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Purpose This paper aims to explore selected real-world procurement fraud incidents in the US Department of Defense (DoD) and the implications of these incidents to the DoD’s contracting processes and internal controls. Design/methodology/approach This paper analyzes actual procurement fraud incidents and identifies in which phase of the contract management process the fraud occurred and which internal control component was associated with the fraud scheme. Findings The fraud incidents generally occurred during the source selection and the contract administration phases and involved the control activities, monitoring and control environment components of internal control. Research limitations/implications The fraud incidents are analyzed using contract management and internal control frameworks adopted by the US Government. Recommendations are developed for improving contracting processes and internal controls as an approach to deterring and detecting procurement fraud and may be applicable to other international public procurement bodies. Practical implications Governments are ensuring auditability in public procurement as a means of improving agency governance. The research findings suggest that an emphasis on capable contracting processes and effective internal controls should be adopted for fighting procurement fraud. Social implications Ensuring auditability in public procurement has a far-reaching effect in society. The value of capable processes and effective internal controls is gaining much attention in public agencies, as they strive for accountability, integrity and transparency in their governance processes. Originality/value By emphasizing capable processes and effective internal controls, governments can apply a strategic approach to detecting and deterring fraud and thus ensure that government monies are spent in the most effective and efficient ways.

Purpose The purpose of this paper is to analyze an ongoing fraud case in the US Navy involving the procurement of ship-husbanding services. The fraud acts will be analyzed from three perspectives–contract life cycle, internal controls and fraud schemes. Design/methodology/approach A data search was conducted to collect publicly available documents issued by the US Department of Justice (DOJ). A content analysis was used to analyze the fraud acts by aligning them with the contracting phase, internal control component and fraud scheme category. Findings The majority of the fraud occurred in the contracting phases of contract administration, followed by procurement planning and then source selection. The majority of the fraud occurred because of internal control component weaknesses in the control environment followed by information and communications. The majority of the fraud was aligned with the fraud scheme of collusion, followed by billing, cost and pricing. Research limitations/implications Because this is an ongoing investigation, additional DOJ information will become available and provide additional insight on the contracting phase, internal control component and fraud scheme. Practical implications The analysis suggests that the Navy’s lack of trained personnel, capable processes and effective internal controls result in the increased vulnerability to procurement fraud in its husbanding support services program. Originality/value To the best of the authors’ knowledge, this study is the first to analyze fraud through the lens of auditability theory, specifically by the contracting phase and internal control component. Public agencies can enhance fraud detection and deterrence efforts by understanding how weaknesses in contracting processes and internal controls may increase an organization’s vulnerabilities for fraudulent activities.

In fiscal year 2014, the U.S. federal government obligated over $443 billion in contracts. Within the Department of Defense (DoD), over $283 billion were obligated in the execution of 1.3 million contract actions (USA Spending, 2015). Despite the critical importance of the DoD's contract management function, both the Government Accountability Office (GAO) and the DoD Inspector General (DoD IG) have reported problems in achieving successful procurement outcomes. The lack of trained personnel, capable processes, and effective internal controls results in the DoD having a higher level of vulnerability for procurement fraud (Rendon & Rendon, in press). Contracting officers, because of their pivotal position in the procurement process and their interface with both government officials and industry, are in a unique position to be on the front line for deterring and identifying procurement fraud. However, in order to be effective procurement fraud-fighters, contracting officers must be knowledgeable of both contracting processes and internal controls. The purpose of this research was to assess DoD contracting officers' knowledge of the DoD's contract management processes and related internal controls. Our research findings indicated contracting officers may have a possible knowledge deficiency in the areas of procurement internal controls and procurement fraud schemes. Based on the implications of these findings, recommendations are made to the assessed agency and the DoD.

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