
Contractors use shell games to hide owners, cheat taxpayers - black6
https://www.pogo.org/analysis/2019/12/contractors-use-shell-games-to-hide-owners-cheat-taxpayers/
======
majos
It bugs me that so much more public and media ire is directed toward tech
companies than defense contractors when the latter industry is of comparable
size, way more opaque, and dominated by very very old companies [1] with
excellent lobbying.

I understand that people have far less personal interaction with defense
contractors. But hey, it’s your tax dollars.

[1]
[https://en.m.wikipedia.org/wiki/List_of_defense_contractors](https://en.m.wikipedia.org/wiki/List_of_defense_contractors)

~~~
gowld
President Eisenhower raised the issue, and after 50 years we've surrendered.
Big tech is a right we haven't fully lost yet.

Also, money is just money.

~~~
jessaustin
The only reason Eisenhower was _allowed_ to say the little he did say was that
_he_ had already surrendered. He stood by while Korean War funding
metastasized into "the military-industrial complex". If _anyone_ could have
stopped it, it was a reelected President _and_ five-star general war hero. Ike
DGAF. BTW he was also the moron who let CIA off the leash, to the world's
continuing sorrow. Just this week another chicken has come home to roost.

------
rdtsc
> ... abusing programs intended for small businesses owned by “service-
> disabled veterans, women, minorities, or economically and socially
> disadvantaged individuals;”

Yap, saw that while bidding on projects. So and so would find some relative or
friend who matches one or more of those categories and then claim they were
the owner on paper to get the contract.

Some schemes were running for 20 some years. For instance case 30 running
since 1999, awarded $52M.

In case 18, they received over $200M. That's a lot of money wasted.

But good thing they were caught, surely they will receive harsh sentences?

> POGO determined is likely a recent case involving a Kansas City, Missouri-
> area construction company owner who was sentenced to 18 months in prison.

No, not really. Just 1.5 years after stealing $13.7 million.

There are more instances that are shady but harder to track, such as the
government entity writing the specs to match exactly one company's product.
Let's just say by a company owned by their college buddy. So on paper they may
be lots of bids, but surprise, only this one company ends up matching up.

~~~
kjs3
_So and so would find some relative or friend who matches one or more of those
categories and then claim they were the owner on paper to get the contract._

They don't even have to go to that much trouble. There's a whole ecosystem of
8(a) companies set up to take advantage of these contracts and then
subcontract the work out to ineligible companies. They usually walk the halls
to find the contract, handle some paperwork, provide the corporate
history/legitimacy and take a bit off the top. And what you get is some tiny
shop winning multi-million dollar contracts allocated for disadvantaged
businesses, then turning around and farming out the work to Northrup-Grumman
or SAIC or some other tradition, giant defense/government contractor (whom
they usually have already worked out arrangements).

~~~
bsharitt
I spent a few years as a DoD contractor, and both companies I worked for were
the bigger company on the contract, but the lead contractor what some small
company that fit a specific category. I'll admit that I considered starting my
own company,being a compensated disabled veteran, to get in the same action,
but it didn't seem right and I wanted to get away from government contracting
anyway.

~~~
ryandrake
Can confirm the same. There was always some one-person “company” who was the
prime contractor simply because he was a disabled-Alaskan-native-owned-small-
business, who did nothing but skim a little $$ and pass all communications
back and forth between the government and the actual contractors who were
doing all the work. Nice work if you can get it!

~~~
bballer
"work" ha

------
joncrane
Just want to chime in and say the vast majority of people working on
government contracts fall into two categories:

1\. Hard working folks trying to do the right thing (approx 20-50% of the
people)

2\. People who are coasting and nominally meet whatever requirement for the
position (some combination of experience and certification usually) who can
barely get the job done, but they are friendly and don't cause trouble (by
getting in the way of the people who actually DO get something done) so no one
bothers them and they get to collect a paycheck. (50-80%)

Many from category one turn into category 2 as time goes by, because #2 is
actually the optimal strategy.

Most companies also tolerate #2 because the client isn't complaining and they
are making their cut on the person's hourly rate. So everyone's more or less
happy and life goes on.

Also note that the distribution of people doesn't significantly vary based on
whether the employer is SDVOSB/WOSB/whatever. However, the largest companies
(like Accenture) do tend to have a higher proportion of #2s, but also a higher
proportion of extremely charismatic "relationship managers" who flatter,
gladhand, and overall stroke the client representative's egos and fantasies to
cover up for it.

The government contracting business has plenty of well-meaning, hard working
professionals in it. But there's also a lot of not so much waste, fraud, and
abuse, but "skating by" going on as well.

The main reason is due to the obstreperous rules, bureaucracy, stagnation, and
old tech, the jobs pay above market AND tend to provide excellent work/life
balance.

