, it fired the DoD Inspector General, the department's chief watchdog, and has since proposed rolling back key acquisition safeguards. You know, speed has its virtues. I don't deny that. But dismantling guard rails and silencing oversight is not efficiency.
▶ 0:34:21It is an engraved engraved invitation to fraud. And so we as we look at DoD's progress today, I think that our focus ought to be three-fold. Number one, drive leadership commitment through every aspect of the agency. Fraud risk management cannot be relegated to the back office.
▶ 0:34:45Secretary Hgse and several secretaries who serve with him must own it, resource it, and insist on measurable results. Number two, modernize the prevention tools. GAO has found that DoD still lacks the real time analyt analytics needed to expose phantom vendors and collusive bidding. So data must be able to talk to data before the money walks out of the door.
▶ 0:35:14I'm not suggesting that's how you fail seven straight audits, but it's certainly not the way that you pass them. Number three, enforce accountability with consequences. When fraud occurs, suspension, disparment, and criminal action must be swift, public, and proportional. Anything less rewards the bad actors and punishes all the honest ones.
▶ 0:35:40Colleagues, today every fraudulent invoice paid is a weapon system delayed, a housing unit deferred, or a veterans clinic under staffed. When we achieve and maintain the strongest military on earth, we have a clear obligation to make sure that every defense dollar works as hard as it possibly can for the men and women it is meant to serve.
▶ 0:36:10So, I look forward to the testimony of our witnesses. I look forward to working with Chairman Sessions and my other colleagues on both sides of the aisle here to site to try to find a way how do we translate all of their insights into some sort of uh concrete reform because reform is clearly clearly needed with genuine leadership commitment and a vigilant congressional oversight ongoing effort.
▶ 0:36:32I think we can safeguard or eventually we'll be able to safeguard procurement, protect the taxpayers's investment and then of course strengthen our national defense. Without it, we do a disservice to the American taxpayer. Without it, we do a disservice to the men and women who put on a uniform.
▶ 0:36:52And without it, we give up the obligation that we have to make sure that waste, fraud, abuse, breaking the law, finding ways to skirt the process, and then ultimately making a profit off the system. That will be with us forever if we do not act and act swiftly. So, I want to yield back and again thank the chairman.
▶ 0:37:16I want to thank uh the members, present, and all those who are here out of a genuine concern to find a way to straighten out what has been a very nasty, ugly problem affecting our Department of Defense. I yield back. Mr. Infu may, thank you very much. uh and not just for your conversation but remembering and seeing as you look up today.
▶ 0:37:39We have many young students that are here that are here for a summer to learn not just about what might be uh democracy and the role of Congress but also to understand that Congress too has not just a role to play but an important role to play.
▶ 0:37:57And I it's my hope that they see that we have two people, not just Republicans and Democrats, but two people who are equally committed to the needs to make sure that their future is brighter and better also because they while they may be voters now, they soon will be taking our place and want to tell the story about their future. And it does reside around the national security issues of the United States military.
▶ 0:38:25and I want to thank you very much. I would ask unanimous consent that Congressman Andy Biggs from Arizona be waved on today's hearing for the purpose of asking questions. Without objection, so ordered. I also note that today we have our young chairman James Comr, the chairman of the whole committee on government reform. Mr. Chairman, we're delighted that you've taken time to join us. Thank you, and I appreciate the young comment.
▶ 0:38:55I really appreciate that, Mr. Chairman. Well, you earned it there about that. I'm pleased today to welcome our witnesses, Kelly P. Mayo and Sto Bagdoyan. Mr. Mayo is deputy inspector general for investigations at the Department of Defense's Office of Inspector General. Mr.
▶ 0:39:18Bagdoyan is the director of for forensic audits and investigative services at the United States GAO government accounting office. We look forward to having you join us today. And when we met yesterday, I assured you that your comments, your insight, and the things which you would bring to the table are not aimed at anything other resolution information to where we're able to work with you.
▶ 0:39:48you and I also assured you that you would come before a subcommittee that while we have deep issues and problems, it is shared by both of us, not only on a bipartisan basis, but in the best interest of the war fighter uh who represents the the husbands and wives of men and women who want their children uh to be taken care of properly uh as a fighting force to protect America.
▶ 0:40:16So pursuant to committee rule 9G, the witnesses are asked to please stand and to raise their right hand to be sworn in. Do you solemnly swear or affirm that the testimony that you're about to give today is the truth, the whole truth, and nothing but the truth. So help you God. Let the record reflect that the witnesses have both answered in the affirmative. Both of you may take your seat. And thank you very much.
▶ 0:40:45I now would like to recognize the witnesses for their opening statement. Let me remind the witnesses that we have read your written statement and it will appear in full in the hearing record. Uh as we spoke about yesterday, we are going to limit your oral statement to five minutes, but we want you to make your points if you sneak over that.
▶ 0:41:06but certainly in questions to from the members that come here, we'd like for you to give full and complete thoughts that you have that enable us to better understand the role that you play. As a reminder, please push the button on the microphone in front of you so that the members can hear you and when you begin to speak, the light in front of you will green. You will also see after four minutes or so, the light will turn yellow and then the red light will come on.
▶ 0:41:36And I encourage you to please make sure that your conversation with us fits not only within that time frame, but you're able to complete your work properly because we need to to use your time to help us in recognition of what we're trying to accomplish. I now recognize Mr. Mayo for his opening statement. The gentleman's recognized. Thank you, sir.
▶ 0:42:05Chairman Sessions, Ranking Member Afume, and members of the subcommittee, thank you for the opportunity to testify today regarding the important topic of procurement fraud within the Department of Defense. As the deputy inspector general for investigations, I lead the defense investigation. I lead the defense.
▶ 0:42:27We are the criminal investigative arm of the DoD's Office of Inspector General, which is mandated by Congress to oversight DoD programs and operations. In support of the DoD's broader independent oversight DCIS conducts criminal and civil investigations to ensure that resources meant for America's service members are not stolen, wasted, or compromised.
▶ 0:42:56My testimony today reflects the experience of hundreds of DCS special agents, analysts, and other talented professionals who are dedicated to exposing fraud and protecting the integrity of the US defense spending at home and abroad. My message for the subcommittee today is clear and simple. Investigating procurement fraud within the DoD is a top priority for DCIS.
▶ 0:43:26Fraud harms military readiness. It puts service members at risk and erodess the trust of the American taxpayers. That is why DCS has been aggressively holding frauders accountable since we were established more than 40 years ago. DCS defines fraud as any intentional act or scheme to obtain something of value from the DoD through false statements, deception, or misrepresentation.
▶ 0:43:53It can be perpetrated by individuals inside and outside of the government and by the private sector companies providing products and services to the DoD. DCS targets fraud that threatens national security, including product substitution, bid rigging, cyber security, and bri and domestic for domestic contractors.
▶ 0:44:21Our investigations routinely lead to criminal convictions, civil false claims act recoveries, and dearmments, returning billions of dollars to the government and preventing future losses. For example, in just the six-month period from October 24 to March 25, DCS investigations resulted in more than three billion dollars recovered for taxpayers.
▶ 0:44:47To date, DCS has 1,864 open investigations. We have in including investig open investigations including 700 400 478 related cases to of of procurement fraud. I cannot discuss any ongoing or open investigations during today's hearing uh to maintain the integrity of the investigative process. However, I can certainly talk about closed investigations.
▶ 0:45:16In conclusion, the procurement fraud is not a technical irregularity for the DoD. It's a strategic vulnerability that siphons taxpayers funds and undermines public trust. Ongoing engagement and support from the Congress are essential to reinforcing the DCIS mission and upholding our trust placed in us by the American people and those who we serve.
