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DOD Procurement: Use and Administration of DOD's Voluntary Disclosure
Program (Letter Report, 02/06/96, GAO/NSIAD-96-21).

Pursuant to a congressional request, GAO provided information on the
Department of Defense's (DOD) Voluntary Disclosure Program, focusing on
the: (1) extent to which DOD contractors participate in the program; (2)
amounts that have been recovered under the program; (3) time taken to
close disclosure cases; (4) most common type of disclosures; and (5)
extent of overlap between voluntary disclosures and qui tam actions.

GAO found that between 1986 and September 1994: (1) there were 325
voluntary disclosures of potential procurement fraud; (2) 48 of the top
100 DOD contractors made 222 disclosures; (3) DOD reported recoveries of
$290 million from these disclosures, but the recovered amount included
$75 million in premature progress payments, and recoveries from
disclosures made prior to the program; (4) voluntary disclosure cases
took an average of 2.8 years to close; (5) disclosure cases remained
open an average of 3.5 years, partly due to a lack of contractor
cooperation and a low priority given to case management; (6) 63 percent
of closed cases resulted in recoveries of $100,000 or less, while 12
percent of closed cases resulted in recoveries of $2 million or more;
(7) the most common types of disclosures were for contract mischarging
and product substitution; and (8) only 4 of the 129 closed disclosure
cases involved qui tam actions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-21
     TITLE:  DOD Procurement: Use and Administration of DOD's Voluntary 
             Disclosure Program
      DATE:  02/06/96
   SUBJECT:  Judicial remedies
             Defense procurement
             Department of Defense contractors
             Government collections
             Fraud
             Contractor debarment
             Information disclosure
             Voluntary compliance
             Contract violations
IDENTIFIER:  DOD Voluntary Disclosure Program
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Administrative Oversight and
the Courts, Committee on the Judiciary, U.S.  Senate

February 1996

DOD PROCUREMENT - USE AND
ADMINISTRATION OF DOD'S VOLUNTARY
DISCLOSURE PROGRAM

GAO/NSIAD-96-21

DOD Procurement

(705079)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense

Letter
=============================================================== LETTER


B-258881

February 6, 1996

The Honorable Charles Grassley
Chairman, Subcommittee on Administrative
 Oversight and the Courts
Committee on the Judiciary
United States Senate

Dear Mr.  Chairman: 

In response to your request, we developed information on the
Department of Defense's (DOD) Voluntary Disclosure Program, a program
to encourage defense contractors to voluntarily disclose potential
civil or criminal procurement fraud to the government.  More
specifically, this report provides information and observations on
(1) the extent of defense contractor participation in the program,
(2) the amount of money that has been recovered, (3) the time taken
to close cases, (4) the most common type of disclosures, and (5) the
extent of overlap between voluntary disclosures and qui tam
actions.\1 DOD and Department of Justice policies and practices,
along with statutory and court restrictions, precluded our access to
many individual case files, negating our ability to fully evaluate
the program. 


--------------------
\1 A qui tam action is a civil action filed under the False Claims
Act on behalf of the government by an individual, called a "relator,"
to recover damages resulting from alleged fraud. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Although 48 of the top 100 defense contractors have made voluntary
disclosures, the total number of disclosures under the program has
been relatively small and the dollar recoveries have been modest. 
From its inception in 1986 through September 1994, DOD reported that,
of the thousands of defense contractors, 138 contractors made 325
voluntary disclosures of potential procurement fraud.  DOD reported
recoveries from these disclosures to be $290 million, about 17
percent of total reported DOD procurement fraud recoveries between
fiscal years 1987 and 1994.  However, our review indicated that DOD's
reported recoveries of $290 million were overstated because they
included $75 million in premature progress payments and amounts from
disclosures made prior to the program.  Further, DOD accepted some
disclosures into the program that the Justice Department believed
were triggered by imminent government discovery and thus did not meet
the criteria for admission. 

