Safeguarding Procurement: Examining Fraud Risk Management in the Department of Defense

Chairman Pete Sessions (R-TX)SPEAKER_09

Subcommittee on Government Operations and the Federal Workforce will come to order. Good morning and welcome to the, not only the members who are here today and the staff, but also those people in the audience in support of the discussion that we will have today. Without objection, I may declare recess at any time. I recognize myself for the purpose of making an opening statement. Today's hearing on the Department of Defense's fraud risk management efforts and how they work to combat fraud. In 2024, DOD officials told the GAO that they didn't believe there was much fraud within their department relative to their overall spending. Reports show that DOD spends over $1 trillion annually. So, as you can tell, even a small percentage would be significant. From 2017 to 2024, DOD reported that about $10.8 billion could be confirmed as fraud. $10.8 billion, when compared to a trillion, is not as they- what they would consider to be

SPEAKER_UNKNOWN

a

Chairman Pete Sessions (R-TX)SPEAKER_09

relative problem. We do. The people who are gathered today, including members of Congress on a bipartisan basis, do consider that $10.8 billion of confirmed fraud is a problem. This figure mostly relies on dollars that were recovered. According to GAO, confirmed fraud and the amount recovered may only reflect a small fraction of the extent of fraud within DOD. To accomplish its global mission, DOD relies on contractors for goods and services. In fiscal year 2023, DOD reported about $431 billion, or 71% of total defense spending, went to contractors for various products and services in support of the warfighter, 71%. For years, GAO has reported that DOD has struggled to accurately account for the government property that contractors possess. This longstanding issue affects the DOD's ability to produce fully auditable financial services, as we have discussed in this subcommittee and in the committee under our young Chairman James Comer for a number of years. It affects our ability to ensure that taxpayer money is being spent appropriately and our service members are getting actually what they need because the taxpayer of this country is paying that bill. It affects our ability to prevent bad actors from exploiting vulnerabilities in the contracting system. In essence, it keeps people honest because they know people are looking. There have been some notable cases over the years that highlighted how far fraudsters will go to line their pockets by defrauding the federal government. In the early 2000s, Fat Leonard orchestrated the worst corruption scheme in U.S. naval history. He bribed naval officers to steer businesses towards his company, Glenn Defense Marine Asia. This company offered services to the United States Navy, its ships, and it overcharged the military by at least $35 million. The scheme went on for over a decade. This case is still being investigated for the so this full scope of damage is going to be put together, and yet today we do not have the final figure. As far back as 2006, Navy criminal investigators opened and closed 27 separate investigations into Glenn Defense Marine Asia. GAO recently reported that DOD's updated fraud risk management strategy does not include data analytics. Data analytics would make it easier and clearer for personnel to verify information and determine eligibility for contractors to receive federal awards. It would also help connect the dots between suspicious activities and those which were legitimate. Had investigators and the DOD contracted personnel using data analytics back to 2006, perhaps Fat Leonard could have been stopped years before. Examples like this are horrible, but fraud within the DOD just doesn't threaten their financial positions, but it undermines the opportunity for them to know what they have, where it's located, and where the service is properly provided. There are real operational impacts that can pose a threat to our service member. One such case involved Defense Criminal Investigative Service involved in working against a fraudster that purportedly falsified documents. These documents included a fraudulent certificate to conceal the fraudster's company and failure to maintain required manufacturing standards were for a machine gun part. This financial impact was only $124,000, but the non-financial impact was more troubling. A military engineer testing one of these machine gun parts saw several deficiencies. These deficiencies could have harmed our warfighters, not just in protecting this nation, but also their lives. Our sons and daughters are fighting for our country, and they should not have to worry about whether or not a contracted part for their weapon will function as was as it was correctly manufactured. This subcommittee is continuing to have conversations with not only GAO, but also those within the Defense Department, including the Inspector General community. We are there to make sure that we work with them. We want to make sure agencies understand their responsibility to make sure taxpayer money is wisely spent. One of our first hearings this Congress was focused on preventing fraud rather than chasing fraudsters who've already run away with taxpayers' hard-earned dollars. Shining a light on contracting fraud within DOD and highlighting some common-sense strategies that can prevent this fraud is also what this conversation is about today. Eliminating the amount of fraud within DOD is a hard task, but we are up to that. And I hope that this conversation, as well as those that we're giving to the the two witnesses that we have today, where they will understand that we will join with them in making sure that the United States Congress speaks with one voice to say that we don't just expect this to be done, we want it done now. Time must be on our side. At this time, I would like to yield to the distinguished ranking member, Mr. Mfume, for any opening statement he'd like to make. And I'm delighted that you're here. And good morning. We made a determination, as I told our witnesses yesterday, that Mr. Mfume and your side, the Democratic Party, intends to forthrightly address this issue, come up with real answers, and we're going to work together on this. The gentleman's recognized.

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

Thank you very much, Mr. Chairman. Thank you for your remarks also. And, you know, working together is something that we on this side of the aisle look forward to, particularly when we are able to discern, as we have been, a great deal of problems with the Department of Defense in this case. But thank you. I want to say good morning to you, and to our witnesses, and to everyone else who's here in the meeting room, as well as my colleagues who've taken time to be here today. All of this comes against a backdrop of seven straight failed audits by the Department of Defense, which is really hard to fathom. Some of you may be hearing this for the first time, but seven straight audits deserves an exclamation point behind it, because when we're dealing with the largest appropriation within our nation's budget, we deserve to be served correctly. Oversight of the public purse really is not a partisan talking point. It is indeed a constitutional promise that we make to every taxpayer and to every service member who wears the uniform. No federal agency, as I indicated, spends more on contracts than the Department of Defense. In fiscal year 2023, it obligated roughly $456 billion, well over half of all contract dollars, and the current continuing resolution boosts defense discretionary spending to $892 billion. It's kind of hard to get your arms around a number like that, but that is the case: $892 billion. When a balance sheet is obviously that large, even a 1% error drains nearly $9 billion from our troops, our readiness, and our modernization. Yet, the Government Accounting Office still places DOD's business systems on a fraud risk management of—as the chairman said earlier—a high-risk list, confirming that at least $10 billion in fraudulent payments have gone out since 2017, and then further warning us that the full extent is far higher than that. GAO's message is really rather blunt: until senior leadership sustains a commitment to every defense dollar, all defense dollars remain at risk. The leadership gap should concern this committee, contracting officers across the services, and others, because although there are many that do historic or heroic, I should say, work, they need clear direction from the top. And right now, that is not where they're essentially getting it. Congress must, therefore, hold DOD and all of its contractors accountable when fraud erodes readiness, when it squeezes small businesses, and when it undermines the public trust. Disturbingly, the Trump administration has moved us in the wrong direction on this matter, because within days of taking office, it fired the DOD Inspector General, the department's chief watchdog, and has since proposed rolling back key acquisition safeguards. You know, speed has its virtues. I don't deny that. But dismantling guardrails and silencing oversight is not efficiency. It is an engraved, engraved invitation to fraud. And so, as we look at DOD's progress today, I think that our focus ought to be threefold. Number one, drive leadership commitment through every aspect of the agency. Fraud risk management cannot be relegated to the back office. Secretary Hegseth and subsecretaries who serve with him must own it, resource it, and insist on measurable results. Number two, modernize the prevention tools. GAO has found that DOD still lacks the real-time analytics needed to expose phantom vendors and collusive bidding. So, data must be able to talk to data before the money walks out of the door. I'm not suggesting that's how you fail seven straight audits, but it's certainly not the way that you pass them. Number three, enforce accountability with consequences. When fraud occurs, suspension, debarment, and criminal action must be swift, public, and proportional. Anything less rewards the bad actors and punishes all the honest ones. Colleagues, today, every fraudulent invoice paid is a weapons system delayed, a housing unit deferred, or a veterans clinic understaffed. When we achieve and maintain the strongest military on Earth, we have a clear obligation to make sure that every defense dollar works as hard as it possibly can for the men and women it is meant to serve. So, I look forward to the testimony of our witnesses. I look forward to working with Chairman Sessions and my other colleagues on both sides of the aisle here to try to find a way—how do we translate all of their insights into some sort of concrete reform? Because reform is clearly, clearly needed. With genuine leadership commitment and a vigilant congressional oversight ongoing effort, I think we can safeguard—or eventually we'll be able to safeguard procurement, protect the taxpayers' investment, and then, of course, strengthen our national defense. Without it, we do a disservice to the American taxpayer. Without it, we do a disservice to the men and women who put on a uniform. And without it, we give up the obligation that we have to make sure that waste, fraud, abuse, breaking the law, finding ways to skirt the process, and then ultimately making a profit off the system that will be with us forever if we do not act and act swiftly. So, I want to yield back and again thank the chairman. I want to thank the members present and all those who are here out of a genuine concern to find a way to straighten out what has been a very nasty, ugly problem affecting our Department of Defense. I yield back.