▶ 0:45:40We look forward to working with a continued partnership with the subcommittee to uphold the standards of our war fighters that our tax that our taxpayers expect. Thank you again for the opportunity to test to testify today. I will welcome your questions, but if I may, I have one minute left. I would like to say that I am incredibly honored to be here. I was a uh a bluecollar kid homeless for a while and this is this is a a privilege of a lifetime. Thank you very much, ladies and gentlemen.
▶ 0:46:11Mr. Mariel, thank you very much. And the gentleman yields back his time. I now would like to recognize Mr. Bagdoryan. Mr. Digned, you're recognized. Thank you. Um, Chairman Sessions, Ranking Member Infume, and members of the subcommittee, I'm pleased to discuss today GAO's extensive work on procurement fraud risk management at DoD. The president recently proposed a $1 trillion uh dollar fiscal year 2026 budget for the department.
▶ 0:46:40A substantial share of which is for procurement an operational area inherently at risk for fraud. In general, fraud risk in federal programs is a function of weak controls as well as high spending levels, sprawling scope and scale, and complex, often restrictive configurations. These causal factors are all present at in DoD activities making effective fraud risk management very challenging.
▶ 0:47:10In this regard, DoD faces significant financial and non-financial fraud risks which coupled with weak fraud risk management compromise the integrity of its programs resulting in operational readiness and national security impacts. An example from our reporting underscores such impacts.
▶ 0:47:31Namely, an ineligible foreign manufacturer through opaque ownership of US shell companies obtained contracts, accessed and exported sensitive military data, and produced non-conforming parts which resulted in the grounding of 47 fighter jet aircraft. My remarks today aggregate the results of three GAO reports since 2019 on DoD procurement fraud risk management.
▶ 0:48:00The addition in February 2025 of fraud risk management to the existing DoD financial management area on GAO's high-risisk list and recent related GAO testimony before the subcommittee. Against this backdrop, DoD asserted that fraud isn't a significant problem. challenged our adding fraud risk management to the high-risisk list and disagreed with key findings and more than half of our recommendations in our three reports.
▶ 0:48:30These recommendations are fundamental to effective fraud risk management. 13 of these recommendations including two designated as priority which means mustd do recommendations remain open. And though risks are immediate, DoD has repeatedly delayed implementation.
▶ 0:48:50Regrettably then, DoD's indifferent posture, including lack of timely action, suggests that fraud risk management isn't yet a top leadership priority. With a fargoing as context, I'll make two principal points about the state of fraud risk management at DoD.
▶ 0:49:09First, our analyses of about 2,700 adjudicated procurement fraud cases covering fiscal years 2015 to 2021 conclusively show that assertions to the contrary, notwithstanding, fraud and risk is indeed a problem at DoD. Second, DoD's capacity to manage fraud risks falls well short across multiple fundamentals.
▶ 0:49:36For example, the DoD anti-fraud strategy hasn't established clear roles, responsibilities, and authorities across components for fraud risk management, including the entity charged with leading this effort. Accordingly, this entity can't readily compel timely and comprehensive action by components.
▶ 0:49:58Data analytics activities to identify and assess fraud risks are essentially non-existent across components including investigative units missing a major opportunity to significantly enhance fraud risk management decisionmaking and action. I'll close by underscoring that managing fraud risks effectively is serious business as their multiple impacts are significant.
▶ 0:50:24Accordingly, for DoD to address such risks successfully and safeguard its assets, it must promptly do three vital things. First, acknowledge fraud risks are a problem rather than downplay their existence and significance significance. And second, det second, determine their extent, nature, and implications at the institutional as well as the component levels.
▶ 0:50:51And third, act decisively and timely as part of an integrated anti-fraud approach to fully implement all our recommendations and build and sustain an effective fraud risk capacity. Chairman Sessions, Ranking Member Infume, this concludes my remarks. I now welcome your questions. Thank you, Mr. Magnoy. Thank you very much. Gentleman yields back his time.
▶ 0:51:16I'm going to first go to our young uh chairman uh of the full committee, the gentleman from Kentucky, Mr. Comr. Sir, you're recognized. Thank you, Chairman Sessions. And I want to thank you and uh ranking member Infume for the work you do on this subcommittee. You all do it right. I I appreciate that. Uh my first question for both witnesses, I I assume you all uh will both agree that fraud is a problem at the Department of Def DoD, correct? Yes, sir.
▶ 0:51:46So, do you sir uh Mr. Magdalian, do you have an estimate of how much fraud there is at the Department of Defense? I do not, Mr. Chairman. Uh the numbers we have are based on what the Mr. Sessions mentioned in his opening remarks uh essentially uh confirmed fraud, which is tip massive, massive.
▶ 0:52:10and and and it's been mentioned several times the DoD the Pentagon continues to fail audits which is unacceptable but they continue to do that. Yeah. If I may add that what is confirmed is what's been detected, investigated and adjudicated. So we don't know what's been missed. Right. Well, let me ask both of you. Does the Department of Defense agree?
▶ 0:52:32I know that uh I think I know where Secretary Hedgepath is, but do the rank and file employees, bureaucrats, whatever you want to call them at the Department of Defense, do they agree that there's massive fraud in the Department of Defense? Mr. Mayo, don't know. I can speak to that broadly, sir. Um I think many of the people in the Pentagon do understand this.
▶ 0:52:56I've not discussed this with them, but I think that people in the the DoD, many of them have same with the same word. Yes, I would agree with Mr. Mayo. I can't speak to the rank and file in broad terms, but the people we are working with to implement our recommendations seem to have their their hearts and minds in the right place. Uh they do believe it is a problem that needs to be addressed, but uh in terms of personally verifying and vouching for that, I can't do that.
▶ 0:53:25So, what what advice do you all have for Congress for this specific subcommittee that's sincere? This subcommittee is is quality. Uh, everyone's sincere about wanting to eliminate wage, fraud, abuse, and mismanagement in the federal government. I think everyone knows the Department of Defense is the poster child for wage, fraud, abuse, and mismanagement in the federal government. Uh, we talk about it, but but nothing gets done.
▶ 0:53:52What advice would you all have real quick for uh this subcommittee and this Congress to actually get something done to rein in the excessive spending the the just the exuberant waste at the Pentagon. Mr. Mayo? Yes, sir. I think that we're doing it right now with with your help, with your substantive help, I think we can make some we can make some not not DCS but the government at large.
▶ 0:54:21Sir, yeah, I would agree with that. Sustained regular oversight is very important. Let me let me ask you this. Is it Congress's fault and we hear about Congress, you know, that that the Pentagon will will make a suggestion on a certain type of aircraft that maybe they don't need as many or they don't need them at all and and there a member of Congress that has a facility in their district will will change that and say, "No, we're going to order three times as many as we need." Is it Congress's fault? Who who do you lay the blame at?
▶ 0:54:51Is it Congress or the bureaucrats at the Department of Defense? Mr. Mayo, who who who someone has to be we have to blame someone. Someone's at fault for the way the Department of Defense continues to fail audits and continues to be uh, you know, efficient with taxpayer dollars. Is that our fault? Is that When I say our, I'm talking about Congresses from way way back, you know, not not Mr. Bert or myself or Mr.
▶ 0:55:21Bigs. We're we're relatively new here. But uh you want to blame me? Yeah. Well, no, no, no. You're you're one of the good guys, Mr. S. But what what who's who do you blame for this? I I wouldn't know, sir. It's I think it's a it's a a pervasive thing across the DoD and people. It's I think they're working hard, but and to get things done and uh a lot of these things are slipping through the cracks. I don't know. It's I don't think it's I don't think it's certainly not your fault. I don't think so at all.