Voluntary disclosure cases took an average of about 2.8 years to
close, with about 25 percent taking over 4 years.  Open cases are
taking longer.  As of September 1994, DOD data showed that open cases
averaged
3.5 years, with over half of the cases disclosed in fiscal year 1990
still open.  Less than full contractor cooperation with the
government and low priority given by DOD and other investigative
agencies to managing cases expeditiously may be problems in some
cases. 

Most disclosures did not result in significant dollar recoveries for
the government.  Of 129 closed cases, 81 cases, or about 63 percent,
had reported recoveries of less than $100,000, of which 52 cases, or
40 percent, had no dollar recoveries.  Forty-eight cases had reported
recoveries of $100,000 or more, of which 15 cases had reported
recoveries of $2 million or more. 

There is little overlap between voluntary disclosures and qui tam
actions.  Of the 129 voluntary disclosure cases closed since the
program began,
4 involved qui tam actions.  In one case, the qui tam action
identified additional fraudulent activity and substantially increased
the amount recovered by the government. 


   BACKGROUND
------------------------------------------------------------ Letter :2

In 1986, a report to the President on defense management concluded
that the defense industry needed to promote principles of ethical
business conduct, detect acts of procurement fraud through
self-governance, and voluntarily report potential fraud to the
government.  The report noted that DOD awarded contracts worth about
$164 billion in 1985, 70 percent of which went to a group of 100
contractors.  Twenty-five contractors reportedly did business of $1
billion or more, 147 contractors did $100 million or more, and almost
6,000 contractors did $1 million or more.  In fiscal year 1994, the
number of contractors doing business with DOD did not substantially
change.  Total DOD contracting for goods and services over $25,000 in
fiscal year 1994 amounted to $118 billion. 

In response to the 1986 report, a number of defense contractors
established self-governance programs that included monitoring
compliance with federal procurement laws and voluntarily disclosing
violations to government authorities.  These efforts became known as
the Defense Industry Initiative on Business Ethics and Conduct. 

To facilitate contractor self-governance and to encourage contractors
to adopt a voluntary disclosure policy, DOD established the Voluntary
Disclosure Program in July 1986.  This program provides general
guidelines, policy, and processes to enable DOD and its contractors
to address matters of wrongdoing the contractors discover.  At the
time, DOD recognized that there was a need for a process to deal in a
consistent manner with matters disclosed by contractors.  In return
for voluntarily disclosing potential wrongdoing and cooperating in
any government audit and investigation, the government generally
allows a contractor to conduct its own investigation, which the
government then attempts to verify expeditiously. 

Upon receipt of an initial contractor disclosure, the DOD Inspector
General's office (1) makes a preliminary determination as to whether
the disclosure satisfies the program's requirements, (2) coordinates
the execution of the standard voluntary disclosure agreement, (3)
assigns the disclosure to a DOD criminal investigative organization
for verification and to a suspension and debarment authority, and (4)
coordinates the disclosure with the Justice Department for potential
civil and criminal action. 

The Justice Department reviews all voluntary disclosures.  It
conducts, either through its Defense Procurement Fraud Unit or
through referral to the appropriate U.S.  Attorney's Office, a
preliminary inquiry to determine if there is credible evidence
suggesting prosecutable violation of federal laws.  The Justice
Department has sole responsibility to initiate or decline
prosecution.  It also has an opportunity to concur in the voluntary
disclosure agreement between the contractor and DOD. 

Acceptance of a voluntary disclosure into the program by DOD is based
on four criteria.  The contractor voluntarily disclosing the
potential fraudulent action must (1) not be motivated by the
recognition of imminent detection, (2) have status as a business
entity, (3) take prompt and complete corrective actions, and (4)
fully cooperate with the government in any ensuing investigation or
audit. 