Chairman Pete Sessions (R-TX)SPEAKER_09

Mr. Mfume, thank you very much, and not just for your conversation, but remembering and seeing as you look up today, we have many young students that are here, that are here for a summer to learn not just about what might be democracy and the role of Congress, but also to understand that Congress, too, has not just a role to play, but an important role to play. And it's my hope that they see that we have two people, not just Republicans and Democrats, but two people who are equally committed to the needs to make sure that their future is brighter and better also, because they, while they may be voters now, they soon will be taking our place and want to tell the story about their future, and it does reside around the national security issues of the United States military. And I want to thank you very, very much. I would ask unanimous consent that Congressman Andy Biggs from Arizona be waived on today's hearing for the purpose of asking questions. Without objection, so ordered. I also note that today we have our young chairman, James Comer, the chairman of the whole Committee on Government Reform. Mr. Chairman, we're delighted that you've taken time to join us.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

Thank you, and I appreciate the young comment. I really appreciate that, Mr. Chairman.

Chairman Pete Sessions (R-TX)SPEAKER_09

Well, you earned it then. How about that? I'm pleased today to welcome our witnesses, Kelly P. Mayo and Seto Bagdoyan. Mr. Mayo is Deputy Inspector General for Investigations at the Department of Defense's Office of Inspector General. Mr. Bagdoyan is the Director of Forensic Audits and Investigative Services at the United States GAO, Government Accountability Office. We look forward to having you join us today. And when we met yesterday, I assured you that your comments, your insight, and the things which you would bring to the table are not aimed at anything other than resolution, information to where we're able to work with you. And I also assured you that you would come before a subcommittee that while we have deep issues and problems, it is shared by both of us, not only on a bipartisan basis, but in the best interest of the warfighter, who represents the the husbands and wives of men and women who want their children to be taking care of properly as a fighting force to protect America. So pursuant to Committee Rule 9(g), the witnesses are asked to please stand and to raise their right hand to be sworn in. Do you solemnly swear or affirm that the testimony that you're about to give today is the truth, the whole truth, and nothing but the truth, so help you God? Let the record reflect that the witnesses have both answered in the affirmative. Both of you may take your seat, and thank you very much. I now would like to recognize the witnesses for their opening statement. Let me remind the witnesses that we have read your written statement, and it will appear in full in the hearing record. As we spoke about yesterday, we are going to limit your oral statement to 5 minutes, but we want you to make your points if you sneak over that. But certainly in questions to—from the members that come here, we'd like for you to give full and complete thoughts that you have that enable us to better understand the role that you play. As a reminder, please push the button on the microphone in front of you so that the members can hear you, and when you begin to speak, the light in front of you will turn green. You will also see after 4 minutes or so the light will turn yellow, and then the red light will come on. I encourage you to please make sure that your conversation with us fits not only within that time frame, but you're able to complete your work properly because we need to use your time to help us in recognition of what we're trying to accomplish. I now recognize Mr. Mayo for his opening statement. The gentleman is recognized.

Kelly P. MayoSPEAKER_04

Thank you, sir. Chairman Sessions, Ranking Member Mfume, and members of the subcommittee, thank you for the opportunity to testify today regarding the important topic of procurement fraud within the Department of Defense. As the Deputy Inspector General for Investigations, we are the criminal investigative arm of the DOD's Office of Inspector General, which is mandated by Congress to oversight DOD programs and operations. In support of the DOD IG's broader independent oversight mission, DCIS conducts criminal and civil investigations to ensure that resources meant for America's service members are not stolen, wasted, or compromised. My testimony today reflects the experience of hundreds of DCIS special agents, analysts, and other talented professionals who are dedicated to exposing fraud and protecting the integrity of the U.S. defense spending at home and abroad. My message for the subcommittee today is clear and simple: Investigating procurement fraud within the DOD is a top priority for DCIS. Fraud harms military readiness. It puts service members at risk, and erodes the trust of the American taxpayers. That is why DCIS has been aggressively holding fraudsters accountable since we were established more than 40 years ago. DCIS defines fraud as any intentional act or scheme to obtain something of value from the DOD through false statements, deception, or misrepresentation. It can be perpetrated by individuals inside and outside of the government and by the private sector companies providing products and services to the DOD. DCIS targets fraud that threatens national security, including product substitution, bid rigging, cybersecurity, and bribe, and domestic, from domestic contractors. Our investigations routinely lead to criminal convictions, Civil False Claims Act recoveries, and contractor debarments, returning billions of dollars to the government and preventing future losses. For example, in just the 6-month period from October '24 through to March '25, DCIS investigations resulted in more than $3 billion recovered for taxpayers. To date, DCIS has 1,864 open investigations, including open investigations, including 700 and 400 and 478 cases of procurement fraud. I cannot discuss any ongoing or open investigations during today's hearing to maintain the integrity of the investigative process. However, I can certainly talk about closed investigations. In conclusion, the procurement fraud is not a technical irregularity for the DOD. It's a strategic vulnerability that siphons taxpayers' funds and undermines public trust. Ongoing engagement and support from the Congress are essential to reinforcing the DCIS mission and upholding our trust placed in us by the American people and those who we serve. We look forward to working with a continued partnership with the subcommittee to uphold the standards of our warfighters that our tax, that our taxpayers expect. Thank you again for the opportunity to testify today. I will welcome your questions, but if I may have 1 minute left, I would like to say that I am incredibly honored to be here. I was a blue-collar kid, homeless for a while, and this is this is a privilege of a lifetime. Thank you very much, ladies and gentlemen.

Chairman Pete Sessions (R-TX)SPEAKER_09

Mr. Mayo, thank you very much, and the gentleman yields back his time. I now would like to recognize Mr. Bagdoyan. Mr. Bagdoyan, you're recognized.

Seto BagdoyanSPEAKER_12

Thank you. Chairman Sessions, Ranking Member Mfume, and members of the subcommittee, I'm pleased to discuss today GAO's extensive work on procurement fraud risk management at DOD. The president recently proposed a $1 trillion fiscal year 2026 budget for the department, a substantial share of which is for procurement, an operational area inherently at risk for fraud. In general, fraud risk in federal programs is a function of weak controls, as well as high spending levels, sprawling scope and scale, and complex, often restrictive configurations. These causal factors are all present in DOD activities, making effective fraud risk management very challenging. In this regard, DOD faces significant financial and non-financial fraud risks, which, coupled with weak fraud risk management, compromise the integrity of its programs, resulting in operational readiness and national security impacts. An example from our reporting underscores such impacts, namely, an ineligible foreign manufacturer, through opaque ownership of U.S. shell companies, obtained contracts, accessed and exported sensitive military data, and produced nonconforming parts, which resulted in the grounding of 47 fighter jet aircraft. My remarks today aggregate the results of three GAO reports since 2019 on DOD procurement fraud risk management, the addition in February 2025 of fraud risk management to the existing DOD financial management area on GAO's High-Risk List, and recent related GAO testimony before the subcommittee. Against this backdrop, DOD asserted that fraud isn't a significant problem, challenged our adding fraud risk management to the High-Risk List, and disagreed with key findings and more than half of our recommendations in our three reports. These recommendations are fundamental to effective fraud risk management. 13 of these recommendations, including two designated as priority, which means must-do recommendations, remain open. And though risks are immediate, DOD has repeatedly delayed their implementation. Regrettably, then, DOD's indifferent posture, including lack of timely action, suggests that fraud risk management isn't yet a top leadership priority. With the foregoing as context, I'll make two principal points about the state of fraud risk management at DOD. First, our analyses of about 2,700 adjudicated procurement fraud cases covering fiscal years 2015 to 2021 conclusively show that assertions to the contrary notwithstanding, fraud and risk is indeed a problem at DOD. Second, DOD's capacity to manage fraud risks falls well short across multiple fundamentals. For example, the DOD anti-fraud strategy hasn't established clear roles, responsibilities, and authorities across components for fraud risk management, including the entity charged with leading this effort. Accordingly, this entity can't readily compel timely and comprehensive action by components. Data analytics activities to identify and assess fraud risks are essentially nonexistent across components, including investigative units, missing a major opportunity to significantly enhance fraud risk management decision-making and action. I'll close by underscoring that managing fraud risks effectively is serious business, as their multiple impacts are significant. Accordingly, for DOD to address such risks successfully and safeguard its assets, it must promptly do three vital things. First, acknowledge fraud risks are a problem rather than downplay their existence and significance. And second, determine their extent, nature, and implications at the institutional as well as the component levels. And third, act decisively and timely as part of an integrated anti-fraud approach to fully implement all our recommendations and build and sustain an effective fraud risk management capacity. Chairman Sessions, Ranking Member Mfume, this concludes my remarks. I now welcome your questions. Thank you.

