Update April 4th, 2014: It is interesting but this story from 2007 has recently seen a spike in reads which leads one to wonder why? The bigger question of course still remains the same . . . does the media sensationalizing these events help or hurt the investigation and resolution process. Specifically, does it become a more difficult task to address problems such as these under a cloud of controversy?
Check out my March 13th, 2013 post titled “When it comes to public sector procurement, how often does the media erroneously waive the “corruption” banner?” for further discussion.
Isn’t timing interesting? In Friday’s post I referenced the historic tendency on the part of the press to sensationalize stories about DoD purchasing inefficiencies and Sunday evening CNN relay’s a story about two $0.19 washers that were purchased for $1 million. The following is the actual story that was published by Reuters on Friday (author: Jim Wolfe).
US Paid $1 Million to Ship Two 19-Cent Washers
The U.S. Defense Department said on Thursday that a flawed system designed to rush supplies to troops in Iraq and Afghanistan let a small-parts supplier improperly collect $998,798.38 to ship two 19-cent washers.
Loopholes in the automated purchasing system have been fixed and the ill-gotten gains were being returned to the U.S. Treasury, said Army Lt. Col Brian Maka, a Pentagon spokesman.
The lock-washer incident was the last in a series of abuses by twin sisters running a South Carolina company that bilked the Pentagon out of about $20.5 million in fraudulent shipping costs, federal prosecutors said after obtaining guilty pleas earlier in the day.
The owners of C&D Distributors of Lexington, South Carolina, submitted online bids to the Defense Department to supply hardware components, plumbing fixtures, electronic equipment and other items, according to court papers.
Related shipping claims were processed automatically “to streamline the re-supply of items to combat troops in Iraq and Afghanistan,” said a statement by Reginald Lloyd, U.S. attorney for the district of South Carolina.
Lloyd said C&D fabricated shipping costs into the hundreds of thousands of dollars, as is the case of the washers, although the value of the items purchased rarely topped $100.
Lock Washers place tension against a nut after tightening, to help prevent the nut from loosening.
Maka said the Defense Criminal Investigation Service launched an investigation last September into invoices submitted to the Defense Finance and Accounting Service or DFAS.
“DFAS has put in place the internal controls necessary to make sure that something like this doesn’t happen again,” Maka said of the shipping fraud. “The money that they stole will be returned to the U.S. Treasury.”
Charlene Corley, 47, of Lexington, South Carolina, as well as her company, C&D Distributors LLC, pleaded guilty to wire-fraud and money-laundering conspiracy charges in federal court in Columbia, South Carolina.
Darlene Wooten, Corley’s twin and co-owner of C&D Distributors, committed suicide at her lake house last October after being contacted by federal investigators about the fraud, Lloyd said.
The improperly collected funds were used to buy beach houses, luxury cars, boats, jewelry and vacations among other things, prosecutors said. Conspiracy to commit wire fraud is punishable by up to 20 years’ imprisonment and a $250,000 fine.
Conspiracy to commit money laundering carries up to 20 years and a fine of $500,000, or twice the value of the property involved in the laundering transactions, whichever is greater.
Copyright © 2007 Reuters Limited.
A bigger problem that goes well beyond the DoD
The main issue I have with CNN’s “coverage” of the story is that they failed to mention that this was part of a fraud investigation that went back to September 2006, and that the perpetrators were caught and the money is expected to be returned to the U.S. Treasury. Nor did the reporter indicate that the DFAS has put in better controls to prevent this from happening again in the future.
The journalistic practice that I can only refer to as the equivalent of a “drive by ambush” in which all the facts are not presented only serves to rile rather than remedy a situation. It is sensationalistic and irresponsible in that it contributes to the urban legend mindset that I had referred to in Friday’s posting.
Don’t get me wrong, I am not attempting to justify the obvious holes in the DoD’s procurement practice that led to this unfortunate series of transactions. However, given that the DoD spent $265 billion involving millions of contracts in 2006, one would hope that collectively these facts would put the whole matter into perspective.
Think about it, the $20 million that was fleeced by this unscrupulous supplier represents an infinitesimal fraction of the DoD’s total expenditure for the year. I think that it would be safe to assume that the amount of pilferage that occurs at all levels of corporate America (Canada too) on a daily basis far exceeds this amount. A June 2004 article by Jane Herring Stanford titled Curing the ethical malaise in corporate America clearly demonstrates that this is a much bigger problem that extends well beyond the DoD. (Note: here is the link to Ms. Stanford’s article: http://www.allbusiness.com/business-planning/business-structures-incorporation/218745-1.html.)
Conclusion
As a regular reader you probably know that I am a fan of Jim Collins’ books Good to Great and Built to Last. In my last posting I made reference to the concept of “autopsies without blame.” I truly believe that this approach is the only way to take on and fix organizational challenges. While I acknowledge the fact that it isn’t CNN’s responsibility to help repair a problem in the DoD’s supply chain, I do believe that fanning the flames of public cynicism doesn’t serve anyone’s interest. In short, they should forgo the empty calories of the incomplete, roll your eyes here we go again tabloid journalism that permeates today’s media. By all means tell it like it is, but tell the complete story. It may not produce the same emotional response but it is fair.
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Procurement Insights 
Posted on August 20, 2007
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