▶ 0:55:50We uh this is something I've been here eight years and Mr. Biggs and I got here at the same time just it's not getting any better. I mean it gets worse and and I you know I I think that the good thing we have now with with President Trump with with uh you know the the overall objective of of Doge movement is we can't continue to spend $2 trillion a year more than we take in. We've got to tighten our belts.
▶ 0:56:20Uh Jamie Diamond talks about it. The bond market's concerned and we can't continue the success of spending and and we want a strong military. We want to support our troops, but we cannot continue to waste money. And I appreciate the the witnesses here today. I appreciate the the hearing, Mr. Chairman, and ranking member. Hopefully, we can come together in a bipartisan way to to solve uh this problem of excessiveness at the at the Department of Defense. I yield back. Gentlemen yields back. time.
▶ 0:56:47While the young chairman's here, I'd like to bend his ear for just a second on a bipartisan basis. We believe that what we're doing today is also to point out that the Department of Defense when they respond back to the investigations that have been done, the findings of fact and conclusions that the GAO and IG have presented to the management of DoD in writing,
▶ 0:57:17they come back and say they are non-compliant, which means they do not agree with the findings of professionals like the IG or And so while you are worried about and we are too what we spend we are more concerned that they ignore that fraud is present in this right and you will find that as a result of this hearing today Mr.
▶ 0:57:46Fume and I will be requesting you and the the ranking member of the of the committee join us in going to across the river to DoD to make sure that they understand that this is unacceptable and that they've got to understand there is fraud. Absolutely. Well, thank you all for what you're doing and appreciate this hearing and look forward to the rest of it. Mr. Chairman, thank you very much. Mr. Infume, thank you very much, Mr.
▶ 0:58:15Chairman, um I've got a couple of questions about GAO and their risk management. Uh if you don't mind, um Mr. Bdorian, in your view, and I I don't have a lot of time here, so if you can kind of quickly walk through these with me, what leadership actions would have the greatest immediate impact on lowering DoD's fraud risk profile? Yes.
▶ 0:58:41the the key action here is to make it the top priority for action and make sure that that translates down to the various levels, the various components that we've audited over over time. So, it has to come from the secretary to make sure that his staff are aware of that priority and start building a culture of fraud risk management. Without that, all the rest is not going to work. Yeah.
▶ 0:59:08And I think that's one of the clear things we're going to be communicating to Secretary Hex that it's got to start at the top and it's got to be sustained. Otherwise, not we'll be here eight years from now talking about 15 failed audits. Um, how would you characterize the current state of DoD's data integration for fraud detection? In other words, are we at the starting line, the halfway point, or near the finish line? uh being at the starting line would be a charitable way to describe it.
▶ 0:59:39They they're just not there. Uh the data are massive. They are difficult to work with. We spent months cleaning up uh the data. One of my colleagues in the audience did that as his full-time job for a long period of time before we could even analyze the data. So that needs to be looked at before they do any other work with data analy. Thank you for the characterizations.
▶ 1:00:03What specific uh analytics and capabilities related to analytics should DoD prioritize over the next 12 uh to 18 months to improve early detection of fraudulent activity? Early detection. Early detection of course make building a data analytics capacity the priority.
▶ 1:00:23then move on to the data themselves to clean them up to make them usable, make them reliable and analyzable, if that's a word, uh to make sure that the uh the the end result is And could you highlight two or three or four maybe um GAO recommendations that if implemented this year would deliver the biggest return on investment for
▶ 1:00:54Well to start with uh we expect the anti-fraud strategy uh from DoD uh towards the end of next month I believe that they have promised will include data analytics as a top priority. So that is a good starting point. Uh and then the second priority recommendation that I alluded to earlier involves doing thorough fraud risk assessments and uh responding to the results.
▶ 1:01:22Now giving me a piece of paper to close a recommendation is the beginning but they have to go out and operationalize what they've done otherwise it's not going to work. And and where do you see the greatest barriers? Is it budget? Is it culture? is a technology and when I say barriers I mean barriers to closing those recommendations.
▶ 1:01:41Uh well as as I as I believe the chairman mentioned earlier uh there was resistance from leadership uh to our reporting to our recommendations to the designation of the high-risk uh as part of financial management.
▶ 1:01:57So that seems to have softened over time because the people we're working with at DoD are trying to implement the recommendations and we expect some of their products to come through later this month and through next month. And do you and Mr. Mayo communicate with one another? We we met this week. Uh I expect that we will be in touch. Yes. Yeah, I think it's important.
▶ 1:02:22I mean, I sense his sincerity in yours, but unless there is some sort of communication here, you know, we're still taking baby steps instead of giant steps. I have one final question. Do you see any new emerging fraud schemes that perhaps are enabled by new technologies? In other words, how do we stay one step ahead of the bad guys who are finding ways through technology to evade capture?
▶ 1:02:49Unfortunately, the fraudsters are ahead of us in multiple agencies, programs, and so on. Uh the two most common schemes that we flagged through our analyses are false false claims and overcharging. Uh there's a whole slew of others, uh false bids and so on.
▶ 1:03:10So whatever analytics that DoD implements will have to be very uh tactically focused on those fraud schemes, but I can't speak to one being more prevalent than the other. Thank you very much, Mr. Chairman. I yield backs back his time. I'd now like to go to the gentleman who was here well early and who I know has uh other obligations, distinguished gentleman from Arizona, Mr. Biggs, you're now recognized, sir. Thank Thank you, Mr. Chairman.
▶ 1:03:37and I thank uh thank you and the ranking member for this hearing today and thank you Mr. Mayor Mr. Begoian for being here. Um the DoD spends a ton of money. We've talked about that. Uh yet we're still seeing fraud, overbuilding, fake shell companies, bad parts, and the system looks the other way too often. And so I want to highlight something, Mr. Beoyan, real quickly that you mentioned.
▶ 1:04:00you talked about uh 477 aircraft had to be grounded due to non-conforming parts um provided from a foreign company through essentially US cutouts. Um and this gets to one of the things you talked about is how you get there. You got to get them to acknowledge there's fraud. Then you have to uh extract the nature and the uh implications of that fraud. Now the implications of this fraud looks to me and I want to ask this question.
▶ 1:04:28Is there any evidence that these non-conforming parts were a malevolent attempt to actually buy some bad actor to ground our planes or cause us problems or was this simply a scam? Uh and they didn't care what happened. They just wanted the money. That's a great question. Is your mic on? Apologies for that. Yeah. Uh yeah, we we did come up with uh some some uh detailed information on that particular case.
▶ 1:04:57Uh, let me scurry through and see what I can detect. But I don't believe there was any malevolent intent. These parts, uh, they're wing parts, if you will. total cost of the fraud about $180,000 but the grounding of the aircraft obviously was a national security impact but it was a very small part made in India from a non-eligible manufacturer through two shell companies which were basically a
▶ 1:05:28single person operating out of their residence. Yeah. So this is this is the kind of implication that fraud has on our national security because you ground the planes over a very small simple contract and a scam that should have been caught. And we've been dealing with this type of thing for decades. In fact, I appreciate Mr.
▶ 1:05:48Mfume showing the uh his chart, but as far as my research has shown me is I've never seen that the Pentagon ever has actually survived and passed a full comprehensive audit. In fact, I've actually heard them say they're too big to be audited lightweight way. And so, uh, I want to focus on something fairly straightforward here. What makes a contract high-risisk? What red flags do you see again and again? And most importantly, how do we stop it before the money's already out the door? So, it's not about politics.
▶ 1:06:18This is a bipartisan issue. U, we've had this problem for decades under both brands. So, um, we just want to make sure the system works. So, my questions for you, I'll begin with Mr. Mr. Magdo and then go Mr. Mayo. Uh I'm guessing you know that some contracts are more prone to fraud than others and what are the common traits that tend to show up in a higher risk contract?