Chairman Pete Sessions (R-TX)SPEAKER_09

Mr. Bagdoyan, thank you very much. The gentleman yields back his time. I'm going to first go to our young chairman of the full committee, the gentleman from Kentucky, Mr. Comer. Sir, you're recognized.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

Thank you, Chairman Sessions. And I want to thank you and Ranking Member Mfume for the work you do on this subcommittee. You all do it right. I appreciate that. My first question for both witnesses: I assume you all will both agree that fraud is a problem at the Department of Defense, at DOD, correct? Yes, sir. So do you, sir, Mr. Bagdoyan, do you have an estimate of how much fraud there is at the Department of Defense?

Seto BagdoyanSPEAKER_12

I do not, Mr. Chairman. The numbers we have are based on what Mr. Sessions mentioned in his opening remarks, essentially, confirmed fraud, which is tip—

Full Committee Chairman James Comer (R-KY)SPEAKER_11

massive, massive. And it's been mentioned several times, the DOD, the Pentagon continues to fail audits, which is unacceptable, but they continue to do that.

Seto BagdoyanSPEAKER_12

Yeah. If I may add that what is confirmed is what's been detected, investigated, and adjudicated. So we don't know what's been missed.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

Right. Well, let me ask both of you, does the Department of Defense agree? I think I know where Secretary Hegseth is, but do the rank-and-file employees, bureaucrats, whatever you want to call them at the Department of Defense, do they agree that there's massive fraud in the Department of Defense? Mr. Mayo?

Kelly P. MayoSPEAKER_04

don't know if I can speak to that broadly, sir. I think many of the people in the Pentagon do understand this. I've not discussed this with them, but I think the people in the DOD, many of them Yes, sir. Same, same thing —

Seto BagdoyanSPEAKER_12

Yes, I would agree with Mr. Mayo. I can't speak to the rank and file in broad terms, but the people we are working with to implement our recommendations seem to have their their hearts and minds in the right place. They do believe it is a problem that needs to be addressed. But in terms of personally verifying and vouching for that, I can't do that.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

What advice do you all have for Congress, for this specific subcommittee that's sincere? This subcommittee is quality. Everyone's sincere about wanting to eliminate waste, fraud, abuse, and mismanagement in the federal government. I think everyone knows the Department of Defense is the poster child for waste, fraud, abuse, and mismanagement in the federal government. We talk about it, but nothing gets done. What advice would you all have real quick for this subcommittee and this Congress to actually get something done to rein in the

SPEAKER_UNKNOWN

That's a key point.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

Excessive spending, the, the just

SPEAKER_UNKNOWN

the

Full Committee Chairman James Comer (R-KY)SPEAKER_11

exuberant waste at the Pentagon. Mr. Mayo,

Kelly P. MayoSPEAKER_04

Yes, sir, I think that we're doing it right now with your help, with your substantive help. I think we can make some we can make some, not not DCIS, but the government writ large.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

Sir.

Seto BagdoyanSPEAKER_12

Yeah, I would agree with that. Sustained regular oversight is very important.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

Let me ask you this. Is it Congress's fault? We hear about Congress, that the Pentagon will make a suggestion on a certain type of aircraft that maybe they don't need as many or they don't need them at all, and a member of Congress that has a facility in their district will change that and say, No, we're going to order three times as many as we need. Is it Congress's fault? Who do you lay the blame at? Is it Congress or the bureaucrats at the Department of Defense, Mr. Mayo? Someone has to be—we have to blame someone. Someone's at fault for the way the Department of Defense continues to fail audits and continues to be efficient with taxpayer dollars. Is that our fault? Is that—when I say our, I'm talking about Congresses from way, way back, you know, not not Mr. Burchett or myself or Mr. Biggs; we're relatively new here. But

Chairman Pete Sessions (R-TX)SPEAKER_09

you want to blame me?

Full Committee Chairman James Comer (R-KY)SPEAKER_11

Yeah. Well, no, no,

Chairman Pete Sessions (R-TX)SPEAKER_09

no.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

You're You're one of the good guys, Mr. Sessions. But who do you blame for this?

Kelly P. MayoSPEAKER_04

I wouldn't know, sir. I think it's a pervasive thing across the DOD, and people, I think they're working hard to get things done, and a lot of these things are slipping through the cracks. I don't know how It's I don't think it's I don't think it's certainly your fault. I don't think so at all.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

This is something I've been here 8 years, and Mr. Biggs and I got here at the same time. It's just, it's not getting any better. It gets worse. And I think that the good thing we have now with President Trump, with the overall objective of the DOGE movement, is we can't continue to spend $2 trillion a year more than we take in. We've got to tighten our belts. Jamie Dimon talks about it. The bond market's concerned. We can't continue this excessive spending. And we want a strong military. We want to support our troops, but we cannot continue to waste money. And I appreciate the witnesses here today. I appreciate the hearing, Mr. Chairman and Ranking Member. Hopefully, we can come together in a bipartisan way to solve this problem of excessiveness at the Department of Defense. I yield back.

Chairman Pete Sessions (R-TX)SPEAKER_09

gentleman yields back his time. While the young chairman is here, I'd like to bend his ear for just a second on a bipartisan basis. We believe that what we're doing today is also to point out that the Department of Defense, when they respond back to the investigations that have been done, the findings of fact and conclusions that the GAO and IG have presented to the management of DOD in writing, they come back and say they are noncompliant, which means they do not agree with the findings of professionals like the IG or GAO. And so while you are worried about—and we are too—what we spend, we are more concerned that they ignore that fraud is present in this. And you will find that, as a result of this hearing today, Mr. Mfume and I will be requesting you and the the ranking member of the of the committee join us in going to across the river to DOD to make sure that they understand that this is unacceptable and that they've got to understand there is fraud.

Full Committee Chairman James Comer (R-KY)SPEAKER_11

Absolutely. Well, thank you all for what you're doing, and I appreciate this hearing and look forward to the rest of it.

Chairman Pete Sessions (R-TX)SPEAKER_09

Mr. Chairman, thank you very much. Mr. Mfume.

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

Thank you very much, Mr. Chairman. I've got a couple of questions about GAO and their risk management, if you don't mind. Mr. Bagdoyan, in your view—and I don't have a lot of time here, so if you can kind of quickly walk through these with me—what leadership actions would have the greatest immediate impact on lowering DOD's fraud risk profile?

Seto BagdoyanSPEAKER_12

Yes, the key action here is to make it the top priority for action and make sure that that translates down to the various levels, the various components that we've audited over, over time. So it has to come from the Secretary to make sure that his staff are aware of that priority and start building a culture of fraud risk management. Without that, all the rest is not going to work.

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

Yeah, and I think that's one of the clear things we're going to be communicating to Secretary Hegseth. It's got to start at the top, and it's got to be sustained. Otherwise, we'll be here eight years from now talking about 15 failed audits. How would you characterize the current state of DOD's data integration for fraud detection? In other words, are we at the starting line, the halfway point, or near the finish line?

Seto BagdoyanSPEAKER_12

Being at the starting line would be a charitable way to describe it. They, they're just not there. The data are massive. They are difficult to work with. We spent months cleaning up the data. One of my colleagues in the audience did that as his full-time job for a long period of time before we could even analyze the data. So that needs to be looked at before they do any other work with data analytics.

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

Thank you for the characterizations. What specific analytics and capabilities related to analytics should DOD prioritize over the next 12 to 18 months to improve early detection of fraudulent activity? Early detection.

Seto BagdoyanSPEAKER_12

Early detection, of course, make building a data analytics capacity the priority. Then move on to the data themselves to clean them up, to make them usable, make them reliable and analyzable, if that's a word, to make sure that the end result is actionable.

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

And could you highlight two or three, four maybe, GAO recommendations that if implemented this year would deliver the biggest return on investment for taxpayers?

Seto BagdoyanSPEAKER_12

Well, to start with, we expect the anti-fraud strategy from DOD towards the end of next month, I believe, that they have promised will include data analytics as a top priority. So that is a good starting point. And then the second priority recommendation that I alluded to earlier involves doing thorough fraud risk assessments and responding to the results. Now, giving me a piece of paper to close a recommendation is the beginning, but they have to go out and operationalize what they've done. Otherwise, it's not going to work.

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

And where do you see the greatest barriers? Is it budget? Is it culture? Is it technology? And when I say barriers, I mean barriers to closing those recommendations.

Seto BagdoyanSPEAKER_12

Well, as I believe the chairman mentioned earlier, there was resistance from leadership to our reporting, to our recommendations, to the designation of the high risk as part of financial management. So, that seems to have softened over time because the people we're working with at DOD are trying to implement the recommendations, and we expect some of their products to come through later this month and through next month.

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

And do you and Mr. Mayo communicate with one another

Seto BagdoyanSPEAKER_12

We, we met this week. Uh, I expect that we will be in touch. Yeah,

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

yeah, I think it's important. I mean, I sense his sincerity and yours, but unless there is some sort of communication here, you know, we're still taking baby steps instead of giant steps. I have one final question. Do you see any new emerging fraud schemes that perhaps are enabled by new technologies? In other words, how do we stay one step ahead of the bad guys who are finding ways through technology to evade capture?