   DEFENSE CONTRACTOR
   PARTICIPATION IN THE PROGRAM
------------------------------------------------------------ Letter :3

The number of voluntary disclosures under the program has been
relatively small and the dollar recoveries have been modest.  From
its inception in 1986 through September 1994, DOD reported that 138
defense contractors made 325 voluntary disclosures of potential
procurement fraud, of which 129 have been closed.  According to DOD,
48 of the top
100 defense contractors made 222 disclosures.  The remaining 103
disclosures were made by 90 contractors from among the more than
32,000 contractors doing business with DOD.  Many contractors were
one-time users, but one large contractor accounted for 23 of the
closed cases.  Figure 1 shows the annual number of disclosures
reported since the program's inception. 

   Figure 1:  Voluntary Disclosure
   Cases Since Program Inception

   (See figure in printed
   edition.)

Source:  GAO analysis of DOD database. 

\a Disclosure in 14 cases was made prior to July 1986.  The earliest
was May 1984. 

Acceptance into the program has its benefits for contractors.  For
example, a contractor can expect (1) its liability in general to be
less than treble damages, (2) action on any suspension to be deferred
until after the disclosure is investigated, (3) the overall
settlement to be coordinated with government agencies, (4) the
disruption from adversarial government investigations to be reduced,
and (5) the information may be kept confidential to the extent
permitted by law and regulation. 

The program also benefits the government.  For example, DOD commented
that the existence of a structured format for addressing contractual
and legal violations encourages contractor ethics and internal review
programs.  The Justice Department pointed out that the program
promotes corporate compliance with laws and regulations. 


      DOD/JUSTICE DEPARTMENT
      DISAGREE ON SOME ADMISSIONS
      INTO PROGRAM
---------------------------------------------------------- Letter :3.1

According to DOD, the key to deciding if a disclosure is voluntary is
whether a contractor was aware of information the government
possessed or was about to discover, thus motivating the contractor to
make a disclosure.  In a 1992 DOD review of the program, DOD noted
cases in which it had determined that contractors' disclosures were
eligible for admission into the program, but the Justice Department
disagreed and recommended that the disclosures not be admitted into
the program. 

In 1992, when this disagreement was noted, the Justice Department
proposed that it and DOD establish a working group to resolve the
issue.  To date, we were told, this has not occurred. 

According to officials from the two departments, disagreements
continue over whether some disclosures should be admitted into the
program.  In fact, two of the three cases that were the basis of the
concerns reflected in the 1992 review remain in the program as open
cases, and the Justice Department still has not concurred with DOD's
acceptance of these disclosures into the program.  The disagreement
between the two departments revolves around whether disclosures were
triggered by knowledge of imminent discovery by the government.  In
this regard, DOD believes that it is its prerogative, not the Justice
Department's, to accept or reject a contractor's voluntary
disclosure. 

DOD stated that it did not always agree with the Justice Department
on whether a company should be admitted into the program.  However,
DOD stated that it and the Justice Department have worked well
together in resolving the questions on a factual basis and that this
cooperation has grown significantly over the last 2 years.  DOD
stated that the DOD Inspector General staff and representatives of
the Defense Procurement Fraud Unit meet every 6 weeks to discuss the
status of disclosures.  During our review, we were told that these
meetings were to resolve cases that had been open for an extended
period, not to address whether disclosures should be accepted into
the program. 


   DOD-REPORTED RECOVERIES
   OVERSTATED
------------------------------------------------------------ Letter :4

Through September 1994, DOD reported recoveries from the program of
about $290 million, of which about 38 percent is associated with
cases that are still open.  The $290 million represents about 17
percent of the Justice Department's $1.7 billion in reported
settlements on DOD procurement fraud cases between fiscal years 1987
and 1994. 