▶ 1:06:38Yeah, I would say based on what I have seen uh the big ticket items seem to be more prone and also the subcontractor universe is uh even more susceptible than the primes basically. You know there's only a handful of prime contractors. They integrate many many others. So the subcontracting may be an area of particular interest. Mr. Mr. Mayo, same question for you. Yes, sir. And I would I would agree with my colleague.
▶ 1:07:08Really, it's about subcontractors is a significant issue because we don't see we don't see down there. We don't see underneath the contract. So, we don't see what's going with the contractors. So, so once once those types of high-risisk contracts are identified, what's the best way to put a watchdog on them and make sure that you're not going to be uh prone or or actually defrauded? Well, our audit component does a lot of audits in that regard, but that's post. I'm talking about pre.
▶ 1:07:37So, you've identified certain kind of contract is really a problem. How do you get in there and and actually um uh put down guard rails? I mean, that Mr. Infin talked about guard rails. Yes sir. That wouldn't be our role as the investigative agency. So I would say a robust due diligence process past history for example uh should be looked at and if there is a risk of the contractor of the contractor, right? Forget the contract itself. Yeah. It's the player that needs the attention first and foremost.
▶ 1:08:07Right. Okay. And and so that leads to some kind of a weird dichotomy here. Um in Mr. Mayo's reporting. Uh, you've got a massive contractor, defense contractor, and I hate to even bring it up because they're they're located in my home state. Um, but Rathon in 2024 paid $950 million to resolve allegations involving defective pricing, bribery, and export control violations. Is that accurate, Mr. Mayo? That is, sir.
▶ 1:08:36That's a billion dollars that one company can pay afford to pay back after uh some very egregious and serious um uh allegations. And I'm I'm I say I'm out of time. I do have a Mr. Chairman submission for the record um entitled without objection. Thank you very much. And with that, thank you for letting me be here. Gentlemen, seek additional time. Mr. Chairman, I would I I could probably go all day on this.
▶ 1:09:03I've got a whole truckload of questions, but I think I'll submit them in writing to Mr. May Bdo and Mr. Mayo that way. Um, and then I'll share with the committee the the responses. We we respect that and appreciate your line of questioning. A gentleman yields back his time. The distinguished gentlewoman from this the District of Columbia, Miss Norton is recognized. Thank you, Mr. Chairman.
▶ 1:09:26For over three uh GAO has maintained a high risk list uh to identify critical government programs and services most vulnerable to waste, fraud, and abuse or most in need of transformation. GAO added financial management at the Department of Defense to that list in 1995 and it has remained on it ever since.
▶ 1:09:56I have grave concerns that the chaos we chaos we are seeing at the Pentagon under the Trump administration is threatening the progress we have made uh toward a clean audit. Secretary uh has proven time and again that he cannot be trusted to lead the department or with any national security.
▶ 1:10:21The Trump administration has also purged independent expert and nonpartisan leaders at DoD, including the inspector general. President Trump and the Department of Government Efficiency are also uh decimating the federal workforce which serves and protects Americans and DoD is not exempt from this purge.
▶ 1:10:48Secretary Hedge Hedges has announced plans to reduce DoD civilian personnel by five to eight% which will result in tens of thousands of jobs being cut from the department. Mr. Mayo, uh would you agree that having adequate staffing is important for carrying out your office's important work? Yes, ma'am. I would agree with that. Mr.
▶ 1:11:18Mayo, have you had any staffers accept the deferred resignation plan that the administration offered? Yes, ma'am. We did have some people that left. Uh Mr. uh Mag Mr. Magdion, uh has DoD's speed and responsiveness improved in recent months? Speed and responsiveness to recommendations, for example.
▶ 1:11:47Uh not sure I understand your question fully. Apologies. It's like DoD responding to requests. Yes, we have seen some improvement in that regard. Um things are still delayed. Uh but they were delayed over the five or six years of our of our auditing. So, uh, it's been a pervasive problem.
▶ 1:12:12Well, DoD's high-risisk challenges, especially related to financial management, are pervasive, complex, and intertwined. The department needs skilled, and committed public servants to effectively address those challenges. In a hearing this committee held last fall on this topic, GAO testified about the importance of the quote tone at the top close quote in reducing fraud.
▶ 1:12:42Mr. McDall, uh, what does GAO mean by tone at the top and what is important to financial management at DoD? Yes. Tone at the top comes from the top leader in this case would be the Secretary of Defense to make fraud risk management, financial auditability one of his top priorities and make sure that his subordinates realize that that is a top priority and then
▶ 1:13:12working from that top level to start instilling a culture of fraud, risk management and auditability among other priorities. of course uh but unless it as I mentioned to Mr. Mfume previously unless it comes from the very top it's not going to happen.
▶ 1:13:32I hope this department will hear our uh and take steps necessary to safeguard taxpayer money and our national security and I yield back. Gentlewoman yields back her time. The gentleman from Tennessee, my friend Mr. Burch, you're recognized, sir. Thank you, Mr. Chair. Um, Mr. Mayo, I share your your enthusiasm when I uh I look back on my life.
▶ 1:14:01I didn't have anything like yours. I had two wonderful parents. They're both in heaven and and I they were the best influence in my life and a lot of my buddies' life, but I still every day I I'm up here. I think it's just an incredible gift. More people uh played pro foot pro baseball than have been in Congress. So, thank you for what you said, brother. Um, you know, I think fraud is just a part of the military heritage almost.
▶ 1:14:28My daddy was in the Pacific, the Second World War, and you know, they know they're going to be in the tropics and it's going to be raining and it's going to be hot and they had this old crappy uh rain gear didn't didn't keep you dry and it was just a nightmare. They never fixed it. They had guns that didn't work correctly. They look like they made by a committee in Washington, not by somebody in combat. Um, you know, and currently we're building aircraft carriers. And everybody will tell you it's not going to be my daddy's war.
▶ 1:14:58The Japanese aren't going to bomb Pearl Harbor. 6 to 8 months later, Americans might is not going to roll out across the Pacific and and destroy a very evil enemy. Um, and if you go on sites like Unusual Whales, you'll see that uh you'll see the abuse that goes on by members of Congress, and it's never going to change. One of the things that would change if we would uh in uh eliminate individual stock trades, but that's not going to happen.
▶ 1:15:27We'll come up with a good bipartisan bill. We're working on it, me and Priol and AOC and Chip Roy and some others. Very bipartisan, but I have no doubt that it will pass. I mean, no, there's no inclination that we'll pass because we don't have the guts because this town is crooked as a dog's leg and it's it's part of our heritage and that's disgust Um, but saying all that, I guess you're my therapist today, Mr. Mayo.
▶ 1:15:54Um, Department of Defense leadership said that you do not believe there's significant fraud at DoD based on your work. Do you agree with that? I disagree. Yes, sir. I disagree with that. You disagree with that?
▶ 1:16:09On what basis do you our work shows that there's a lot of in my statement there's significant procurement fraud across the panopoly of the of the DoD okay overseas and so we have a problem. Yeah. I think part of the problem is we've got a lot of war pimps at the Pentagon and they're not the ones going to go be dying.
▶ 1:16:33It's going to be people like my little girl and and some of the kids in this audience that are going to die in some of these worthless wars we're in. Um, how much do you think the Department of Defense loses every year to fraud? I couldn't say, sir. I really couldn't. I could probably ask people smarter than me and my staff, but I can get back to you on that. Well, see, that's part of the problem.