Seto BagdoyanSPEAKER_12

Unfortunately, the fraudsters are ahead of us in multiple agencies, programs, and so on. The two most common schemes that we flagged through our analyses are false false claims and overcharging. There's a whole slew of others, false bids and so on. So whatever analytics that DOD implements will have to be very tactically focused on those fraud schemes. But I can't speak to one being more prevalent than the other.

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

Thank you very much, Mr. Chairman. I yield back.

Chairman Pete Sessions (R-TX)SPEAKER_09

yields back his time. I'd now like to go to the gentleman who was here well early and who I know has other obligations. Distinguished gentleman from Arizona, Mr. Biggs, you're now recognized, sir.

Rep. Andy Biggs (R-AZ)SPEAKER_10

Thank you, Mr. Chairman, and I thank you and the ranking member for this hearing today. And thank you, Mr. Mayo and Mr. Bagdoyan, for being here. The DOD spends a ton of money. We've talked about that. Yet we're still seeing fraud, overbilling, fake shell companies, bad parts, and the system looks the other way way too often. And so I want to highlight something, Mr. Bagdoyan, real quickly that you mentioned. You talked about 47 aircraft had to be grounded due to non-conforming parts provided from a foreign company through essentially U.S. cutouts. And this gets to one of the things you talked about is how you get there. You got to get them to acknowledge there's fraud, then you have to extract the nature and the implications of that fraud. Now, the implications of this fraud looks to me—and I want to ask this question: Is there any evidence that these non-conforming parts were a malevolent attempt to actually by some bad actor to ground our planes or cause us problems, or was this simply a scam, and they didn't care what happened, they just wanted the money? Is your mic on?

Seto BagdoyanSPEAKER_12

Apologies for that. Yeah, we did come up with some detailed information on that particular case. Let me scurry through and see what I can detect, but I don't believe there was any malevolent intent. These parts, they're wing parts, if you will. Total cost of the fraud, about $180,000, but the grounding of the aircraft obviously was a national security impact. But it was a very small part made in India from a non-eligible manufacturer through two shell companies, which were basically a single person operating out of their residence.

Rep. Andy Biggs (R-AZ)SPEAKER_10

Yeah, so this is the kind of implication that fraud has on our national security, because you ground the planes over a very small, simple contract and a scam that should have been caught. We've been dealing with this type of thing for decades. In fact, I appreciate Mr. Mfume showing the his chart, but as far as my research has shown me is I've never seen that the Pentagon ever has actually survived and passed a full comprehensive audit. In fact, I've actually heard them say they're too big to be audited that way. And so I want to focus on something fairly straightforward here. What makes a contract high risk? What red flags do you see again and again, and most importantly, how do we stop it before the money's already out the door? So, it's not about politics. This is a bipartisan issue. We've had this problem for decades under both brands. So, we just want to make sure the system works. So, my questions for you, I'll begin with Mr. Bagdoyan and then go to Mr. Mayo. I'm guessing you know that some contracts are more prone to fraud than others, and what are the common traits that tend to show up in a higher-risk contract?

Seto BagdoyanSPEAKER_12

Yeah, i would say based on what I have seen, the big-ticket items seem to be more prone, and also the subcontractor universe is even more susceptible than the primes, basically. You know, there's only a handful of prime contractors. They integrate many, many others. So the subcontracting may be an area of particular interest.

Rep. Andy Biggs (R-AZ)SPEAKER_10

Mr. Mayo, same question for you.

Kelly P. MayoSPEAKER_04

Yes, sir. And I would, I would agree with my colleague. Really, it's about subcontractors is a significant issue because we don't see, we don't see down there. We don't see underneath the contract. So we don't see what's going on with the contractors.

Rep. Andy Biggs (R-AZ)SPEAKER_10

So, so once Once those types of high-risk contracts are identified, what's the best way to put a watchdog on them, make sure that you're not going to be prone or actually defrauded?

Kelly P. MayoSPEAKER_04

Well, our audit component does a lot of audits in that regard,

Rep. Andy Biggs (R-AZ)SPEAKER_10

But that's post. I'm talking about pre. So you've identified a certain kind of contract is really a problem. How do you get in there and actually put down guardrails? Mr. Mfume talked about guardrails.

Kelly P. MayoSPEAKER_04

Yes, sir. That wouldn't be our role as the investigative agency.

Rep. Andy Biggs (R-AZ)SPEAKER_10

Right. So

Seto BagdoyanSPEAKER_12

I would say a robust due diligence process, past history, for example, should be looked at. And if there is a risk

Rep. Andy Biggs (R-AZ)SPEAKER_10

of the contractor,

Seto BagdoyanSPEAKER_12

of the contractor, right, forget the contract itself.

Rep. Andy Biggs (R-AZ)SPEAKER_10

Yeah,

Seto BagdoyanSPEAKER_12

it's the player that needs the attention first and foremost.

Rep. Andy Biggs (R-AZ)SPEAKER_10

Right. Okay. And so that leads to some kind of a weird dichotomy here. In Mr. Mayo reporting, you've got a massive contractor, defense contractor, and I hate to even bring it up because they're located in my home state. But Raytheon in 2024 paid $950 million to resolve allegations involving defective pricing, bribery, and export control violations. Is that accurate, Mr. Mayo?

Kelly P. MayoSPEAKER_04

That is, sir.

Rep. Andy Biggs (R-AZ)SPEAKER_10

That's $1 billion that one company can pay— afford to pay back after, uh, some very egregious and serious, um, uh, allegations. And I'm, I'm— I see I'm out of time. I do have a, Mr. Chairman, uh, submission for the record, um, entitled—

Chairman Pete Sessions (R-TX)SPEAKER_09

without objection.

Rep. Andy Biggs (R-AZ)SPEAKER_10

Thank you very much. And with that, thank you for letting me be here. Thank you. Does the

Chairman Pete Sessions (R-TX)SPEAKER_09

gentleman seek additional time?

Rep. Andy Biggs (R-AZ)SPEAKER_10

Mr. Chairman, I would— I could probably go all day on this. I've got a whole truckload of questions, but I think I'll submit them in writing to Mr. Bagdoyan, Mr. Mayo that way, and then I'll share with the committee the responses.

Chairman Pete Sessions (R-TX)SPEAKER_09

We respect that and appreciate your line of questioning. The gentleman yields back his time. The distinguished gentlewoman from the District of Columbia, Ms. Norton, is recognized.

Rep. Eleanor Norton (D-DC)SPEAKER_06

Thank you, Mr. Chairman. For over three decades, GAO has maintained a high-risk list to identify critical government programs and services most vulnerable to waste, fraud, and abuse or most in need of transformation. GAO added financial management at the Department of Defense to that list in 1995, and it has remained on it ever since. I have grave concerns that the chaos we chaos we are seeing at the Pentagon under the Trump administration is threatening the progress we have made toward a clean audit. Secretary Hegseth has proven time and again that he cannot be trusted to lead the department or with any national security. The Trump administration has also purged independent, expert, and nonpartisan leaders at DOD, including the inspector general. President Trump and the Department of Government Efficiency are also decimating the federal workforce, which serves and protects Americans, and DOD is not exempt from this purge. Secretary Hegseth has announced plans to reduce DOD civilian personnel by 5 to 8%, which will result in tens of thousands of jobs being cut from the department. Mr. Mayo, would you agree that having adequate staffing is important for carrying out your office's important work?

Kelly P. MayoSPEAKER_04

Yes, ma'am, I would agree with that.

Rep. Eleanor Norton (D-DC)SPEAKER_06

Mr. Mayo, have you had any staffers accept the deferred resignation plan that the administration offered?

Kelly P. MayoSPEAKER_04

Yes, ma'am, we did have some people that left.

Rep. Eleanor Norton (D-DC)SPEAKER_06

Mr. Bagdoyan, has DOD's speed and responsiveness improved in recent months?

Seto BagdoyanSPEAKER_12

Speed and responsiveness to recommendations, for example? Not sure I understand your question fully. Apologies. DOD responding to GAO's requests? Yes, we have seen some improvement in that regard. Things are still delayed, but they were delayed over the five or six years of our auditing. So, it's been a pervasive problem.

Rep. Eleanor Norton (D-DC)SPEAKER_06

The DOD's high-risk challenges, especially related to financial management, are pervasive, complex, and intertwined. The department needs skilled and committed public servants to effectively address those challenges. In a hearing this committee held last fall on this topic, GAO testified about the importance of the, quote, "tone at the top," close quote, in reducing fraud. Mr. Bagdoyan, what does GAO mean by "tone at the top," and why is it important to financial management at DOD?