Source: I've been a gov't employee, then worked in contracting, went to
private sector, now back in contracting. I'd like to think I'm in category 1,
and I have many, many days when I am extremely jealous of my colleagues in
category 2, who make just as much money as I do but do about 20% of the work.

One last edit: I find it funny that one SDVOSB owner was considered "Service
Disabled" because he tore his ACL playing football for Navy. But I'm a little
bit in the "don't hate the player, hate the game" camp on that one. I'd start
a company, too, in that position. Doesn't mean I'm doing shitty work, just
means it's easier to award me the work. They are two different things.

~~~
ben509
I don't think framing it as intentions really captures what's going on. I
think the basic intention of a contractor is the same as anyone else: come in
to do some work, and go home when it's done.

When I worked as a contractor, a few times I was full of righteous fury and
ran my mouth to colleagues about their work. In hindsight, I'm convinced they
absolutely believed they worked hard and delivered a high quality product,
that what I was complaining about was a reasonable compromise. And, frankly,
when I left for the private sector, it was a bit of a shock to learn that I
really hadn't been working as hard or as well as I thought.

Instead, I'd frame it as incentives over time. There have to be outside
pressures to keep everyone honest. In the private sector, they have to compete
with other companies, and indeed you see similar problems in firms or
departments that are insulated from competition.

In contracting, you've got a negative feedback loop: as contractors
underdeliver, the clients scale back their expectations. As those expectations
scale back, the contractors relax hiring to meet them. This has led to the
population of contract workers stagnating to where it's well behind the
private sector.

Having done interviews of contract workers trying to transition out, they are
frequently technically way more junior than they should be for the years of
experience. And I think the companies trying to attract better people have a
hard time when the candidates aren't impressed with the teams.

~~~
jcadam
Yep, I'm turning 40 in a few months and have been working in the defense
industry my entire career (and I spent 4 years in the Army before that, so I
suppose that counts too).

Most of my jobs have lasted 1-2 years. I get fed up and leave for another
company working on a different program - thinking that the next one will be
different.

Small firms that are still trying to prove themselves and grow are usually the
best to work for. Because they no-shit need to deliver and keep customers
happy. As they get larger (and merge, etc.), defense firms all seem to
resemble each other. Benefits get cut, pay gets stagnant, and standards for
hiring start to slip. Eventually they become a butts-in-seats shop like the
huge firms with names everyone knows. Time to move on.

I've tried interviewing in the private sector (usually all of my job hunts
every couple of years begin with a string of failed interviews in the private
sector, and end with me just taking another job in the industry), never
managed to get an offer, but if I walk into a defense industry interview, I
can land an offer well over 50% of the time. Some contractors have thrown
offers at me after a single 30 minute phone interview (tip: never accept
those).

Another part of the issue is the defense industry is definitely a bubble and
you kind of get trapped after a while. If I'm desperate and need a new job, I
have a list of contacts I can reach out to and easily get another contracting
gig. In the private sector, I don't know anyone and I'd be trying to get in
through the front door.

~~~
o-__-o
I was freaking out when I lost my first job after I left DC.

"You mean I actually have to APPLY for a new one? I can't just walk into the
recruiters office and pick from a list of 3 letter agencies looking for XYZ
role?"

Still get emails every day looking for an architect, or windows engineer, or
TS/SCI cleared helpdesk technician. Don't let your clearance expire, folks.

------
jessaustin
DoD doesn't use the resources it receives wisely. Therefore, it should receive
fewer resources.

Unfortunately, what will happen instead is that DoD will only buy from giant
firms on an "approved" list, which is exactly what those giant firms have paid
their lobbyists to bring about.

~~~
_jal
It appears to be effectively impossible to even audit the Pentagon. When they
tried, it cost $400M and less than 25% if the sub-audits received passing
grades.

Here's the friendly spin:

[https://www.defensenews.com/pentagon/2018/11/15/heres-
what-t...](https://www.defensenews.com/pentagon/2018/11/15/heres-what-the-
pentagons-first-ever-audit-found/)

~~~
ChrisLomont
"The Pentagon’s first-ever audit discovered major flaws in how it handles IT
processes and challenges with its internal tracking databases, but did not
discover any major cases of fraud or abuse."

The $400M covers 2.7T of assets, and, as the article lists, is less than
1/30th of one percent of the budget audited.

So it's not as inefficient an audit as listing a number without context
implies.

~~~
_jal
Again, I chose that article because it is about the best possible lipstick
that can be put on that pig.

The audit was a farce. From another article,

"In fiscal year 2015, for example, Congress appropriated $122 billion for the
US Army. Yet DoD financial records for the Army’s 2015 budget included a
whopping $6.5 trillion (yes, trillion) in plugs. Most of these plugs “lack[ed]
supporting documentation, [...]”