▶ 1:16:54They send you two guys in here and I expect y'all are pretty honest guys and uh give you the you can't answer the dad ggum questions and to me that that just shows an inherent arrogance that we have at the Pentagon. They haven't passed eight audits. They haven't even attempted to finish the dad gum audits and yet they come up here and we give them more money. Again our greed old men make decisions and young men are going to die.
▶ 1:17:20Um, what fraud practice in the Department of Defense are we especially vulnerable to? If either one of y'all want to take a shot at that, be all The procurement fraud is especially especially the one that we see the most of and we and we target the most because that's the big dollar projects.
▶ 1:17:47So that's that'd be my my question to answer to that. It just seems like we are letting these people steal from us. I just don't think that'll ever stop. Um and I can remember in a meeting one time they started pointing out on aircraft carriers which we know are antiquated. We're not going to need them in the future. All the people tell us that are in the node tell us you're not going to need them.
▶ 1:18:09You're going to have a half a trillion dollars worth of apparatus sitting on the deck some some uneducated country is going to send a $100,000 missile and sink it all and you can put a million dollars worth of drones up in the air and knock down a half trillion dollar jet. And yet we are continued down that path. And part of the problem is as they did in the meeting, they started pointing out in people's district what apparatus was made in their district.
▶ 1:18:37And even though we're going to mothball this stuff, we're going to put it on a shelf. People are going without in this country. Yet the war pimps still tend to profit and we allow it. I just don't think it's ever going to change. I think people up here are sincere. I would say um our chairman and ranking member in Fumi are some of the most honest, honorable people I've ever served with. But I I think this is the type of committee they just pat us on the head and tell us, "Oh, you're doing a great job." And then they go, "The corruption continues." And it's both dad gum parties.
▶ 1:19:07We ought to be ashamed of ourselves. Thank you, Mr. gentleman yields back his time. I I would like to see if I could try and begin to answer one of the questions that is in testimony. From 2017 to 2024, DoD reported $10.8 billion dollar in confirmed fraud.
▶ 1:19:30The reason why they do not know that exact number is because DoD fails to even put the hooks in place to discover more and we do not have enough people on the front line stopping it. But $10.8 billion dollar is very significant. I know I appreciate the gentleman's not only line of questioning but holding accountable the significant amount of that. Mr. Chairman, we just don't have the guts to do anything about it.
▶ 1:19:58we're going to sit up here and make platitudes, not you all, but other members of Congress will, and then they'll walk out and wink and nod to the K Street lobbyist who profit from this. So, thank you, Mr. Chairman. Thank the gentleman very much. The distinguished gentleman from Florida, Mr. Frost, you're recognized. Thank you so much, Mr. Chairman. And um I agree with the comments we we just heard from uh u my colleague, Representative Burchett.
▶ 1:20:25Um, and hopefully as years go on and more people come to the institution, we actually get the guts to deal with this waste, fire, and abuse in the DoD and with our military contractors that, yes, are stealing from us. Um, and I think it's despicable that so much of our taxpayer money goes to these companies. And yet, I'll tell you one place I was last week.
▶ 1:20:48I was on the picket line with the UAW in my district in front of Loheed Martin because they're not paying the assembly line workers and the people creating all this stuff enough money to be able to pay their damn rent in Orlando. Mr. Mayo, but before we can even talk about, you know, having the courage at some, you know, time and place we're unsure of, we got to talk about what's going on right now. Uh, Mr.
▶ 1:21:14Mayo, this past week, the Pentagon announced that Doge had been authorized to review most unclassified Pentagon contracts to root out inefficiency. Um, is Doge answering to you or the DoD in this effort? We haven't talked to Doge at all. You haven't spoken with Doge at all? No, they've not. When was your office consulted about Doge's input into the contract review process? I can't answer that, sir. I don't know. You don't know?
▶ 1:21:40Because to me, you know, if your job is to find waste, fraud, and abuse, and then you have Doge, which is supposedly supposed to be looking for waste, fraud, and abuse, would you agree that the only efficient way to go about that would be to work together? Yes, sir. Perhaps. In the contract review process run by the DODIG, how would you typically prevent political Uh, please restate that.
▶ 1:22:07In the contract review process that the IG's office runs in DoD, how do you typically go about preventing political interference? I have I have no answer for that because I'm that's that's not part of what we do, but I can certainly get back to you on that and uh get some. So, do you have any idea of how your office is ensuring that Doge has the strongest controls possible to prevent this kind of abuse that we're talking about? Well, Doge I don't know because Doge hasn't come to the IG at this point. We have not seen anybody from Doge.
▶ 1:22:36Yeah, I mean under Doge, it feels like efficiency and anti-fraud have been actively defunded, deregulated, dismantled, and disregarded. And this is part of the problem is we can sit up here and talk about work in a bipartisan way all we want. And I think that's really important.
▶ 1:22:51In fact, the chair of the committee, Comr, said during his comments, quote, "DODD is the poster child for waste, fraud, and abuse, but voted yes on a budget that would give the Department of Defense more money than they've ever had, over a trillion dollars." So, and then on the other hand, they talk about waste, fraud, and abuse in food assistance, in Medicaid, and slash that to the tunes of hundreds of billions of dollars.
▶ 1:23:21That means they're taking more of an aggressive approach on working families and people who def depend on some of these services for their health care and to feed their children than they will with the military contractors. That's why and you know Burchett's being really nice about it. But that's part of the reason why we're we're not going to handle this. We can sit up here and talk to you all day. The fact of the matter is right in front of us the majority is moving through a budget that would give the Department of Defense the most money they've ever had.
▶ 1:23:49while they are quote unquote the poster child for waste, fraud, and abuse. Americans need to know which Pentagon dollars are going to service members in national defense and which are lining the pockets of unethical contractors, over 50% of the DoD budget. According to the recent GAO testimony before this committee, the DoD thinks there's very little fraud in their procurement. Mr. uh Bagdoan, do you agree with the DoD's assessment? I do not. And Mr.
▶ 1:24:19Mayo, do you agree um with the DoD's assessment that there's little fraud? I do not. From where you sit, have the Doge staff firings and reduction of resources from the IG's office to other offices, has this helped you investigate fraud cases? Um, no. Has it hurt? I think we're doing I think we're doing the same thing we've always done.
▶ 1:24:47So, We we continue to just do run cases, run investigations like we've done and uh we just do what we're supposed to do and I don't think it's impacted us as a investigative agency. All right. Thank you. Um I' I've been watching the limited progress towards getting DoD to be able to pass a financial audit.
▶ 1:25:08The Marine Corps recently explained that the personnel cuts will likely erase the progress they've made when last year they became the first of our service branches to be able to pass a financial audit. Um I don't know what the path we're on is right now. I think it's hurting these efforts.
▶ 1:25:23Uh my my hope is that we'll be able to take this seriously uh moving ahead and not just put it in our sites food assistance and Medicaid when it comes to cutting budgets because of waste per perceived waste fire and abuse but look at the biggest budget item that we have and the poster child of waste fire and abuse as said by our our chairman of the full committee the department of defense. Thank you. I yield back. Jim yields back his time. Thank you very much.
▶ 1:25:50the distinguished young chairman who sits on this committee and who has distinguished service to the United States Congress. Mrs. Fox is recognized. Dr. Fox is recognized. Thank you, Mr. Chairman, for your distinguished service. Um, my question is for both of our witnesses. I'll start Mr. Bagdan. Uh, you can answer first.
▶ 1:26:17We can all agree we must hold bad actors accountable for poor performance and fraud. Federal agencies, including DoD, may suspend or disbar contractors for sustained poor performance or serious lack of business honesty or integrity. Suspended or debarred entities are prohibited from entering into new contracts with federal agencies with suspensions lasting no more than 12 months and debarments usually lasting three years.