Seto BagdoyanSPEAKER_12

Yes. Tone at the top comes from the top leader, in this case would be the Secretary of Defense, to make fraud risk management, financial auditability, one of his top priorities, and make sure that his subordinates realize that that is a top priority, and then working from that top level to start instilling a culture of fraud risk management and auditability among other priorities, of course. But unless it—as I mentioned to Mr. Mfume previously, unless it comes from the very top, it's not going to happen.

Rep. Eleanor Norton (D-DC)SPEAKER_06

I hope this department will hear our concerns. And take steps necessary to safeguard taxpayer money and our national security. And I yield back.

Chairman Pete Sessions (R-TX)SPEAKER_09

gentlewoman yields back her time. The gentleman from Tennessee, my friend, Mr. Burchett, you're recognized, sir.

Rep. Tim Burchett (R-TN)SPEAKER_02

Thank you, Mr. Chair. Mr. Mayo, I share your enthusiasm. When I look back on my life, I didn't have anything like yours. I had two wonderful parents, they're both in heaven, and they were the best influence in my life and a lot of my buddies' life. But I still, every day I'm up here, I think it's just an incredible gift. More people played pro foot, pro baseball than have been in Congress, so thank you for what you said, brother. I think fraud is just a part of the military heritage almost. My daddy was in the Pacific in the Second World War. And, they know they're going to be in the tropics, it's going to be raining, and it's going to be hot. And they had this old, crappy rain gear, didn't keep you dry and it was just a nightmare. They never fixed it. They had guns that didn't work correctly, looked like they were made by a committee in Washington, not by somebody in combat. Currently we're building aircraft carriers, and everybody will tell you it's not going to be my daddy's war. The Japanese aren't going to bomb Pearl Harbor. 6 to 8 months later, America's might is not going to roll out across the Pacific and destroy a very evil enemy. And if you go on sites like Unusual Whales, you'll see the abuse that goes on by members of Congress, and it's never going to change. One of the things that would change if we would eliminate individual stock trades, but that's not going to happen. We'll come up with a good bipartisan bill. We're working on it, me and Jayapal and AOC and Chip Roy and some others. Very bipartisan, but I have no doubt that it will pass, I mean, no there's no inclination that it will pass, because we don't have the guts. Because this town is crooked as a dog's leg and it's part of our heritage, and that disgusts me. But saying all that, I guess you're my therapist today, Mr. Mayo. Department of Defense leadership said that they do not believe there's a significant fraud at DOD. Based on your work, do you agree with that?

Kelly P. MayoSPEAKER_04

I disagree. Yes, sir, I disagree with that.

Rep. Tim Burchett (R-TN)SPEAKER_02

You disagree with that? On what basis do you—

Kelly P. MayoSPEAKER_04

Your work shows that there's a lot of In my statement, there's significant procurement fraud across the panoply of the of the DOD overseas, and so we have a problem.

Rep. Tim Burchett (R-TN)SPEAKER_02

Yeah, I think part of the problem is we've got a lot of war pimps at the Pentagon, and they're not the ones going to go be dying. It's going to be people like my little girl and and some of the kids in this audience that are going to die in some of these worthless wars we're in. How much do you think the Department of Defense loses every year to fraud?

Kelly P. MayoSPEAKER_04

I couldn't say, sir. I really couldn't. I could probably ask people smarter than me and my staff, but I can get back to you on that.

Rep. Tim Burchett (R-TN)SPEAKER_02

Well, see, that's part of the problem. They send you two guys in here, and I suspect y'all are pretty honest guys, and you can't answer the dadgum questions, and to me that just shows an inherent arrogance that we have at the Pentagon. They haven't passed eight audits. They haven't even attempted to finish the dadgum audits, and yet they come up here and we give them more money. Again, our greed. Old men make decisions and young men are going to die. What fraud practice in the Department of Defense are we especially vulnerable to? If either one of y'all want to take a shot at that, be all right.

Kelly P. MayoSPEAKER_04

The procurement fraud is especially Especially the one that we see the most of and we, and we target the most because that's the big dollar projects. So that's, that'd be my question and answer to that.

Rep. Tim Burchett (R-TN)SPEAKER_02

It just seems like we're letting these people steal from us. I just don't think that'll ever stop. I can remember in a meeting one time they started pointing out, you know, aircraft carriers, which we know are antiquated, we're not going to need them in the future. All the people tell us that are in the know tell us you're not going to need them. You're going to have half a trillion dollars worth of apparatus sitting on the deck, and some uneducated country is going to send a $100,000 missile and sink it all. And you can put a million dollars worth of drones up in the air and knock down a half-trillion-dollar jet, and yet we are continuing down that path. And part of the problem is, as they did in the meeting, they started pointing out in people's district what apparatus was made in their district. And even though we're going to mothball this stuff, we're going to put it on a shelf, people are going without in this country, yet the war pimps still tend to profit and we allow it. I just don't think it's ever going to change. I think people up here are sincere. I would say our chairman and ranking member Mfume are some of the most honest, honorable people I've ever served with. But I think this is the type of committee they just pat us on the head and tell us, Oh, you're doing a great job, and then they go—the corruption continues, and it's both dadgum parties. We ought to be ashamed of ourselves. Thank you, Mr chairman.

Chairman Pete Sessions (R-TX)SPEAKER_09

Gentleman yields back his time. I would like to see if I could try and begin to answer one of the questions that is in testimony. From 2017 to 2024, DOD reported $10.8 billion in confirmed fraud. The reason why they do not know that exact number is because DOD fails to even put the hooks in place to discover more, and we do not have enough people on the frontline stopping it. But $10.8 billion is very significant. I know I appreciate the gentleman's not only line of questioning, but holding accountable the significant amount of that.

Rep. Tim Burchett (R-TN)SPEAKER_02

Mr. Chairman, we just don't have the guts to do anything about it. We're going to sit up here and make platitudes—not you all, but other members of Congress will—and then they'll walk out and wink and nod to the K Street lobbyists who profit from this. So, thank you, Mr. Chairman.

Chairman Pete Sessions (R-TX)SPEAKER_09

Thank you gentlemen very much. The distinguished gentleman from Florida, Mr. Frost, you're recognized.

Rep. Maxwell Frost (D-FL)SPEAKER_00

Thank you so much, Mr. Chairman. And I agree with the comments we just heard from my colleague, Representative Burchett. And hopefully, as years go on and more people come to the institution, we actually get the guts to deal with this waste, fraud, and abuse in the DOD and with our military contractors that, yes, are stealing from us. And I think it's despicable that so much of our taxpayer money goes to these companies. And yet, I'll tell you one place I was last week. I was on the picket line with the UAW in my district in front of Lockheed Martin because they're not paying the assembly line workers and the people creating all this stuff enough money to be able to pay their damn rent in Orlando. Mr. Mayo, but before we can even talk about having the courage at some time and place we're unsure of, we got to talk about what's going on right now. Mr. Mayo, this past week the Pentagon announced that DOGE had been authorized to review most unclassified Pentagon contracts to root out inefficiency. Is DOGE answering to you or the DOD IG in this effort?

Kelly P. MayoSPEAKER_04

We haven't talked to DOGE at all.

Rep. Maxwell Frost (D-FL)SPEAKER_00

You haven't spoken with DOGE at all?

Kelly P. MayoSPEAKER_04

No, they've not.

Rep. Maxwell Frost (D-FL)SPEAKER_00

When was your office consulted about DOGE's input into the contract review process?

Kelly P. MayoSPEAKER_04

I can't answer that, sir. I don't know.

Rep. Maxwell Frost (D-FL)SPEAKER_00

You don't know, because to me, if your job is to find waste, fraud, and abuse, and then you have DOGE, which is supposedly supposed to be looking for waste, fraud, and abuse, would you agree that the only efficient way to go about that would be to work together?

Kelly P. MayoSPEAKER_04

Yes, sir. Perhaps.

Rep. Maxwell Frost (D-FL)SPEAKER_00

In the contract review process run by the DOD IG, how would you typically prevent political interference?

Kelly P. MayoSPEAKER_04

Uh, please restate that.

Rep. Maxwell Frost (D-FL)SPEAKER_00

In the contract review process that the IG's office runs in DOD, how do you typically go about preventing political interference?

Kelly P. MayoSPEAKER_04

I have, I have no answer for that because I'm not— that's not part of what we do. But I can certainly get back to you on that and get some.

Rep. Maxwell Frost (D-FL)SPEAKER_00

So do you have any idea of how your office is ensuring that DOGE has the strongest controls possible to prevent this kind of abuse that we're talking about?

Kelly P. MayoSPEAKER_04

Well, I don't know, because DOGE hasn't come to the OIG at this point. We have not seen anybody from DOGE.