While the value of the voluntary disclosure program may well extend
beyond the amount of dollar recoveries, we note that most disclosures
did not result in significant dollar recoveries for the government. 
Of 129 closed cases, 81 cases, or about 63 percent, had reported
recoveries of less than $100,000, of which 52 cases, or 40 percent,
had no dollar recoveries.  Forty-eight cases had reported recoveries
of $100,000 or more, of which
15 cases had reported recoveries of $2 million or more.  Figure 2
shows the distribution of DOD-reported dollar recoveries for closed
cases. 

   Figure 2:  Distribution of
   Reported Recoveries

   (See figure in printed
   edition.)

Source:  GAO analysis of DOD database. 

The $290 million attributable to the program is overstated because it
includes an amount that should not be considered a recovery from the
program, as well as amounts related to disclosures made prior to the
formal initiation of the program.  The reported recoveries include
(1) $75 million representing a contractor's premature billings of
progress payments and (2) recoveries from voluntary disclosure cases
that predated the beginning of the program by up to 2 years.  One
case was closed before the program began. 

With regard to the progress payments, both the contractor's
disclosure report and the government's subsequent investigative
report showed the contractor prematurely billed the government by
about $75 million.  The Justice Department commented that the
contractor then withheld approximately $75 million in billings at the
time of the voluntary disclosure to rectify the premature billings. 
However, since DOD subsequently paid the contractor in full the
amounts due under the contract, we believe the $75 million should not
be claimed as a program recovery. 

DOD considers the submission of a claim for unearned progress payment
to be a false claim and thus appropriate for reporting under the
program.  The Justice Department commented that there was no
"recovery" of $75 million and that the government was damaged by the
interest lost on the premature payments, the amount of which was
included in the final settlement with the contractor.  In our view, a
recovery properly attributable to the voluntary disclosure program
would be the interest cost on the $75 million premature payment. 

For 14 cases that predated the program, the DOD official responsible
for the program told us that in 8 cases, although the disclosures
predated the program announcement letter to industry, agreements were
signed after the announcement and recoveries were resolved under the
program.  He said recoveries were made in three other cases after the
program began.  The DOD official believes, therefore, that these 11
cases were appropriately included in the program.  However, he agreed
that recoveries related to the three remaining cases should not be
attributed to the program and indicated that DOD would reduce its
reported recoveries--about $900,000--for these three cases. 


   VOLUNTARY DISCLOSURES TAKE AN
   AVERAGE OF
   2.8 YEARS TO COMPLETE
------------------------------------------------------------ Letter :5

For closed cases, DOD records show that it took an average of 2.8
years to complete a voluntary disclosure case, with about 25 percent
taking over
4 years.  DOD records also show that the contractors' investigation
took about 21 percent of the time and that the federal
audit/investigation took about 52 percent of the time.  Figure 3
shows the time to complete the closed cases. 

   Figure 3:  Time to Complete
   Voluntary Disclosure Cases

   (See figure in printed
   edition.)

Source:  GAO analysis of DOD database. 

Note:  Data on three cases was insufficient to calculate lapsed time. 

More than half the disclosures made since the program began are still
reported as open.  As of September 30, 1994, there were 173 open
cases that have been open an average of 3.5 years.  Twenty-nine of 44
cases disclosed in fiscal year 1990 and 13 cases disclosed in fiscal
year 1987, the first full year of the program, were still reported as
open.  Further, the open case load is growing.  The number of open
cases at the end of fiscal year 1994 was greater than it was at the
end of fiscal year 1990, despite a decline in the number of
disclosures over the past 4 fiscal years.  A Justice Department
official suggested that some open cases may have been completed but
not shown as closed in DOD's records.  Between October 1994 and the
end of June 1995, only 2 cases were closed while 15 were accepted
into the program. 


   CONTRACTOR COOPERATION MAY BE A
   PROBLEM IN SOME CASES
------------------------------------------------------------ Letter :6

A Justice Department official responsible for the program commented
that not all contractors fully cooperate with the government and that
this is one factor that makes investigations a time-consuming process
and delays settlements.  The official stated that few companies
provide the government all its witness interview memoranda and that
fewer still agree to provide the government a "road map" of the
cases, believing that they are not obliged to serve as the
government's investigator.  According to this official, companies
making voluntary disclosures tend to provide more assistance in a
government investigation when the potential business and legal risks
to the contractor are greater or when they want to give the
impression that the company is turning over "a new leaf."