▶ 1:26:47According to an industry study, there has been a significant decline in suspensions and debarments in recent years. Do you believe that instances of contractor poor performance and dishonesty are actually declining or are they being reported less often? That's a good question. I'm glad you asked it. Uh Dr. Fox, I will have to get back to you on this.
▶ 1:27:14This is beyond my area of expertise, but we do have uh people at GAO who may be able to provide an answer for you if I I do want an answer. Absolutely. Mr. Mayo, do you have anything to add to that? Uh, I I it doesn't it hasn't impacted us and so I I but I Okay, I think you're probably correct. Okay, Mr.
▶ 1:27:43Bag you on a GAO report uh from early 2024 notes that data analytics can help inform fraud mis risk management and are a significant tool for helping agencies transition from a costly pay and chase model to an approach that is more focused on fraud prevention.
▶ 1:28:03While the DoD's risk fraud risk management strategy refers generally to data analytics, it does not establish as a specific fraud risk management control activity. In your opinion, is this a missed opportunity for the department to root out fraud and what benefits and cost savings could be achieved if DoD made greater use of data analytics? Sure. Thank you again for your question. It's a it's a very good question. and it's a timely one.
▶ 1:28:33Uh as I mentioned earlier in response to another member's question, we do expect an updated anti-fraud risk uh anti-fraud strategy uh later next month and it's our understanding that DoD will make data analytics an explicit requirement uh in that strategy. Of course, that remains to be seen. uh we will give it a very good scrub to make sure that whatever DoD is proposing to do uh is responsive to our recommendation.
▶ 1:29:03But the key point is if they implement the recommendation on paper, they send me something over to look uh and review that's the start. Then they have to go operationalize that and and achieve results. So having a requirement for data analytics uh is not the be is not the end of the story. I understand that.
▶ 1:29:27Well, what do you think is the biggest obstacle for DoD identifying cases of fraud or abuse before they occur is that lack of having analytics. That is a significant part of it. Also, it's the commitment to look. If you don't acknowledge you have fraud, then you're not really going to bother to have controls in place to figure it out. Um, are you aware of other federal agencies doing a great a a good job fighting procurement fraud?
▶ 1:29:56And if you do, what lessons can we learn from those examples? Sure. Uh unfortunately I've been doing fraud risk management work for about 11 years now at GAO and many agencies big uh intermediate and small struggle with this but one of the ones that we have pointed out as being a success story is the export import bank of the United States.
▶ 1:30:23They started a tone at the top, made it a priority and then took all the steps necessary to implement uh uh fraud risk management capacity. Uh we are in the process of starting a mandated review of where they are. Uh and we should be reporting on that uh sometime next year. So we will go back and make sure that what what they did put in place uh remains Thank you, Mr. Chairman. I think what um uh Mr.
▶ 1:30:52Baguan especially has pointed out is that there there has to be uh the willingness uh to look for fraud first of all and there's a need I think for us as an oversight committee to stay on top of this issue and to push for that.
▶ 1:31:12You know, it's really, really sad that so many people who work for the federal government do not understand that it's the hardworking taxpayers who provide the funds for these programs and that all of us deserve them to have that attitude where they want to save every penny. I have that attitude. The people in my office have that attitude and some way or another, we have to infuse the entire federal government with that attitude. Thank you for your indulgence, Mr.
▶ 1:31:42Chairman. Gentle gentleoman yields back to to clarify a little bit of what you've spoken about which I think is on point and that was yesterday when I met with both these gentlemen separately. I asked the question that was asked by Mr. Randall.
▶ 1:31:59And that essentially was, "Do you believe that there is a problem?" And both of these gentlemen virtually leapt out of their chair in violent uh agreement that there is a problem and we came to a quick resolution. I knew where they stood. Thank you very much. We next would move to the gentleoman from Washington.
▶ 1:32:24Miss Randall, you're Thank you so much um chairman and you know I um I'm so grateful for our witnesses for being here and I just want start with additional grounding and gratitude for my constituents nearly 27,000 of whom are federal employees working for the DoD who each individually do want
▶ 1:32:55to deliver the best results possible, know they're using taxpayer dollars and are fighting to deliver for the mission. Often with parts that they are um you know responsible for peacemealing together using old equipment, scrapping um naval vessels in order to you know use every piece possible to deliver results for the mission.
▶ 1:33:23So, um I do believe that we have we have work to do to ensure that the Department of Defense is accountable and um is able to pass an audit because that is important and that's our oversight responsibility. But, um we have to make sure that the folks on the ground doing the work, delivering these results for mission readiness have all of the resources that they need in order to um meet the mission.
▶ 1:33:52Naval Base Kids AppApp and Putan Naval Shipyard are the two of the installations in my district and I've recently met with the superintendent at these military installation and they have voiced some important reasonable steps that we should implement in order to root out fraud and improve procurement and contracting and operations.
▶ 1:34:14And but there are steps that should be done not with a chainsaw but with tactical uh a tactical approach that we're not currently seeing with the Doge efforts um to slash a budget and and infuse additional uh dollars into Department of Defense without real thought to how we deliver these mission critical efforts. Um Mr. Mr.
▶ 1:34:40Bdoyan, can you discuss instances of counterfeit or substandard equipment that may have compromised the safety of our service members? Sure. Thank you for your question. Uh I will refer back to the example that I cited in my opening remarks. Uh this occurred about 15 years ago.
▶ 1:35:01uh it took a couple of years to investigate given the complexity of the scheme but essentially it involved two shell companies co-owned by a company in India. Um the shell companies obtained and exported plans and schematics uh of uh military equipment in this case uh jet fighters and the wing part for the F-15 fighter aircraft.
▶ 1:35:28That's what the the uh the type of plane involved here is uh was defective because it was not conforming to what the contract required. So whether it was poor workmanship or some other uh factor contributing to that, but it did result in the grounding of 47 aircraft over a period of time.
▶ 1:35:50And it involved not a lot of cost, $180,000 if I recall correctly, but I'd be happy to look into some more details and and send them over to you if you like. Sure. Thank you. I I would appreciate reviewing that. I also want to um bring up another example. In August of 2024, OAL USA, uh, ship builder for the Navy, pleaded guilty to a scheme involving faulty butterfly valves used in ships.
▶ 1:36:17And OAL charged the Navy for militarygrade valves, but failed to actually test the valves to make sure that they reach the proper safety and operational standards. These faulty valves could potentially lead to leaks in a ship's hole and OEL's actions put the individuals of our military at grave risk. And these, you know, we are talking about are two examples and I'm sure they are not the only two. Mr.
▶ 1:36:45Mayo, what proactive measures does your office take? Um and I know you've spoken to, you know, reference how your office is not um responsible for creating sort of fraud detection policies or procedures. That's not your work. Your job is to investigate claims.
▶ 1:37:06But have you made any proactive recommendations um to DoD for ways that they might address fraudulent criminal activities by contractors or vendors? I've not talked to DoD, but I'm I really appreciate you asking that question because I have a good answer. Uh in 2017, I came on board in 2016.
▶ 1:37:292017, I saw the need for data analytics and um in the in the in the succeeding years, we now have an organic debt data an analysis that we utilize. It's not predictive of crime, but it has it has it has tools that we can help with our investigations and that's organic to DCIS. So, um I wanted to highlight that for the for the for the people here.
▶ 1:37:58So and that's what so we do have that capability and uh we have some very very smart people that do these things and the IG has a data their capa capacity also and they work with us seamlessly to deal with these cap criminal Thank you Mr. Chairman. I yield back my time. Gentleoman yields back her time. Thank you for much for the line of questioning.