Rep. Maxwell Frost (D-FL)SPEAKER_00

Yeah, under DOGE it feels like efficiency and antifraud have been actively defunded, deregulated, dismantled, and disregarded. And this is part of the problem, is we can sit up here and talk about working in a bipartisan way all we want, and I think that's really important. In fact, the chair of the committee, Comer, said during his comments, quote, "DOD is the poster child for waste, fraud, and abuse," but voted yes on a budget that would give the Department of Defense more money than they've ever had—over $1 trillion. So, and then on the other hand, they talk about waste, fraud, and abuse in food assistance, in Medicaid, and slash that to the tunes of hundreds of billions of dollars. That means they're taking more of an aggressive approach on working families and people who depend on some of these services for their healthcare and to feed their children than they will with the military contractors. That's why—and so, Burchett's being really nice about it, but that's part of the reason why we're not going to handle this. We can sit up here and talk to you all day. The fact of the matter is right in front of us. The majority is moving through a budget that would give the Department of Defense the most money they've ever had while they are, quote, unquote, "the poster child for waste, fraud, and abuse." Americans need to know which Pentagon dollars are going to servicemembers and national defense, and which are lining the pockets of unethical contractors, over 50% of the DOD budget. According to the recent GAO testimony before this committee, the DOD thinks there's very little fraud in their procurement. Mr. Bagdoyan, do you agree with the DOD's assessment?

Seto BagdoyanSPEAKER_12

I do not.

Rep. Maxwell Frost (D-FL)SPEAKER_00

And Mr. Mayo, do you agree with the DOD's assessment that there's little fraud?

Kelly P. MayoSPEAKER_04

I do not.

Rep. Maxwell Frost (D-FL)SPEAKER_00

From where you sit, have the DOGE staff firings and reduction of resources from the IG's office to other offices—has this helped you investigate fraud cases?

Kelly P. MayoSPEAKER_04

No.

Rep. Maxwell Frost (D-FL)SPEAKER_00

Has it hurt?

Kelly P. MayoSPEAKER_04

I think we're doing— I think we're doing the same thing we've always done.

Rep. Maxwell Frost (D-FL)SPEAKER_00

So

Kelly P. MayoSPEAKER_04

we continue to just run cases, run investigations like we've done, and, uh, we just do what we're supposed to do. And I don't think it's impacted us as an investigative agency.

Rep. Maxwell Frost (D-FL)SPEAKER_00

All right, thank you. I've been watching the limited progress towards getting DOD to be able to pass a financial audit. The Marine Corps recently explained that the personnel cuts will likely erase the progress they've made when last year they became the first of our service branches to be able to pass a financial audit. I don't know what the path we're on is right now. I think it's hurting these efforts. My hope is that we'll be able to take this seriously moving ahead and not just put it in our sights—food assistance and Medicaid—when it comes to cutting budgets because of waste perceived, waste, fraud, and abuse, but look at the biggest budget item that we have and the poster child of waste, fraud, and abuse, as said by our chairman of the full committee, the Department of Defense. Thank you. I yield back.

Chairman Pete Sessions (R-TX)SPEAKER_09

Gentleman yields back his time. Thank you very much. The distinguished young chairman who sits on this committee and who has distinguished service to the United States Congress, Mrs. Foxx is recognized. Dr. Foxx is recognized.

Rep. Virginia Foxx (R-NC)SPEAKER_01

Thank you, Mr. Chairman, for your distinguished service. My question is for both of our witnesses. I'll start—Mr. Bagdoyan, you can answer first. We can all agree we must hold bad actors accountable for poor performance and fraud. Federal agencies, including DOD, may suspend or debar contractors for sustained poor performance or serious lack of business honesty or integrity. Suspended or debarred entities are prohibited from entering into new contracts with federal agencies, with suspensions lasting no more than 12 months and debarments usually lasting three years. According to an industry study, there has been a significant decline in suspensions and debarments in recent years. Do you believe that instances of contractor poor performance and dishonesty are actually declining, or are they being reported less often?

Seto BagdoyanSPEAKER_12

That's a good question. I'm glad you asked it, Dr. Foxx. I will have to get back to you on this. This is beyond my area of expertise, but we do have people at GAO who may be able to provide an answer for you if I—

Rep. Virginia Foxx (R-NC)SPEAKER_01

I do want an answer.

Seto BagdoyanSPEAKER_12

Absolutely.

Rep. Virginia Foxx (R-NC)SPEAKER_01

Mr. Mayo, do you have anything to add to that?

Kelly P. MayoSPEAKER_04

Uh, I— it doesn't It hasn't impacted us, and so, but I think you're probably correct.

Rep. Virginia Foxx (R-NC)SPEAKER_01

Okay. Mr. Bagdoyan, a GAO report from early 2024 notes that data analytics can help inform fraud risk management and are a significant tool for helping agencies transition from a costly pay and chase model to an approach that is more focused on fraud prevention. While the DOD's fraud risk management strategy refers generally to data analytics, it does not establish as a specific fraud risk management control activity. In your opinion, is this a missed opportunity for the department to root out fraud, and what benefits and cost savings could be achieved if DOD made greater use of data analytics?

Seto BagdoyanSPEAKER_12

Sure. Thank you again for your question. It's a, it's a very good question. It's a timely one. As I mentioned earlier in response to another member's question, we do expect an updated anti-fraud risk— anti-fraud strategy later next month, and it's our understanding that DOD will make data analytics an explicit requirement in that strategy. Of course, that remains to be seen. We will give it a very good scrub to make sure that whatever DOD is proposing to do is responsive to our recommendation. But the key point is, if they implement the recommendation on paper, they send me something over to look and review, that's the start. Then they have to go operationalize that and achieve results. So, having a requirement for data analytics is not the end of the story.

Rep. Virginia Foxx (R-NC)SPEAKER_01

I understand that. Well, what do you think is the biggest obstacle for DOD identifying cases of fraud or abuse before they occur? Is that lack of having analytics?

Seto BagdoyanSPEAKER_12

That is a significant part of it. Also, it's the commitment to look. If you don't acknowledge you have fraud, then you're not really going to bother to have controls in place to figure it out.

Rep. Virginia Foxx (R-NC)SPEAKER_01

Are you aware of other federal agencies doing a great— a good job fighting procurement fraud? And if you do, what lessons can we learn from those examples?

Seto BagdoyanSPEAKER_12

Sure. Unfortunately, I've been doing fraud risk management work for about 11 years now at GAO, and many agencies—big, intermediate, and small—struggle with this. But one of the ones that we have pointed out as being a success story is the Export-Import Bank of the United States. They started a tone at the top, made it a priority, and then took all the steps necessary to implement fraud risk management capacity. We are in the process of starting a mandated review of where they are, and we should be reporting on that sometime next year. So we will go back and make sure that what they did put in place remains effective.

Rep. Virginia Foxx (R-NC)SPEAKER_01

Thank you. Mr. Chairman, I think what Mr. Bagdoyan especially has pointed out is that there has to be the willingness to look for fraud, first of all, and there's a need, I think, for us as an oversight committee to stay on top of this issue and to push for that. You know, it's really, really sad that so many people who work for the federal government do not understand that it's the hardworking taxpayers who provide the funds for these programs and that all of us deserve them to have that attitude where they want to save every penny. I have that attitude. The people in my office have that attitude. And somehow or another, we have to infuse the entire federal government with that attitude. Thank you for your indulgence, Mr. Chairman.

Chairman Pete Sessions (R-TX)SPEAKER_09

gentlewoman yields back. To clarify a little bit of what you've spoken about, which I think is on point, and that was yesterday when I met with both these gentlemen separately, I asked the question that was asked by Mr. Randall. And that essentially was, do you believe that there is a problem? And both of these gentlemen virtually leaped out of their chair in violent agreement that there is a problem. And we came to a quick resolution. I knew where they stood. Thank you very much. We next would move to the gentlewoman from Washington. Ms. Randall, you're recognized.

Rep. Emily Randall (D-WA)SPEAKER_05

Thank you so much, Chairman. And I'm so grateful for our witnesses for being here. And I just want to start with additional grounding and gratitude for my constituents, nearly 27,000 of whom are federal employees working for the DOD, who each individually do want to deliver the best results possible, know they're using taxpayer dollars, and are fighting to deliver for the mission, often with parts that they are responsible for piecemealing together using old equipment, scrapping naval vessels in order to use every piece possible to deliver results for the mission. So I do believe that we have we have work to do to ensure that the Department of Defense is accountable and is able to pass an audit, because that is important, and that's our oversight responsibility. But we have to make sure that the folks on the ground doing the work, delivering these results for mission readiness, have all of the resources that they need in order to meet the mission. Naval Base Kitsap and Puget Sound Naval Shipyard are the two of the installations in my district. And I recently met with the superintendents at these military installations, and they have voiced some important, reasonable steps that we should implement in order to root out fraud and improve procurement and contracting and operations. And, but there are steps that should be done not with a chainsaw, but with tactical a tactical approach that we're not currently seeing with the DOGE efforts to slash a budget and and infuse additional dollars into the Department of Defense without real thought to how we deliver these mission-critical efforts. Mr. Bagdoyan, can you discuss instances of counterfeit or substandard equipment that may have compromised the safety of our servicemembers?