Our review identified two instances of less than full contractor
cooperation.  In one case, the company official destroyed records
related to its disclosure.  According to DOD, this company was
successfully criminally prosecuted and fined, the official was
sentenced to jail, and the company was debarred.  The government's
investigation took 13 months, according to DOD information.  In the
other case, the contractor denied documents to government
investigators, and the DOD Inspector General ultimately issued a
subpoena to obtain the information.  The government's investigation
took about 5 years, according to DOD information.  The Justice
Department said that the investigation included not only the
disclosure but an additional series of allegations made in the
related qui tam case, which was filed almost simultaneously with the
company's report.  DOD officials considered removing this contractor
from the program due to lack of cooperation but did not. 

The DOD official responsible for the program, however, stated that
while there have been instances of less than total, or in a few cases
very little, cooperation, they have been the exception rather than
the rule.  He added that disclosing a wrongdoing, conducting an
internal investigation, and providing an internal investigative
report without resorting to subpoenas or grand juries, were far more
cooperative than would be present in any adversarial investigation. 


   CASE MANAGEMENT IS A LOW
   PRIORITY
------------------------------------------------------------ Letter :7

To ensure that each case is processed adequately and expeditiously,
DOD guidelines require the investigative agencies to prepare a case
progress report every 90 days summarizing the ongoing investigation
and discussing case management issues, such as the status of the
investigation and the level of contractor cooperation, and to forward
the report to the DOD program manager.  DOD also requires the
investigative agencies to schedule a meeting with other appropriate
program officials, such as those from the Justice Department and
other DOD criminal investigative agencies, within 14 days of the
progress report.  The purpose of the meeting is to review the status
of the case and determine what more needs to be done on each open
investigation. 

According to the DOD program manager, investigative agencies are not
systematically sending in the progress reports, and, in some cases,
the reports that are submitted do not meet the program's reporting
requirements.  Further, he told us that the meetings are not taking
place because staffing is limited and priority is given to new cases
over open cases.  He also said DOD had not been following up to
ensure that the DOD requirements were met and cases were handled
expeditiously. 


   MOST DISCLOSURES WERE FOR
   CONTRACT MISCHARGING AND
   PRODUCT SUBSTITUTION
------------------------------------------------------------ Letter :8

According to DOD data, the most frequent violation types disclosed
were for contract mischarging and product substitution.  Contract
mischarging is applying material or labor charges to the wrong
contract; product substitution is delivering products other than
those specified in the contract.  Other disclosures dealt with
violations relating to overpricing of contracts negotiated under the
Truth in Negotiations Act, false claims or statements, and excessive
progress payment.  Table 1 shows the number and types of violations
disclosed for the closed cases. 



                                Table 1
                
                  Number and Types of Disclosures for
                  Cases Closed Through September 1994

                                                             Number of
Category of violation                                            cases
----------------------------------------------------------  ----------
Contract mischarging                                                57
Product substitution                                                32
Overpricing                                                         14
Progress payments                                                    3
False claims/statements                                             12
Other                                                               11
======================================================================
Total                                                              129
----------------------------------------------------------------------
Source:  GAO analysis of DOD database. 


   LITTLE OVERLAP EXISTS BETWEEN
   QUI TAM ACTIONS AND VOLUNTARY
   DISCLOSURES
------------------------------------------------------------ Letter :9

In 1986, the False Claims Act was amended to increase the qui tam
relator's share of recovery in fraud settlements.  Since that time,
DOD procurement-related qui tam actions have steadily increased,
while voluntary disclosures have decreased.  Figure 4 shows the
number of DOD-related qui tam actions filed and the number of DOD
voluntary disclosures made since 1987.  While the increase in qui tam
actions may be related to the increase in a relator's share of the
recovery, we found no data to explain the decrease in disclosures. 