“Because of the plugs, there is no auditable way to track Pentagon funding and
spending,” explains Asif Khan of the Government Accountability Office"

[https://www.thenation.com/article/pentagon-audit-budget-
frau...](https://www.thenation.com/article/pentagon-audit-budget-fraud/)

~~~
ChrisLomont
I'd believe the former article, since the quote you posted from the latter is
far beyond any yearly budget even mathematically possible.

You quoted "Yet DoD financial records for the Army’s 2015 budget included a
whopping $6.5 trillion (yes, trillion) in plugs."

The entire US annual federal budget is on order of 4 trillion. So that number
alone is fearmongering. Total DoD annual budget is around $700B. Army is a
fraction of that. A significant amount of the money is simply paying the 2.8
million DoD employees, another decent portion is benefits to retirees, another
is equipment maintenance and purchases , and none of these are places you can
simply lose all or much of the money - employees notice when they don't get
paychecks.

So the 6.5 trillion in a single year plugs is either nonsense or seriously
misreported in the latter article.

Another way to see it - the article says Congress allocated $122B on 2015 for
Army. At that rate Army would take 60+ years to have 6.5T in funny money
floating around, and that only if it was not paying anyone for anything else,
and that requires them to get 122B a year for the past 60 years, which they
did not (60 years ago total DoD budget budget was ~50B, Army was a small
fraction of that).

Thus it's easy to see the article is some mix of lying, ignorance,
miscounting, multiple counting, or other nonsense. It's mathematically
impossible for Army to have misplaced or hidden or defrauded that much money.

Care to explain their math while tying it down to actual budget numbers?

~~~
jessaustin
If you will believe DoD, and we'll understand if you won't, you'll find the
$6.5T figure on page "i" of this document. [0] (click through soon, because
they take down these embarrassing reports all the time!) _Of course_ the
gigantic figure is nonsense, but that indicts DoD accounting rather than the
journalists who've noticed its shabby nature. By producing meaningless
numbers, the accountants have completely obscured what's really going on, in
violation of Article I, Section 9 of the Constitution.

[0]
[https://media.defense.gov/2016/Jul/26/2001714261/-1/-1/1/DOD...](https://media.defense.gov/2016/Jul/26/2001714261/-1/-1/1/DODIG-2016-113.pdf)

~~~
ChrisLomont
And here is the same audit done in 2018, again from the Inspector General
(your report was 2016). It's the most recent followup to your report, which is
now outdated.

Seems the 6.5T must have evaporated. As expected.

This is why using simple smell tests to raise suspicion is worth noting.

[https://media.defense.gov/2019/Jan/08/2002077454/-1/-1/1/UND...](https://media.defense.gov/2019/Jan/08/2002077454/-1/-1/1/UNDERSTANDING%20THE%20RESULTS%20OF%20THE%20AUDIT%20OF%20THE%20DOD%20FY%202018%20FINANCIAL%20STATEMENTS.PDF)

~~~
jessaustin
Just look at the first page of each document. The one I linked clearly states
on page "i" both an Objective and a Finding ("did not adequately support $2.8
trillion in third quarter journal voucher (JV) adjustments and $6.5 trillion
in yearend"). Your document neither addresses this issue nor does it include
any stated objective nor does it include any stated findings. No one who even
skimmed this document would suspect it even addresses this topic. We can't
just assume, as you would like to do, that a massive problem of long standing
would just disappear in a couple of years. No one thinks that the Pentagon
stole $6.5T in one year. The fact that the $6.5T figure appears anywhere on
Pentagon account books is the problem. When "adjustments" with no reasonable
explanation overwhelm real assets and transactions, the accounts are without
meaning. In such a situation, we can be sure that lots of resources are being
diverted to unapproved purposes, even if those diversions don't tally to the
trillions. (Although, when the budget is 3/4 of a trillion per year, it's not
going to take long to get there.)

Frankly you seem to be arguing with straw men. Why is that? Do you have any
professional experience with accounting? Have you ever produced a balance
sheet? Have you ever read one?

~~~
ChrisLomont
>The fact that the $6.5T figure appears anywhere on Pentagon account books is
the problem

It doesn't as I linked. It's derived from a (quote) "non-statistical sample"
and is full of double billing. I pointed this out with sources. This number is
not from tallying items on books - it's from taking not statistically
controlled sample and extrapolating, using poor methodology (as pointed out in
the links I provided). This is basic stats and arithmetic.

When X money comes from gov to dept A, goes on a book, then goes to dept B,
goes on a book, this is not 2X dollars. This is how they get such ridiculous
numbers by not balancing books. This is pointed out in enough well sources
internet places besides what I posted that it's not worth digging it up more.

Coincidentally, the DoD recently completed it's second complete audit [1] in
late 2019, even later than the 2018 one I posted above. Again, they found "No
evidence of fraud". If you search that gov site, you'll find documents in
depth about the audit(s).

I get that you want to stick to a clearly incorrect audit from 2016 for your
narrative of incompetence and fraud, but when I've provided 2 annual audits
that show otherwise, it's clear you're holding onto a belief over fact.

[1]
[https://www.defense.gov/Newsroom/Releases/Release/Article/20...](https://www.defense.gov/Newsroom/Releases/Release/Article/2018503/dod-
completes-second-annual-department-wide-audit-demonstrates-progress/)

