Dozens of intelligence contractors have submitted false claims for federal funds

Pentagon report reveals that those implicated typically kept their security clearances

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Dozens of contractors for the four largest Defense Department intelligence agencies have been investigated for submitting false payment claims worth millions of dollars over the past decade, according to a new Pentagon report.

The report by Deputy Inspector General for Intelligence Anthony Thomas said that when his auditors examined 128 unclassified cases of contractor misconduct, he found 89 — or more than two-thirds — involved fraudulent billing for work the contractors had evidently not done.

In the 86 cases relating to one or more individual contractors, the largest reported loss was $265,698 and the smallest $433 — with an average of $41,790, the report said. The report said the total lost to fraud in all the cases chosen for the report, including 12 contracting companies, was $4.34 million.

The report did not disclose the names of the contractors or the companies involved, but it said that none had been “debarred” — or blocked from getting new contracts — and in many cases the employees implicated in the false charges lost their jobs but kept their security clearances. That allowed them to get rehired by other agencies with their clearances intact.

The agencies involved were the National Security Agency (NSA), the Defense Intelligence Agency (DIA), the National Reconnaissance Office (NRO) and the National Geospatial-Intelligence Agency.

Bridget Serchak, a spokeswoman for the Pentagon’s Inspector General’s office, declined to answer any questions about the report or to provide access to the auditors that worked on it. As a result, it isn’t clear whether how many other cases of overbilling have been caught, and whether the total number has been rising or falling.

Serchak said that because the April 14 report  “was an evaluation and not an ‘audit’ or ‘investigation,’” some details were beyond its scope.

An October 2011 report to Congress by the Pentagon’s Undersecretary of Defense for Acquisition said contractors had been charged with criminal fraud 54 times in the previous ten years — and companies had paid settlements or were ordered to pay civil judgments more than 300 times. But these data encompassed all contractors, not just those that do intelligence-related work.

The website of the Project on Government Oversight, a spending watchdog group, says on its website that in the past decade ten major Defense Department contractors were accused of committing $407 million in contract fraud. In one case cited by POGO, Northrup Grumman in 2009 paid $325 million to settle a whistleblower lawsuit alleging that they billed the National Reconnaissance Office for defective microelectronic parts, according to the Department of Justice.

It’s not clear if the NRO case was one of those included in the Inspector General report.

Eighty five of the 128 cases cited in the recent report were referred to local prosecutors or the Department of Justice, but no information was provided on the outcome of these cases.  The report said “most” of the $4.34 million in improper payments were recovered, without elaborating.

Three contractors who were accused of misconduct — two at the NSA, the nation’s electronic eavesdropping agency, and one at the DIA, which spies on foreign militaries — were initially terminated, but later got new jobs at the same agency.

Eight contractors accused of misconduct by a Defense intelligence agency were later given jobs at the CIA, where they access to classified facilities or information. The eight had previously worked at the NSA; the DIA and the NRO, which operates America’s spy satellites. The CIA said it learned of the actions by other agencies against four of them only after the inspector general's office inquired about them. The Agency said it had since cut off all eight contractors’ access to classified information or had started an internal review of their employment records, the report said.

The inspector general's office said the Pentagon’s intelligence agencies, which report to the Under Secretary of Defense for Intelligence Michael Vickers, did not properly report misconduct allegations or adhere to agreed disciplinary procedures — including a mandate for hearings before an agency’s “Clearance Adjudication Facility” that rules on classified access.

In dealing with accusations of misconduct, the DIA, which has its own police force, used what the report termed a “creative variation” for avoiding “formal adjudications.” They would typically seize contractors’ access badges and escort them from the premises, the report said, without conducting a follow-up hearing on their security clearances.

The report recommended that agencies seek to suspend or debar contractors from future government contracts in all serious misconduct cases, even if the employees leave and no longer see classified information.

“If the misconduct is sufficient to warrant denial or revocation of security clearance/access, then that action should be formally accomplished,” the auditors wrote. In cases of serious misconduct, the auditors wrote, “a point is reached when the ability of the contract employee to responsibly hold a security clearance … must be questioned.”

The report recommended that Under Secretary Vickers ensure that all intelligence contractors accused of wrongdoing are subject to procedures where they can be suspended, debarred or have their security clearance revoked.  In a written response, Vickers’ office agreed without commenting on why they hadn’t been taken earlier.

Officials at the four intelligence agencies weren’t asked by the inspector general's office to comment on the recommendation, but the Defense Intelligence Agency did anyway, saying that pursuing suspension or debarment cases against government contractors no longer on the job would be “inconsistent with being good stewards" of taxpayer funds.It said reporting investigations to one of the intelligence community’s databases on personnel security clearances should be sufficient to flag contractors accused of misconduct.

But the report said agencies often failed to update information on these databases — including the Defense Central Index of Investigations; the Joint Personnel Adjudication System; and a third intelligence community database known as SCATTERED CASTLES. The central index is one of the computerized databases that must be scanned during an intelligence agency background check, and the failure to list disciplinary actions against contractors on it “significantly hinders” the process, the report said.

Investigations of contractor misconduct were properly indexed in only 34 percent of the 128 cases studied, according to the report. It also complained that the Pentagon had no overall policy on how the index should be updated, resulting in “a degree of confusion” among agencies about what to list in its entries.

The report recommended that the NSA, DIA, NRO and NGA improve their record keep practices.In a letter included with the report, the NSA objected, saying that the report’s basis for finding that it “lacked effective record keeping is unclear.” The NRO, meanwhile, said it was following what it understood were the proper procedures. The NGA and DIA, meanwhile, agreed to take the recommended steps.