Saturday, August 18, 2007

Where Did They Fit All the Postage?

Given the size of the Pentagon's budget, fraud cases involving military procurement are usually going to dwarf other schemes because of the amounts involved, but one has to wonder whether anyone is paying attention to some of the billings.  In South Carolina, a parts supplier, C&D Distributors, and one of the twin sisters who owns the company, entered guilty pleas to conspiracy to commit wire fraud and conspiracy to launder the proceeds of the fraud for overbilling the Pentagon for shipping parts to the military.  The fraud involved over $20 million of shipping costs, and the amounts involved are absurd:

  • $998,798 for sending two 19-cent washers to an Army base in Texas;
  • $455,009 to ship three machine screws costing $1.31 each to Marines in Iraq;
  • $293,451 to ship an 89-cent split washer to Patrick Air Force Base in Florida.

It's not clear why someone didn't just stop at the local hardware store, at least for the parts sent to Texas and Florida, rather than ordering such trivial amounts of material from a contractor -- but then government procurement is largely a world of its own.  One way the company was able to pull the wool over the Pentagon's eyes, assuming anyone was really watching, was to ship the items labeled "priority," which meant there was no review of the freight charges.  Apparently, you don't have to be overly clever to perpetrate a procurement fraud, although I suspect the military will be looking out for this scam in the future.  A Bloomberg story (here) discusses the plea agreements. (ph)

Fraud, Prosecutions | Permalink

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The scam artists in this case seem to have been relying on that fundamental Law of Bureaucracy: The first myth of management efficiency is that it exists.

Otherwise, how could anyone hope to get away with a scheme as wild as this?

Posted by: Jack Payne | Aug 20, 2007 3:07:23 PM

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