Special Report: The Pentagon's Doctored Ledgers Conceal Epic Waste

By Scot J. Paltrow/Reuters

Spotty monitoring of contracts is one reason Pentagon personnel and contractors are able to siphon off taxpayer dollars through fraud and theft - amounting to billions of dollars in losses, according to numerous GAO reports. In many cases, Reuters found, the perpetrators were caught only after outside law-enforcement agencies stumbled onto them, or outsiders brought them to the attention of prosecutors.

In May this year, Ralph Mariano, who worked as a civilian Navy employee for 38 years, pleaded guilty in federal court in Rhode Island to charges of conspiracy and theft of government funds related to a kickback scheme that cost the Navy $18 million from 1996 to 2011. Mariano was sentenced November 1 to 10 years in prison and fined $18 million.

Mariano admitted that as an engineer at the Naval Undersea Warfare Center in Newport, Rhode Island, he added money to contracts held by Advanced Solutions for Tomorrow. The Georgia-based company then paid kickbacks to Mariano and others, including friends and relatives.

Mariano was charged more than five years after the allegations against him first emerged in a 2006 civil whistleblower lawsuit in federal court in Georgia that had been kept under seal. Court documents suggest one reason why the conspiracy went undetected for so long: The Navy not only gave Mariano authority to award money to contractors; it also put him in charge of confirming that the contractors did the work. The Navy never audited any of the contracts until after Mariano was arrested, a Navy spokeswoman confirmed.

On the opposite side of the country, federal prosecutors in San Diego, California, in 2009 accused Gary Alexander, a Navy civilian employee, of arranging with subcontractors to have them bill the Defense Department for services never performed and then pay him kickbacks from money the subcontractors received. Alexander masterminded the scheme while he was head of the Air Surveillance and Reconnaissance Branch of the Navy’s Space and Naval Warfare Systems Center, based in San Diego.

Alexander in 2010 pleaded guilty to defrauding the Navy and filing false tax returns. He was sentenced to 75 months in prison and was required to pay restitution and forfeitures totalling more than $500,000.

Robert Ciaffa, a federal prosecutor assigned to the case, said the bills were easily padded because DFAS didn’t require detailed invoices. The case came to light, he said, only after “a woman friend” of one of Alexander’s associates went to prosecutors in 2008 with information about the fraud.

A Navy spokeswoman said that Navy Secretary Ray Mabus has taken steps to avert such fraud, including creating a contract review board, requiring closer oversight of employees who manage contracts and establishing antifraud units within Navy contracting services.

Ciaffa said the Alexander case prompted his office in 2009 to set up a toll-free fraud tip line that has so far have yielded at least six cases. One led to guilty pleas in March 2012 by four civilian employees of the North Island Naval Air Station, near San Diego, after they were accused of receiving $1 million in kickbacks from contractors.


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