Procurement: January 18, 2001

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The Pentagon's $300 billion a year budget has always attracted crooked contractors and suppliers. But the nature of the fraud has changed over the past two decades. In the 1980s, the most common form of cheating was in pricing. This was aided by a problem that still plagues the Pentagon, hundreds of incompatible accounting systems. But a crackdown on pricing and accounting fraud in the late 1980s paid off, and that sort of stuff has declined considerably. But the number of prosecutions has remained the same, about 300 a year. The popular fraud these days is more dangerous and consists largely of selling defective weapons and equipment to the troops. Sometimes, the material is outright defective. Other times, a substitution is made. The replacement goods may not be defective, but they are not what the Pentagon wanted and this can often endanger the lives of users. The fraud problem has been made worse by two changes in the 1990s. First, there are fewer people in the Pentagon checking for procurement fraud. This came about partly because of the shrinking of the Department of Defense workforce in the 1990s, and partly because the bad publicity from fraud cases in the 1980s caused the larger contractors to clean up their act. The big firms also had more resources to put into monitoring how they fulfilled military contracts. So the Pentagon reduced the number of people watching. But the smaller suppliers did not have the auditing resources of the larger firms. These outfits were also more likely to be operating on the edge of profitability, and thus more tempted to cut corners at their customers expense. 

 


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