Seto BagdoyanSPEAKER_12

Sure. Thank you for your question. I will refer back to the example that I cited in my opening remarks. This occurred about 15 years ago. It took a couple of years to investigate given the complexity of the scheme. But essentially, it involved two shell companies co-owned by a company in India. The shell companies obtained and exported plans and schematics of military equipment, in this case, jet fighters, and the wing part for the F-15 fighter aircraft—that's what the type of plane involved here is—was defective because it was not conforming to what the contract required. So, whether it was poor workmanship or some other factor contributing to that, but it did result in the grounding of 47 aircraft over a period of time. And it involved not a lot of cost, $180,000 if I recall correctly. But I'd be happy to look into some more details and send them over to you if you like.

Rep. Emily Randall (D-WA)SPEAKER_05

Sure, thank you. I would appreciate reviewing that. I also want to bring up another example. In August of 2024, Austal USA, a shipbuilder for the Navy, pleaded guilty to a scheme involving faulty butterfly valves used in ships. And Austal charged the Navy for military-grade valves but failed to actually test the valves to make sure that they reached the proper safety and operational standards. These faulty valves could potentially lead to leaks in a ship's hull, and Austal's actions put the individuals of our military at grave risk. And these we are talking about are two examples, and I'm sure they are not the only two. Mr. Mayo, what proactive measures does your office take? And I know you've spoken to reference how your office is not responsible for creating sort of fraud detection policies or procedures. That's not your work. Your job is to investigate claims. But have you made any proactive recommendations to DOD for ways that they might address fraudulent, criminal activities by contractors or vendors?

Kelly P. MayoSPEAKER_04

I've not talked to DOD, but I'm I really appreciate you asking that question because I have a good answer. In 2017, I came on board in 2016, 2017, I saw the need for data analytics. And in the in the in the succeeding years, we now have an organic data analysis that we utilize. It's not predictive of crime, but it has it has it has tools that we can help with our investigations. And that's organic to DCIS. So I want to highlight that for the for the for the people here. So, and that's so we do have that capability. And we have some very, very smart people that do these things. And the OIG has a data analytic capacity also, and they work with us seamlessly to deal with these criminal investigations.

Rep. Emily Randall (D-WA)SPEAKER_05

Thank you, Mr. Chairman. I yield back my time.

Chairman Pete Sessions (R-TX)SPEAKER_09

gentlewoman yields back her time. Thank you so much for the line of questioning. It's most instructive for people who also are in the room who have the same expectation that you do corresponding with Mr. Mfume and myself. We next go to the distinguished gentleman from Denton, Texas. The gentleman Mr. Gill is recognized.

Rep. Brandon Gill (R-TX)SPEAKER_08

Thank you, Mr. Chairman, and thank you for holding this hearing. And I'd like to also say thank you to the witnesses for taking the time and coming here. Mr. Bagdoyan, I want to start with you. A recent report by the GAO found that for fiscal years 2017 through 2024, DOD reported about $10.8 billion in confirmed fraud. The report went on to say, quote, "The full extent of fraud affecting DOD is not known, but is potentially significant." Do you have a monetary estimate of the fraud that takes place annually within the DOD, perhaps beyond that number?

Seto BagdoyanSPEAKER_12

I do not. And actually, the figure you quoted is for all fraud around DOD, not just procurement. The recovered amount that is about $7 billion over a number of years is for procurement. So those are two different sets of numbers. Plus, for the confirmed fraud, we did notice, and I believe the IG may have flagged this as well, that DOD reported the same figure, $2.4 billion, for two consecutive fiscal years. So that raises some questions about the reliability of what's been reported. I believe in the past the OIG has questioned the process of arriving at those types of numbers. So I would urge some caution in using those numbers, but they do represent what is basically known through adjudication. So they have to be detected first, investigated, then adjudicated. So we have no idea what is being missed.

Rep. Brandon Gill (R-TX)SPEAKER_08

If you were to guess, would you guess that total fraud at the DOD is higher than that number?

Seto BagdoyanSPEAKER_12

I would suspect it is, yes.

Rep. Brandon Gill (R-TX)SPEAKER_08

And how many open recommendations issued by the GAO are there that would improve financial management within the DOD?

Seto BagdoyanSPEAKER_12

For financial management, I will have to get back to you. On fraud risk management, based on the three reports that I've been responsible over the last six years or so, we still have 13 open recommendations. We are expecting responses from DOD, as I mentioned before, throughout June and into next month. We just sent over the list of priority recommendations to the Secretary of Defense, Mr. Hegseth, for his personal attention. And so that letter will be made public early next week.

Rep. Brandon Gill (R-TX)SPEAKER_08

Got it. But either way, it's a substantial number.

Seto BagdoyanSPEAKER_12

It is a substantial number. The risks are immediate. So delaying implementation exacerbates that risk.

Rep. Brandon Gill (R-TX)SPEAKER_08

Why do you think they have delayed implementation? And how long should it take for the DOD to implement some of the recommendations that have been given to them?

Seto BagdoyanSPEAKER_12

Yeah, to be fair, it does take time to do this and to do it right. But we have encountered pretty significant delays, I think, over time that may reflect lack of attention, lack of urgency, lack of priority. That is speculative on my part, but it is consistent with what we've encountered with other agencies.

Rep. Brandon Gill (R-TX)SPEAKER_08

Got it. Thank you. And Mr. Mayo, a couple questions for you: The DOD inspector general has identified 17 scope-limiting weaknesses that are significant roadblocks to the DOD's clean audit opinion goal. What steps do you think the DOD can take or needs to take to obtain a clean audit by 2028?

Kelly P. MayoSPEAKER_04

Sir, that's a great question and really outside my expertise. I would submit I can go back to the audit component and get some data for you and get back to you on that.

Rep. Brandon Gill (R-TX)SPEAKER_08

Got it. Okay. Thank you. And with that, Mr. Chairman, I'll yield back the remainder of my time.

Chairman Pete Sessions (R-TX)SPEAKER_09

gentleman yields back his time. I'd like to, if I can, answer one of the questions that the distinguished gentleman asked, because we have two witnesses who are trying to professionally represent not only themselves, but the departments, GAO, and the IGs. The bottom line is, is that there's plenty of documentation that shows that DOD, at least over a period of several years, said it's not a problem. The things you bring to us is not a problem. We're not going to even take this conversation further. And so that is the conversation that both of these gentlemen are operating under. And the hope is now with a new administration, a new secretary, that there will be an emphasis not only on attempting to do something, but but be willing to opening up their eyes to the recommendations that have come from professional groups like GAO and inspectors general. And so it's not a matter of them wanting to do or not do. They deny its existence. And this is the part why both these gentlemen literally came out of their chairs yesterday in my office when we pulsed this issue. And so I want you to know that your line of questioning is most instructive. They also were trying to be very polite back to you. So that's on in defense of these young men. Thank you very much. Gentleman yields back his time. We now move to the distinguished gentleman, the young chairman from Alabama. Mr. Palmer, you're recognized, sir.

Rep. Gary Palmer (R-AL)SPEAKER_07

Thank you, Mr. Chairman. I'm going to direct my questions a little bit differently, and I wanted to participate in this hearing because I've been looking at some of these issues for quite a while. And I realize this is focused predominantly on fraud risk management, but one of the things that I think creates an opportunity for fraud and mismanagement is how we handle big projects at the Department of Defense, whether it's a construction project or a new weapons system. And I just want to ask each of you to comment on this if you think you're able to do that. I think a lot of times when Congress approves a major weapons system or a major construction project—and this is particularly problematic on construction projects overseas—there's a tendency on the part of Department of Defense to start those projects before the design is complete, and it results in a huge amount in change orders. I'm working on some ideas on how to mitigate that from the congressional side in terms of ensuring that the money will be there so that they don't feel the pressure to start these construction projects or other projects or weapons systems before the design is ready. But would you comment on how that—when your design is not complete, you're issuing lots of change orders, how that opens us up to mismanagement and potential fraud?

Kelly P. MayoSPEAKER_04

Me, sir? I wouldn't be able to discuss that, but in a different sphere, I would submit that what you're talking about, large procurements of weapons systems, they are really hybrids for fraud because of because of, like you said, the complex nature of the—and when they come online, and then the other parts come online. So we do have a lot of worry about large weapons systems, and we have a lot of fraud work in the past and now in those kinds of things when they're in that phase. So that's what would be my feedback to you.

Rep. Gary Palmer (R-AL)SPEAKER_07

Mr. Bagdoyan?

Seto BagdoyanSPEAKER_12

Yeah, I would fully agree with Mr. Mayo comments. This is an element of hypercomplexity. Basically, you have a big system. It has the prime contractor, I assume, leading the effort, and then the whole army of subcontractors, which is a key element of risk here. I'm not a procurement expert by any means, but I do believe that that element of complexity, uncertainty, long lead times, all kinds of different things add to heightened risk, definitely.

