American Society of Military Comptrollers
Prevent, Detect, Respond:
Proactively Combating
Procurement Fraud Issues
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rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
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54. Prevent, Detect, Respond:
Proactively Combating Procurement Fraud Issues
Laura Odell, Partner, US Global Department of Defense, KPMG
Russell J. Geoffrey, Director, Contract Integrity Center, DCMA
David Jacques Graff, CAPT, SC, USN, Commander-DCMA
International
Frances Lynn McCormick, Special Agent, DODIG, Investigative Policy
and Oversight, Contractor Disclosure Program
Ken Jones, Director – Fraud Risk Management, KPMG
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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TOPICS
Recent Changes Impacting Procurement Fraud
Contractor Self-reporting
The Impact on Operations
Steps to Prevent, Detect and Respond to Procurement
Fraud
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Improper Payments Information Act (IPIA) of 2002
The Improper Payments Information Act (IPIA) of 2002,
- requires annual estimates of improper payments
- helped frame the issue and the magnitude of the problem
The ensuing efforts to improve the tracking of improper
payments and subsequent findings of significant and
growing levels of estimated improper payments in turn led
to the Presidential Executive Order.
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Federal Requirements for Reducing Improper Payments
Executive Order – Reducing IP and Eliminating Waste in Federal
Programs (11/20/09)
Purpose of the Executive Order to Reduce Improper
Payments
 Comprehensive set of policies, including transparency
and public scrutiny
 Identifying and eliminating the highest improper
payments
 Accountability for reducing improper payments
 Federal, State and Local Coordination
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Improper Payments Executive Order
Highlights
 Establish a Senate Confirmed Accountable Official for
each Agency that has High Priority Programs
 Focus on Improving ability to identify and recover improper
payments and to coordinate at the Federal, State and Local
level.
 Establish an Internet-based public reporting of improper
payments
 Establish and report on reduction targets
 Establish working groups to recommend improving the
ability to detect / recovery IP through single audit reporting,
State and Local coordination, Data Sharing, enhancing
eligibility verification, prepayment scrutiny, forensic
accounting and auditing
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Recent Changes Impacting Procurement Fraud
A Brief History of the False Claims Act:
The False Claims Act dates back to the Civil War when, in
1863, President Abraham Lincoln and the Congress
enacted this law to combat “defense procurement fraud.”
Unscrupulous defense contractors were billing the Union
Army for:
- dead mules,
- boots with soles that had been glued on, rather
than stitched (and were coming apart in the rain and mud),
- gunpowder that had been salted down with
sawdust.
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Fraud Enforcement and Recovery Act (FERA) of 2009
Signed into law by President Obama in May of 2009
 Increased law enforcement personnel/budget for fraud
investigations
 Expanded the provisions of the False Claims Act
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Fraud Enforcement and Recovery Act (FERA) of 2009
Increased Funding for False Claim Act Investigations
• $330 million over 2 years to DOJ
• $40 million over 2 years to SEC
• $60 million over 2 years to Postal Inspection Service
• $40 million over 2 years to Secret Service
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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FERA enhancements to the False Claims Act
 FERA expanded liability to virtually every recipient of federal
funding (contractors, sub-contractors, any recipient)
 FERA expanded the protection of whistle blowers (not just
employees, but contractors, competitors, etc.)
 FERA allows whistle blowers access to information gained
from government subpoenas
 FERA expands the statute of limitations for FCA actions,
specifying that government complaints "relate back" to
earlier whistleblower complaints.
Earlier FCA Provisions Still in Effect:
 Qui Tam Relators
 Treble Damages
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Contractor Disclosure Program
and Overpayments
Russell J. Geoffrey, Director, Contract Integrity Center,
DCMA
Frances Lynn McCormick, Special Agent, DODIG,
Investigative Policy and Oversight, Contractor Disclosure
Program
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Increased Attention - Fraud WILL be Uncovered
•Government Agency Focus on Improper Payments
•Contractor Disclosure and Overpayment Requirements
•Increased Funding for Law Enforcement
•More People Can Become Whistleblowers
•Expanded Protection for Whistleblowers
•Qui Tam Relators (Whistleblowers)
- 15% to 25% of rewards from cases that are accepted by the
Department of Justice
- 25% - 30% If the Department of Justice does not go forward
with a case. A whistleblower can go forward on his own, in some
cases with the assistance of a qui tam attorney.
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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The Impact on Military Operations
Missing equipment and supplies
Shortages
Cost over-runs
Reputational Damage to DoD when operations don’t run
as smoothly due to above issues
Potential corruption issues
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Combating Improper Payments
There is no silver bullet that will reduce improper
payments. Also, it will likely never be cost effective or
feasible to completely eliminate improper payments.
The Executive Order talks in terms of reducing improper
payments, not of eliminating them, by intensifying efforts
by federal agencies to combat improper payments.
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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GAO Recommended Model for
Anti-Fraud Programs and Controls
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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The GAO Improper Payments Executive Guide discusses:
The Control Environment: Instilling a Culture of
Accountability
Risk Assessment: Determining the Extent and Nature of
the Problem
Control Activities: Taking Action to Address Identified
Risk Areas
Information and Communications: Using and Sharing
Knowledge to Manage Improper Payments
Monitoring: Tracking the Success of Improvement
Initiatives
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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The KPMG Government Institute
The Executive Order on Improper Payments:
A Practical Look at What Government Agencies Can Do to
Address This Presidential Call for Action
Jeffrey Steinhoff, CGFM, CPA, CFE,
is the executive director of the KPMG Government Institute
and KPMG´s executive fellow to the Federal CFO Academy at
the National Defense University.
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Combating Improper Payments – Will Require:
1. Commitment of the senior agency management
2. Hard work and partnerships across the agency
3. Probably significant changes in practices and processes for some
federal programs
4. Improved internal control
5. Better leveraging of technology
6. The application of techniques, such as continuous monitoring,
that have a proven track record of success
7. More and better communications and data sharing among federal
agencies, state and local governments and other stakeholders
that administer federal funds
8. The adoption of an agency-wide, comprehensive fraud risk
management program aligned with the expectations in the
Executive Order to help provide a focus on fraud, waste, and
abuse that can result in improper payments.
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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Fraud Risk Management
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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PREVENTION
•Fraud and misconduct risk assessment
•Code of conduct and related standards
•Employee and third-party due diligence
•Communication and training
•Process-specific fraud risk controls
•Proactive forensic data analysis
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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DETECTION
•Hotlines and whistleblower mechanisms
•Auditing and monitoring
•Retrospective forensic data analysis
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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RESPONSE
•Internal and external investigations
•Established investigative protocols
•Enforcement and accountability protocols
•Disclosure protocols
•Remedial action protocols
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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CONCLUSIONS
Changes in the law, funds to investigative agencies,
encouraging whistle-blowers, etc. will certainly increase
the number of Procurement and Contractor Frauds
identified.
Defense agencies should make every attempt to internally
reduce fraud and other improper payments.
©2009 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All
rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International. KPMG Forensic is a service mark of KPMG International. Service offerings are subject to legal
and regulatory restrictions. Some service offerings may not be available to KPMG's audit or other attest service clients.
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