~~~
jessaustin
You're linking to press releases now, so this discussion has run its course.
You refuse to acknowledge that unjustified adjustments have overwhelmed the
rest of the books. Reading the press release, we find it's bragging about a
few parts of DoD, not even including USArmy which is what we were talking
about.

~~~
ChrisLomont
>You're linking to press releases now,

So your first link in this thread, which is a press release, and your second
link, which is a Dave Lindoff opinion piece, are valid, but linking a .gov
release with a link to the actual audit means this thread has run it's course?
That's intellectually dishonest.

>not even including USArmy which is what we were talking about.

The linked audit clearly states Army. Look at the audit page. Search the word
"Army". First (and only) Army link goes to the Army section of the audit.
Since you didn't even look, I'll post the Army section for you [1].

This has become completely dishonest. You're not even looking at the audits
from the DoD, including the one you care about, to update your world view.

>You refuse to acknowledge that unjustified adjustments have overwhelmed the
rest of the books.

I admit they did in 2016. The 2018 and 2019 audits no longer have that result.
Do you acknowledge subsequent audits resolved the discrepancies and found no
evidence of fraud?

[1] [https://www.asafm.army.mil/Audit/](https://www.asafm.army.mil/Audit/)

------
PeterisP
The whole problem is caused by ridiculous policies such as explicit advantages
for "small businesses owned by “service-disabled veterans, women, minorities,
or economically and socially disadvantaged individuals".

It's obvious why they're passed (and would be nearly impossible to repeal),
because it's a useful PR trick that sounds good and attractive to the voters.
However, that's bullshit - it does not matter by whom the business is 'owned'
(because actual control and benefit does not map cleanly to legal ownership),
if you want to subsidize a particular group of people, well, just give them an
appropriate amount cash directly, or give advantages to the particular
“service-disabled veterans, women, minorities, or economically and socially
disadvantaged individuals" themselves, but you definitely should have the
businesses still compete based on proper merits instead of legalizing
advantages for ticking arbitrary boxes, which only invites abuse such as
described in this article.

------
munk-a
It's hilarious that this issue hurting the US is entirely and wholly made by
the US. The various ridiculous ways you can mask corporate ownership in the US
all come straight out of the mass of company control, ownership and revenue
disbursement that have evolved over time - it also hits common folk too, but
it's amusing that the DoD gets hit by it so hard.

------
morninglight
Speaking of taxes, has anyone been able to download the instructions for the
Federal 1040 form? the website is: [https://www.irs.gov/forms-
instructions](https://www.irs.gov/forms-instructions)

but the downloadable "Instructions for Form 1040" pdf is for tax year 2018.
Can anyone find the download for tax year 2019?

~~~
junar
The final version is not released (and the filing window doesn't open until
Jan 27).

There is a draft version of the 1040 instructions, but beware that things may
change, if, for example, new legislation is passed.

[https://www.irs.gov/pub/irs-dft/i1040gi--
dft.pdf](https://www.irs.gov/pub/irs-dft/i1040gi--dft.pdf)

~~~
morninglight
Thanks so much for the information!

My 2018 copy of the 1040ES for estimated tax payments states.

"You don’t have to make the payment due January 15, 2020, if you file your
2019 tax return by January 31, 2020, and pay the entire balance due with your
return."

So, if the window doesn't open until Jan 27, it looks like I'll be making the
Jan 15 estimated payment. I'm surprised that window doesn't open until Jan 31.

------
vsareto
I wonder how many of these schemes will be used when CMMC certification is
required by DOD.

~~~
intpx
The govt can't even adequately audit the classified side of the house, why
would they do any better with the unclass?

~~~
dsfyu404ed
Because the public can see their crappy audits and complain enough that some
congressman sees an opportunity to clean that crap up so he can put "saved
billions of dollars by rooting out waste" in his re-election TV ad and peddle
to a special interest group (the people who want to minimize government
waste).

At least that's how the theory goes. You need people to actually care instead
of just shrugging and saying "well that's government, nothing you can do about
it" like they do for my state government (though I have lived in other states
where the general populace did not seem to take government waste for granted
like that).

------
RALaBarge
In other news today, water is wet