▶ 1:38:26It's most instructive uh for people who also are in the room who have the same expectation that you do corresponding with Mr. Infume and myself. We next go to distinguished gentleman from Denton, Texas. The gentleman is Mr. Gills recognized. Thank you, Mr. Chairman, and thank you for holding this hearing. And I'd like to also say thank you to the witnesses for taking the time and coming here. Uh Mr. Bagdo, a I'll start with you.
▶ 1:38:55A recent report by the GAO found that for fiscal years 2017 through 2024, DoD reported about 10.8 billion dollars in confirmed fraud. The report went on to say, quote, "The full extent of fraud affecting DoD is not known, but is potentially significant." Do you have a monetary estimate of the fraud that takes place annually within the DoD, perhaps beyond that number? I do not.
▶ 1:39:21And actually the the figure you quoted is for all fraud around DoD, not just procurement. The recovered amount that uh is about 7 billion over a number of years is for procurement. So those are two different sets of numbers. Plus for the for the confirmed fraud, uh we did notice and I believe the IG may have flagged this as well.
▶ 1:39:45Uh that DoD reported the same figure, $2.4 4 billion for two consecutive fiscal years. So that raises some questions about the reliability of what's been reported. I believe in the past the OIG has questioned the process of arriving at those types of numbers. So I would urge some caution uh in using those numbers, but they do represent what is basically known through adjudication.
▶ 1:40:14So they have to be detected first, investigated, then adjudicated. So we have no idea what is being missed. If if you were to guess, would you guess that total fraud at the DoD is higher than that number? I would suspect it is. Yes. And how many open recommendations issued by the GAO are there that would improve financial management within the DoD? for financial management.
▶ 1:40:39I will have to get back to you on fraud risk management based on the three reports that I've been responsible over the last six years or so. We still have a 13 uh open recommendations. We are expecting responses from DoD as I mentioned before uh throughout June and into next uh next month. We just sent over the list of priority recommendations to uh to the Secretary of Defense, Mr.
▶ 1:41:07Hexth, uh for his personal attention. And so that letter will be made public uh early next next week. Got it. But either way, it's a substantial number. It is a substantial number. The risks are immediate. So delaying implementation exacerbates that risk. Why why do you think they have delayed implementation and and how long should it take for for the DoD to implement some of the recommendations that have been given to them?
▶ 1:41:36Yeah, to be fair, it does take time to do this and to do it right, but we have encountered pretty significant delays I think over time that may reflect lack of attention, lack of urgency, lack of priority. Uh that is speculative on my part, but it is consistent with what we've encountered with other agencies. Got it. Thank you. And Mr. Mayo, a couple questions for you.
▶ 1:42:00The DoD Inspector General has identified 17 scope limiting weaknesses that are significant roadblocks to the DoD's clean audit opinion goal. What steps do you think the DoD can take or needs to take to obtain a clean audit by 2028? Sir, that's a great question and really outside my um my expertise, I would submit I can go back to the audit component and get some some uh data for you and and get back to you on that. Got it. Okay. Thank you.
▶ 1:42:30And with that, Mr. Chairman, I'll I'll yield back the remainder of my time. Gentleman yields back his time. Uh I'd like to, if I can, answer one of the uh questions that the distinguished gentleman asked because we have two witnesses who are trying to professionally represent not only themsel but their the departments GAO and the IG's.
▶ 1:42:54The bottom line is is that there's plenty of documentation that shows that DoD, at least over a period of several years, said it's not a problem. The things you bring to us is not a problem. We're not going to even take this conversation further. And so that is the conversation that both of these gentlemen's operating under.
▶ 1:43:19And it the hope is now with a new administration, a new secretary that there will be an emphasis not only on attempting to do something, but we but be willing to opening up their eyes to the recommendations that have come from professional groups like GAO and inspector generals. And so it's not a matter of them wanting to do or not do. They deny its existence.
▶ 1:43:47And this is the part why both these gentlemen literally came out of their chairs yesterday in my office when we uh pulsed this issue. And so I want you to know that your line of questioning is most instructive. They also were trying to be very polite back you. So that's on in defense of these young men. Thank you very much. Gentleman yields back his time. We now move to the distinguished gentleman, the young chairman from Alabama, Mr. Palmer.
▶ 1:44:18You're recognized, sir. Thank you, Mr. Chairman. I'm going to direct my questions a little bit differently and um I wanted to participate in this hearing because I've been looking at some of these issues for quite a while. And I I realize this is focused predominantly on fraud risk management, but one of the things that I I think creates an opportunity for fraud, mismanagement, is how we uh handle big projects at the Department of Defense, whether it's a construction
▶ 1:44:48project or a new weapon system. And I just want to um ask each of you uh to comment on this if if if it if you think it's you're able to do that. I think a lot of times when when Congress approves u a major weapons system or a major construction project and and this is particularly problematic on construction overseas.
▶ 1:45:14There's a tendency on the part of Department of Defense to start those projects before the design is complete and it results in a a huge amount and change orders. Uh I'm working on a some ideas on how to mitigate that from the congressional side in terms of ensuring that the money will be there so that they don't feel the pressure to start these uh construction projects or other projects or weapon systems before the design is ready.
▶ 1:45:43But would you comment on on on how that when when your design is not complete, you're issuing lots of change orders, how that opens us up to um mismanagement uh and potential fraud.
▶ 1:45:59me sir I I wouldn't be able to discuss that but in in in a different sphere I would submit that what you're talking about large procurements of weapon systems they are really hybrids for for fraud because of because of like you said the the complex nature of the and and when they come online and then the other parts come online so so we do have a
▶ 1:46:29lot uh worry about large weapon systems and and we have a lot of fraud work in the past and now in those kinds of things when they're in that phase. Uh so that's that's would be my my feedback to you Mr. Bdorian. Yeah, I would uh fully agree with Mr. Mayo's comments. I I mean this is an element of hyper complexity. Basically you have a big system.
▶ 1:46:54It has, you know, the prime contractor, I assume, leading the effort and then the whole army of subcontractors, which is a key element of risk here. I'm not a procurement expert by any means, but I do believe that that element of complexity, uncertainty, long lead times, all kinds of different things add to heightened risk. Definitely. And when you add to that uh just a a myriad of change orders. That's right.
▶ 1:47:22uh which I I I think is problematic and then when you start talking about uh construction projects and particularly in in remote uh I think it makes it very difficult to to for inventory management uh and again if the design is not complete you're you're making all these uh isn't that an area where we need to really uh bear down and and Mr.
▶ 1:47:49Chairman, I've I've been given quite a bit of thought to this and I've actually been thinking about this for six or eight years about how we appropriate uh for major defense programs and and and maybe thinking about saying that if a program design if the project design or the weapon system design is not ready that we uh we carry the funding over uh into the next fiscal year so that that we give
▶ 1:48:19um these Department of Defense time to get the design right and I think that will reduce a lot of the fraud and mismanagement and and save us a lot of money on that area in those areas and and and Mr. Mayo, Mr. uh Bolian, you can comment on that and you may have already commented sufficiently, but that's one of the areas where I I really want to focus, Mr.
▶ 1:48:42chairman in terms of trying to reduce the amount of of waste that we have in our defense procurement programs that I'll I'll be happy to yield back. Yeah. If I may answer uh Mr. Palmer's question, Mr. Chairman, each element of complexity in a program. As I alluded to in my opening remarks, that's one of the key drivers of fraud risk in federal programs is their complex configuration. What someone can do, can't do, and so on.
▶ 1:49:11So it's almost like risk is built in and if you add multiple layers in a big complex program of DoD uh then that really exacerbates risk. So trying to control for that as part of the upfront due diligence for example would be an important step. I thank the witnesses. Thank you Mr. Chairman. Gentleman yields back his time. Thank you very much. I now would yield myself time. Uh gentlemen, thank you very much.
