The Top Cops of Federal Crime

The parking lots at 400 Army Navy Drive, just overlooking the Pentagon in Arlington, Va., are dotted with cars by 6:30 a.m.

Nine floors up in the plain office building is the headquarters of the Defense Criminal Investigative Service, the crack investigative arm of Defense's Office of Inspector General. They're the early risers, filling up the lots before traffic snarls clog Route 66 and I-395, the main arteries to the Defense Department's sprawling nerve centers.

At the tender age of 13, the generally unheard-of DCIS might be the nation's most potent tool in fighting white-collar crime. And with an operating budget of just $30 million, DCIS is probably the best law-enforcement deal in government.

Consider this: On April 29 DCIS helped federal officials bust the Boeing Co. for chronic overcharges on computer contracts from 1980 to 1991. In three investigations, the most egregious violation happened in a scheme whereby Boeing improperly put research and development related to artificial intelligence on Uncle Sam's tab, billing the Defense Department for the work as "manufacturing overhead." Boeing's plan was to have Defense foot the bill for work it hoped to use in its NASA business, especially the control of space-based robots and environmental systems in the now scaled-down space station.

The culmination of the six-year investigation last month netted the government a $75 million settlement. And the recovery came after two of DCIS's biggest settlements in recent years, a $29 million payment from black agency contractor and credit rating specialist TRW, which had inflated the cost of aircraft components in the mid-1980s; and a whopping $150 million whistleblower civil settlement from United Technologies Corp., which throughout the 80s overcharged the government on Blackhawk and Seahawk helicopter programs. Whistleblower Douglas Keeth, a former VP of finance at United, pocketed $22.5 million.

Clearly, DCIS has built a solid, if not overwhelming, record of success. For instance, in the history of the Republic, not a single top 100 defense contractor had been convicted for overcharges on contracts until 1981 -- the year DCIS was founded. Since then the service has helped convict 40 top-100 contractors and won settlements totalling $1.8 billion.

During the same period, Inspectors General governmentwide made about $4.5 billion in recoveries. By comparison, the FBI-led Ill Wind scandal in 1988 led to about 60 convictions or guilty pleas from the biggest defense contractors, netting about $600 million in fines and settlements. That's not much more than a year's work at DCIS, which with just 400 agents is poised to eclipse the record $377.5 million it recovered in 1993.

How does DCIS do it? Unprecedented authority helps. Among investigative units at Inspectors General offices governmentwide, DCIS is only one of a handful fully authorized as a federal law enforcement agency. That gives it the legal wherewithal to conduct undercover operations, obtain records by subpoena and wiretap, search offices, and make arrests. DCIS doesn't have to give up its collars to another federal law-enforcement arm, leaving its agents more empowered than their colleagues in other government investigative units.

But leadership -- and in particular, the way DCIS head Donald Mancuso runs his shop -- appears to play an equally large role. Mancuso came to the service via the Internal Revenue Service, where he helped investigate tax fraud in the 1970s. After a brief stint at the General Services Administration, he arrived at DCIS in its first year, eventually working his way to chief, or, officially, "assistant inspector general for investigations" in 1988.

Under Mancuso's watch, the service hasn't bothered with small fish. Its mission, rather, has been to ferret out allegations of complex fraud among very large contractors. The service typically gets about four or five settlements a year totalling more than $10 million, most involving paper-intensive cost mischarging or product substitution schemes in high-tech weapons programs.

A current investigation of Scientific Applications International Corp. -- which involved a raid of documents at SAIC's San Diego headquarters this February -- concerned charges the company used components from portable Sony Watchman televisions to produce fake instruments for an advanced display device in weapons systems, according to a San Diego Union-Tribune article February 16. SAIC, which has disputed the accuracy of the Union-Tribune's account, is being investigated on the suspicion it collected payments for advanced displays it knew it could not deliver.

No charges or convictions have resulted from the investigation. But it is typical of many of the cases DCIS pursues: a large, well-known contractor is fingered -- often by an ex-employee -- for misrepresenting technology included in a weapons system. Search warrants are issued and crateloads of documents are seized, thus initiating another very long paper-chase.

Make no mistake. There is glory in DCIS work, especially after extracting admissions of guilt and multi-million-dollar settlements. But years often pass between the time an investigation is launched, and a settlement or conviction is reached. The interim is filled with tedious sifting through reams of checks, material generated from intercepted mail, audit statements and other assorted financial documents. To help lighten the paper load, DCIS has become one of the most heavily automated agencies in government, with a PC-to-worker ratio in excess of one-to-one. Dogged pursuit of damning paper trails -- with an increasingly large dose of silicon and electronic surveillance to speed up the hunt -- may be the real key to DCIS's success.

But technological sophistication can be a double-edged sword. "We rely on handwritten signatures on falsified documents as evidence of crime," said James Trost, a deputy director at DCIS who cut his teeth at the investigative arms of the armed services. A switch to electronic commerce -- one of the main goals of the Gore reinventing-government initiative -- has not been accompanied by sufficiently strong case law regarding the admissibility of electronic signatures. At the very least, electronic commerce will force DCIS to radically alter its evidence-gathering methods. And if the administration backs down on a proposal to push the controversial Clipper chip for electronic surveillance, DCIS's ability to conduct electronic surveillance could be fatally crippled.