   Figure 4:  DOD-related Qui Tam
   and Voluntary Disclosure Cases
   Since 1987

   (See figure in printed
   edition.)

Source:  GAO analysis of DOD database. 

There is little overlap between voluntary disclosures and related qui
tam actions.  For the 129 voluntary disclosure cases closed since the
program began, only 4 involved qui tam actions.  In one case we
examined, the government benefited because the qui tam action (1)
provided a road map essential to the government's case, (2)
identified additional fraudulent activity, and (3) increased the
amount of money recovered by the government. 

According to a DOD official, some contractors claim that the threat
of a qui tam action might discourage voluntary disclosures because
the company's investigation creates potential qui tam relators as
more employees become aware of the potential fraud.  He added that a
contractor runs the risk of an employee filing a qui tam action
before it can complete its investigation or even adequately define
the issue to make a sufficiently complete voluntary disclosure for
acceptance into the program.  On the other hand, this DOD official
remarked that other contractors indicated they would make disclosures
in spite of possible qui tam actions.  Other reasons cited for a
contractor not making a voluntary disclosure include (1) contractor
management conflicts between disclosing potential fraud to the
government and the contractor's perceived duty to protect stockholder
value; (2) contractor uncertainty of prosecution outcome from
disclosing potential fraud; (3) the high cost of internal
investigations, which is usually stipulated to be an unallowable cost
for government reimbursement purposes; and (4) differences between
contractor disclosure policies and its practices. 

According to an official in the DOD Inspector General's office,
voluntary disclosures and qui tam actions complement each other and
qui tams act as a "check and balance" to the program and contractor
honesty. 


   AGENCY COMMENTS
----------------------------------------------------------- Letter :10

In commenting on a draft of this report, DOD emphasized that the
program generates positive results and is clearly in the government's
best interest.  DOD's comments are presented in their entirety in
appendix I, along with our evaluation of them. 

The Justice Department said that it is committed to the program and
that the program has been remarkably effective in nurturing business
honesty and integrity and in bringing good new cases to the
government's attention.  It believes the program to be a model for
government voluntary disclosure programs.  The Justice Department's
comments are presented in their entirety in appendix II, along with
our evaluation of them. 


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :11

We reviewed overall statistical information on the program's
accomplishments, as well as information on qui tam actions and their
relationship to voluntary disclosures.  We also reviewed limited
information on one of four qui tam cases.  In addition, we talked to
experts inside and outside of the government on the program's merits
and on its relationship to qui tam actions.  We performed limited
tests of the data reviewed and found some inaccuracies.  Thus, while
we have concerns about the reliability of the data, it represents the
only source of comprehensive information on the program's
accomplishments other than individual case files. 

DOD and Justice Department policies and practices prevented our
access to open voluntary disclosure case files.  Our access to closed
case file information was also limited when, according to Justice
Department officials, it contained information covered by rule 6(e)
of the Federal Rules of Criminal Procedure, which governs secrecy
requirements of grand jury proceedings.  As a result, the Justice
Department would not provide us with the bulk of several closed case
files we initially selected for review.  Furthermore, according to
the Justice Department, some of the documents in two of three closed
cases we selected for initial review were unavailable because of a
court-imposed protective order in one case and a confidentiality
agreement between the U.S.  Attorney's Office and the company in the
other case.  We conducted our review from May 1994 to July 1995 in
accordance with generally accepted government accounting and auditing
standards. 


--------------------------------------------------------- Letter :11.1

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from its issue date.  At
that time, we will send copies to the Secretary of Defense; the
Attorney General, Department of Justice; the Director, Office of
Management and Budget; and other interested congressional committees. 
Copies will also be made available to others upon request. 