Rep. Gary Palmer (R-AL)SPEAKER_07

And when you add to that just a myriad of change orders, which I think is problematic, and then when you start talking about construction projects, and particularly in remote locations, I think it makes it very difficult to to for inventory management. And again, if the design is not complete and you're making all these changes, isn't that an area where we need to really bear down? And Mr. Chairman, I've been giving quite a bit of thought to this, and I've actually been thinking about this for 6 or 8 years about how we appropriate for major defense programs and maybe thinking about saying that if a program design, if the project design or the weapons system design is not ready, that we carry the funding over into the next fiscal year so that we give the Department of Defense time to get the design right. And I think that will reduce a lot of the fraud and mismanagement and save us a lot of money in those areas. Mr. Mayo and Mr. Bagdoyan, you can comment on that, and you may have already commented sufficiently, but that's one of the areas where I really want to focus, Mr. Chairman, in terms of trying to reduce the amount of waste that we have in our defense procurement programs. With that, I'll be happy to yield back.

Seto BagdoyanSPEAKER_12

Okay, if I may answer Mr. Palmer question, Mr. Chairman, each element of complexity in a program, as I alluded to in my opening remarks, that's one of the key drivers of fraud risk in federal programs, is their complex configuration, what someone can do, can't do, and so on. So it's almost like risk is built in. And if you add multiple layers in a big complex program of DOD, then that really exacerbates risk. So trying to control for that as part of the upfront due diligence, for example, would be an important step.

Rep. Gary Palmer (R-AL)SPEAKER_07

I thank the witnesses. Thank you, Mr. Chairman.

Chairman Pete Sessions (R-TX)SPEAKER_09

gentleman yields back his time. Thank you very much. I now would yield myself time. Gentlemen, thank you very much. This time that we are spending with you is just one of many areas where this subcommittee, including Mr. Mfume and myself, are concerned about not just waste, fraud, and abuse, but also misdirected payments. And we have looked at and determined that it's a government-wide problem. And while there is discussion necessarily up here that could be a disagreement between the parties, something called DOGE, which is government efficiency, is a necessary item whereby we bring in fresh eyes to look at actually the data and information that most of the time Congress and perhaps even you do not see. And that is an observation about the amount of money that flies out the door. One of the most instructive things that I have learned is that there is approximately at this time documented some $400 billion that went out from big government—we're talking about all the agencies—some $400 billion that was that went out the door from the day after the election to the day that President Trump was inaugurated. And it was a determination made by someone to move forward on decisions to spend money, knowing that there needed to be a review, knowing that waste, fraud, and abuse not only existed across across government, but that it increasingly was an issue that they were challenged with. And so regardless of that, I think it's important that you have confidence that Mr. Mfume and I, not looking back to blame someone, but rather moving forward, we want to hear from FEMA. We want to hear from DOD. We want to hear from the newest of the secretaries and those management organizations. What are their plans? How do they intend to structure now based upon information that I think DOGE has provided, that have become public, that are not hidden, that are not whispered about, but that become generally available? And so I want you to know that both organizations' inspectors general, Mr. Mayo, Mr. Bagdoyan, the GAO, that you represent organizations that we will continue on a bipartisan basis, both of us, to look at. And instead of looking back, we will have the vision to how are we going to fix it. You both have specialized in DOD. You've heard person after person this morning to describe to you our desire to engage the Department of Defense at the highest level—not levels, level—and to extract from that person, once they are able to understand not just from DOGE, but also your accounting of the significant impairment of a delivery of dollars and material and equipment that would be available to the warfighter. And I just want you to know that the conversation today, as you go back home tonight or as you have the conversation among your colleagues, is it is a bipartisan issue. It is seen very many times the same way, and it should reinvigorate your organizations to know that the day-to-day job that they do, when they are told by some organization, It didn't matter. We're non-compliant. We don't care, that they still do their job, that they still write the reports, that they still point up those things that are factual basis, that they continue to be on point for understanding that while they may not be in DOD, we support the men and women that defend this nation, that they are people who are professional and well-balanced, and that members of Congress that are here will be supportive of them and not give up that hunt. So to both of you and your staffs that appeared in my office yesterday, and the hundreds of people that work for you, please reinforce to them that they are part of the answer, not the denial of a problem. I want to thank both of you for being here. I'm now going to move to the distinguished gentleman from Maryland for any closing comments that he'd like to make, and then I will do same. Gentleman's recognized.

Ranking Member Kweisi Mfume (D-MD)SPEAKER_03

Thank you again, Mr. Chairman, and my thanks, obviously, to both of our witnesses for being here and for being as forthcoming as you could be. I think one of the things for me, at least, is common sense, which is not always common, as we know in life. And it just would appear to me that with these ongoing failures to meet an audit, with huge fraud being publicized, as it was just recently in the Raytheon case, where they agreed to pay $950 million, not because of an error, but because they got caught, and when you consider also the fact that this conversation predates many of us on this panel, it just goes back years and years and years, and when you consider the fact that all branches of the service, save the Marine Corps, continues to find ways not to be compliant with basic law, and when you hear GAO report, as it's done today, and it has done previously, about all these things that are going on, common sense tells me that it is important for the Secretary of Defense to speak with a clear tongue and a clear idea of what has to be done down the ranks. That's where the order has to come from. We know that, with respect to the Marine Corps, it was testified here in previous meetings that the commandant said, Look, we're going to do it this way. It's the right way. And anybody that doesn't do it that way is out of here. I think we need the same kind of determination and the same kind of of of commitment from, as the chairman said, the top level, which is Secretary Hegseth. And I would hope that he would come before this committee and be prepared to talk about what we've been talking about now for years, that he's inherited this, and what he plans to do about it. I'm glad to hear about the Export-Import Bank. I didn't know that they had kind of established a pattern that could, in fact, be something that could be looked at by by other parts of of DOD and other agencies. But we've got to find a way to ask ourselves: Why does the Department of Defense, for years, continue to be on the high-risk list? People come in, they go. Secretaries die, they move on. And this is an embarrassment. It's an embarrassment, and it's thumbing the nose of the government right at taxpayers. Our taxpayers really want to expect that if we're going to be, as we say, efficient, that we're doing something in a real way to be efficient. DOGE, with all due respect, was this committee. This is what we've been dealing with for years and years and years, until all of a sudden there was a new entity, DOGE, that claims to be doing exactly that. We've got the playbook, we've got the information, we've got the data, we've got the research, we've got the examples. So, this is sort of like reinventing the wheel for no necessary purpose and, at the same time, not being able to deal with the real question of, in this current spending resolution before the Congress, we're prepared to be voting on a package that includes $892 billion for the Pentagon, which is why I have opposed that spending package altogether, because you can't do that and, at the same time, cut money, in my opinion, from Medicare, and say you have to cut it when you really don't have to. What you need to do is tighten your belt and find moneys elsewhere, like within this budget that we continue to see talked about over and over and over again. As I said before, the budget is so large, just a 1% error is the equivalent of $9 billion. We should not take that lightly. And I'm going to say it again, Mr. Chairman, I swear I am tired of saying this over and over again, like you are. And I really appreciate your efforts here. We want to see progress, and if we don't see progress, I think we've got to go before the full Congress and to argue and to forcefully debate and to make the case that no action is not sufficient. So, we've heard the stories today, and we know that in many respects people are wondering: How are you going to cut this? You're going to cut SNAP assistance for children and women. You're going to reduce Medicaid, Medicare. You're going to threaten, even though it's not been said yet, to make Social Security unstable. Just the thought of it being unstable causes problems. And then look at what's happening in the bond markets and what's going on with investors and other countries around the globe as they look at our creditworthiness and whether or not we, in fact, mean what we say. So, I'm going to get off of my little soapbox. I just can tell you that this is bad. There's no justification for this whatsoever. Thank you, Mr. Chairman. I yield back.

Chairman Pete Sessions (R-TX)SPEAKER_09

Gentleman yields back his time. And I want to publicly once again thank the distinguished gentleman for not only working with us and with me, but for your insistence that we can make progress. And I think that it's important that the GAO community and the IG community, as well as these organizations in government, yes, I'm talking about Article II, that they understand that there are several people on the Hill who will not kick the can down the road, that we will decide that a mark has been laid in the road because for the it is important that the American people have confidence in what we're doing because we expect results. So, I want to thank the distinguished gentleman. I want to thank both of you. I did this in my comments, but I want to thank both of you for taking time. I find you both not only genuine men of honesty, but of representation of professional product. And both of you took my questions yesterday and have taken them today that we believe must be resolved, and so for your staff and for the people that you represent, we're very proud of the work that you're doing. And I see no further questions from the subcommittee. We will now conclude this hearing, and I want to thank each of you very much. This concludes the hearing of the Subcommittee on Government Reform and Oversight for federal government operations and the workforce.