To be fair, DCIS is by no means alone in policing high-tech defense contractors. And it does conduct many of its investigations with both the FBI and the armed services' own bureaus. The Air Force Office of Special Investigations, for instance, is a key partner in the SAIC investigation.

"We feel we have more technical expertise in defense fraud per se," said Mancuso. "[The FBI] clearly has far more resources than us."

But perhaps the most important partner for DCIS -- or for any criminal investigative unit -- is the Department of Justice, which ultimately decides which cases are worth prosecuting. That's a prerequisite for spending precious resources. Within the DOJ, decisions vary from jurisdiction to jurisdiction. An office in Tennessee, for instance, may be able to extract more press coverage and attention in its own area than a similar case in Los Angeles or Northern Virginia. So it might work with DCIS on cases that wouldn't be given second consideration elsewhere.

Still, there is no hard and fast rule for what kind of case triggers a full investigation. And even though DCIS is investigating 1,600 at any given time, "There's a hell of a lot out there we don't know about," said Trost. He says it is virtually impossible to determine how much they don't catch. "Nothing short of genetic engineering will eliminate fraud," he added.

DCIS's appraisal of human nature mirrors experiences of colleagues in the FBI. A 14-man fraud squad in Tysons Corner, Va., has the responsibility of policing the hundreds of high-tech contractors in Northern Virginia, most recently helping to convict a contracting official at PRC Inc., who had run a series of complicated kickback schemes to milk money out of a Patent &amp Trademark Office computer contract.

But the office may be overwhelmed, particularly as hard-up defense contractors give in to the many temptations arcane government procurement regulations provide. One consultant with longtime expertise in the high-tech contracting business said he regularly refers smaller instances of fraud to the FBI.

"They just don't have the resources to go after the smaller thefts, which may account for the greatest dollar-fraud amount," he said. Mancuso himself maintains a fairly open shop. He keeps no formal press office to screen calls from reporters, recognizing that in the days of shrinking budgets, law-enforcement offices need to grab headlines.

DCIS's staff of 400 investigators is made up mostly of tax specialists and accountants. A good many of them, says Mancuso, came from the area of the IRS where he worked, while others hail from the FBI or Inspectors General Offices at other agencies.

So what motivates DCIS agents? Many say fingering the bad guy and protecting the integrity of procured weapons systems as their primary motivation.

"All of us have an interest in financial fraud," added Mancuso, a Brooklyn native.

Mark Spaulding, a special agent who heads up black-budget program investigations, is a former investigator at the Department of Agriculture.

"We routinely go up against the best legal talent money can buy...it feels good to beat the absolute best." Spaulding, an amiable and talkative man, names the law firm Crowell &amp Moring as one of DCIS's tougher legal opponents. In fact, the D.C.-based operation, like many others, gives seminars to corporate clients on DCIS's latest investigative techniques and priorities.

"There are companies that analyze what we do and put on seminars on how we conduct investigations," said Spaulding. "That forces us to do our job right. Lawyers and accountants are very sophisticated."

But despite big convictions and settlements in recent months, there are some troubling trends at DCIS. For instance, the total number of indictments and convictions for fiscal year 1993 declined sharply from record years in 1992 and 1991.

That has much to do with DCIS's responsibility for investigating the Navy's Tailhook scandal, which diverted much of its resources. And the number of newly opened cases dropped from 1,077 in 1991 to 873 in 1993.

Because cases often take years to investigate, this dip will likely be reflected in lower conviction rates -- if not settlement numbers -- in upcoming years.

That means the service has to set some strict priorities to keep netting big fish. Computer services contracts represent one potentially fertile area of renewed focus -- particularly as spending shifts from big weapons systems development to computers and electronics and software upgrades. Theft schemes within DoD's vast network of hospitals is another -- in fact, DCIS recovers more dollars in healthcare fraud than the Department of Health and Human Services, Mancuso claims.

Environmental clean-up and the handling of military equipment being retired in Europe and elsewhere are other good hunting grounds.

Decommissioned equipment goes through a "revitalization" process which often results in outright theft as it's sold off. This January, a former civilian unit administrator for the U.S. Army Reserve in Raleigh, N.C., was sentenced to 30 months imprisonment for stealing $252,032 in equipment from the Defense Reutilization and Marketing Offices in Virginia and North Carolina. He sold the equipment to flea markets and Army surplus stores.

Finally, Spaulding sees DCIS's experience investigating black budget programs as a critical tool for helping Congress stay on top of the intelligence communities.

Still, if DCIS is to strike effectively in new areas, it will need more political support. The Clinton administration has tried and failed to secure an appointment for the position of DoD Inspector General -- Mancuso's direct boss and the only political appointee in the IG's office.

As a result, DCIS lacks a well-defined set of policy goals to guide investigative efforts. Does DCIS want to put its resources behind healthcare fraud? Does it need to focus more on computer services contracts, or environmental clean-up fraud? Until the appointment comes through, the service, in many ways, is on its own.

"When you don't have a [full-time] inspector general, you don't have a political direction," Mancuso said.