Please contact me at (202) 512-4587 if you or your staff have any
questions concerning this report.  The major contributors to this
report are listed in appendix III. 

Sincerely yours,

David E.  Cooper
Associate Director,
Defense Acquisitions Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Defense's (DOD)
letter dated October 13, 1995. 

GAO COMMENTS

1.  The Voluntary Disclosure Program is available to all DOD
contractors regardless of size.  Even if individuals were eliminated
from consideration, there would still remain thousands of "business
entities" to which the program is available.  Thus, the number of
voluntary disclosures has been relatively small and the dollar
recoveries modest. 

2.  We recognize that the program's value may extend beyond that
which can be measured by dollar recoveries alone and that fraud
prevention efforts may be enhanced through encouraging contractor
self-governance.  In this regard, the importance of fraud prevention
is highlighted by a DOD Inspector General reported in March 1993 that
stated that,

     "The number of current investigative cases and resulting
     recoveries of money to the Government and convictions of defense
     contractors being conducted by the Defense Criminal
     Investigative Service shows that fraud is still increasing.  The
     Federal Bureau of Investigations statistics shown for the United
     States substantiate the same trend.  Losses due to fraud are
     approximately $200 billion a year."

Although our report notes that the program represented about 17
percent of the Justice Department's $1.7 billion in reported
settlements on DOD procurement fraud cases between fiscal years 1987
and 1994, actual program recoveries were a matter of disagreement. 

3.  We modified the report's text to incorporate DOD's comments. 

4.  We continue to disagree with DOD on reporting the $75 million in
premature progress payments as a recovery of the program since the
amount was ultimately paid to the contractor. 

5.  We modified the report's text to incorporate DOD's comments. 

6.  We modified the report's text to incorporate DOD's comments. 

7.  We modified the report's text to incorporate DOD's comments. 




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
JUSTICE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


The following are GAO's comments on the Department of Justice's
letter dated October 11, 1995. 

GAO COMMENTS

1.  We do not make the conclusion that the Voluntary Disclosure
Program is not a useful or effective means of identifying or
combatting fraud. 

2.  We agree that statistics alone do not tell the whole picture of
the potential contribution of the program.  We recognize that the
program's value may extend beyond that which can be measured by
available statistics and that corporate compliance that comes out of
voluntary disclosures can have long-term effects on business honesty
and integrity. 

3.  DOD continues to report two open cases in which the Justice
Department did not concur because it believed the contractor was
motivated by recognition of imminent detection. 

4.  While we attempted to work with the Justice Department in
obtaining information from closed case files, the length of time it
took to obtain information did not allow us to complete our audit in
a timely manner.  Further, without knowledge of the information
withdrawn from the files, we could not effectively evaluate the
administration of the program. 

5.  We have deleted this sentence based on the Justice Department's
comments. 

6.  For purposes of background and brevity, we summarized the
criteria for program acceptance.  A full presentation of the criteria
does not, in our view, add to the background presentation. 

7.  We have modified the report based on the Justice Department's
comments. 

8.  We have modified the report based on the Justice Department's
comments. 

9.  We have modified the report based on the Justice Department's
comments. 

10.  Although the government was damaged by the amount of lost
interest on the premature payment to the contractor, the $75 million
represents the amount of the progress payment and does not include
interest lost. 

11.  We have modified the report based on the Justice Department's
comments. 

12.  We have modified the report based on the Justice Department's
comments. 

13.  We have modified the report based on the Justice Department's
comments. 

14.  We have modified the report based on the Justice Department's
comments. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Phillip A.  Goulet
Charles W.  Thompson

OFFICE OF GENERAL COUNSEL,
WASHINGTON, D.C. 

William T.  Woods
Raymond J.  Wyrsch

DALLAS REGIONAL OFFICE

John E.  Clary
Joe D.  Quicksall
Ronald J.  Salo

*** End of document. ***