▶ 1:49:41Uh this time that we are spending with you is just one of many areas where this subcommittee including Mr. Infume and myself are concerned about not just waste, fraud, and abuse, but also misdirected And we have looked at and determined that it's a governmentwide problem.
▶ 1:50:11And while there is discussion necessarily up here that could be a disagreement between the parties, something called Doge, which is efficiency, is a necessary item whereby we bring in fresh eyes to look at actually the data and information that most of the time Congress and perhaps even you do not see.
▶ 1:50:38and that is an observation about the amount of bunny that flies out the door. One of the most instructive things that I have learned is that there is approximately at this time documented some $400 billion that went out from big government. We're talking about all the agencies.
▶ 1:51:05some $400 billion that was that went out the door from the day after the election to the day that President Trump was inaugurated. And it was a determination made by someone to move forward on decisions to spend money knowing that there needed to be a review.
▶ 1:51:30knowing that waste, fraud, and abuse not only existed across across government, but that it increasingly was an issue that they were challenged with. And so regardless of that, I think it's important that you have confidence that Mr. Fume and I not looking back to blame someone, but rather moving forward.
▶ 1:52:00We want to hear from FEMA. We want to hear from DoD. We want to hear from the newest of the secretaries and those management organizations. What are their plans?
▶ 1:52:15How do they intend to structure now based upon information that I think Doge has provided that have become public that are not hidden that are not whispered about but that become generally available and so I want you to know that both organizations inspector generals Mayo Mr.
▶ 1:52:37Bdorian, the GAO, that you represent organizations that we will continue on a bipartisan basis, both of us, to look at and instead of looking back, we will have the vision to how are we going to fix it? You both have specialized in DoD.
▶ 1:53:01You've heard person after person this morning to describe to you our desire to engage the Department of Defense at the highest level not levels level and to extract from that person once they are able to understand not just from Doge but also your accounting of the significant impairment of a delivery of dollars and material and equipment.
▶ 1:53:31that would be available to the war fighter. And I just want you to know that the conversation today as you go back home tonight or as you have the conversation among your colleagues is it is a bipartisan issue.
▶ 1:53:48It is seen very many times the same way and it should reinvigorate your organizations to know that the day-to-day job that they do when they are told by some organization it didn't matter. We're non-compliant. We don't care. That they still do their job. That they still write the reports. That they still point up those things that are factual basis.
▶ 1:54:17that they continue to be on point for understanding that while they may not be in DoD, we support the men and women that defend this nation, that they are people who are professional and wellbalanced and that members of Congress that are here will be supportive of them and not give up that hunt.
▶ 1:54:44So to both of you and your staffs that appeared in my office yesterday and the hundreds of people that work for you, please reinforce to them that they are part of the answer, not the denial of a problem. I want to thank both of you for being here. I'm now going to move to the distinguished gentleman from Maryland for any closing comments that he'd like to make and then I will do same. Gentleman's recognized.
▶ 1:55:14Thank you again, Mr. Chairman, and um my thanks obviously to both of our our witnesses for being here and for um being as forthcoming as you could be. Um I think one of the things for me at least is common sense, which is not always common as we know in life.
▶ 1:55:34And it just would appear to me that with these ongoing failures to meet an audit with huge fraud being publicized as it was just recently in the Rathon case where they agreed to pay $950 million not because of an error but because they got caught.
▶ 1:55:58And when you consider also the fact that this conversation predates many of us on this panel, it just goes back years and years and years. And when you consider the fact that all branches of the service save the Marine Corps, continues to find ways not to be compliant with basic law.
▶ 1:56:18And when you hear GAO report as it's done today and has done previously about all these things that are going on, common sense tells me that it is important for the Secretary of Defense to speak with a clear tongue and a clear idea of what has to be done down the ranks. That's where the order has to come from.
▶ 1:56:43We know that with respect to the Marine Corps, it was testified here in previous meetings that the comedon said, "Look, we're going to do it this way. It's the right way and anybody that doesn't do it that way is out of here." I think we need the same kind of determination and the same kind of of of commitment from, as the chairman said, the top level, which is Secretary Hexath.
▶ 1:57:06and I would hope that he would come before this committee and be prepared to talk about what we've been talking about now uh for years that he's inherited this and and what he plans uh to do about it. Um I'm glad to hear about the import export import bank. I didn't know that they had kind of established a pattern that could in fact be something that could be looked at by by other parts of of DoD and other agencies.
▶ 1:57:35Um, but we've got to find a way to ask ourselves, why does the Department of Defense for years continue to be on the high risk list? People come in, they go, secretaries die, they move on. And this is an embarrassment. It's an embarrassment and it's thumbming the nose of the government right at taxpayers.
▶ 1:57:58Our taxpayers really want to expect that if we're going to be, as we say, efficient, that we're doing something in a real way to be efficient. I mean, Doge, with all due respect, was this committee. This is what we've been dealing with for years and years and years until all of a sudden there was a new entity, Doge, that claims to be doing exactly that. We've got the playbook, we've got the information, we've got the data, we've got the research, we've got the examples.
▶ 1:58:27Um so this is sort of like reinventing the wheel for no necessary purpose and at the same time not being able to deal with the real question of uh in this current spending resolution before the Congress. Uh we're prepared uh to be voting on a package that includes $892 billion for the Pentagon.
▶ 1:58:51uh which is why I have opposed that spending package alto together because you can't do that and at the same time cut money in my opinion from Medicare and say you have to cut it when you really don't have to. What you need to do is tighten your belt and find monies elsewhere like within this budget that we continue to see talked about over and over and over again.
▶ 1:59:14As I said before, the budget is so large, just a 1% error is the equivalent of $9 billion. We should not take that lightly. And you know, I'm going to say it again, Mr. Chairman. I swear I am tired of saying this over and over again, and like you are, and I really appreciate your efforts here. We want to see progress.
▶ 1:59:36And if we don't see progress, I think we've got to go before the full Congress and to argue and to forcefully debate and to make the case that no action is not sufficient. So, um we've heard the stories today and we know that in many respects people are wondering how are you going to cut this? You're going to cut uh SNAP assistance for children and women. You're going to reduce Medicaid, Medicare.
▶ 2:00:04you're going to threaten, even though it's not been said yet, to make social security unstable. Just the thought of it uh being unstable causes problems. And then you look at what's happening in the bond markets and what's looking what's going on with investors and other countries around the globe as they look at our creditworthiness and whether or not we in fact um mean what we say. Um so I'm going to get off of my little soap box. I just can tell you that this is bad.
▶ 2:00:32There's no justification for this whatsoever. Thank you, Mr. Chairman. I yield back. Gentleman yields back his time. And I want to publicly once again thank the distinguished gentleman for not only working with us and with me, but for your insistence that we can make progress.
▶ 2:00:54And I think that it's important that the GAO community and the IG community as well as these uh in government, yes, I'm talking about article two, that they understand that there are uh several people on the hill who will not kick the can down the road that we will decide that a mark has been laid in the road because for the It is
▶ 2:01:24important that the American people have confidence in what we're doing because we expect results. So, I want to thank the distinguished gentlemen. I want to thank both of you. I did this in my comments, but I want to thank both of you for taking time. I find you both not only genuine men of honesty uh but of representation of professional product.
▶ 2:01:46and both of you uh took my questions yesterday and have taken them today that we believe must be resolved. And so for your staff and for the people that you represent, uh we're very proud of the work that you're doing. And uh I see no further questions from the subcommittee.
▶ 2:02:11We will uh now conclude this hearing and I want to thank each of you very much. This concludes the hearing of the subcommittee on government reform and oversight uh for federal government operations and the workforce.