Aug. 16 (Bloomberg) -- A small South Carolina parts supplier
collected about $20.5 million over six years from the Pentagon for
fraudulent shipping costs, including $998,798 for sending two
19-cent washers to an Army base in Texas, U.S. officials
said.
The company also billed and was paid $455,009 to ship three machine
screws costing $1.31 each to Marines in Habbaniyah, Iraq, and
$293,451 to ship an 89-cent split washer to Patrick Air Force Base
in Cape Canaveral, Florida, Pentagon records show.
The owners of C&D Distributors in Lexington, South Carolina --
twin sisters -- exploited a flaw in an automated Defense Department
purchasing system: bills for shipping to combat areas or U.S. bases
that were labeled ``priority'' were usually paid automatically,
said Cynthia Stroot, a Pentagon investigator.
C&D and two of its officials were barred in December from
receiving federal contracts. Today, a federal judge in Columbia,
South Carolina, accepted the guilty plea of the company and one
sister, Charlene Corley, to one count of conspiracy to commit wire
fraud and one count of conspiracy to launder money, Assistant U.S.
Attorney Kevin McDonald said.
Corley, 46, was fined $750,000. She faces a maximum prison sentence
of 20 years on each count and will be sentenced soon, McDonald said
in a telephone interview from Columbia. Stroot said her sibling
died last year.
Corley didn't immediately return a phone message left on her
answering machine at her office in Lexington. Her attorney, Gregory
Harris, didn't immediately return a phone call placed to his office
in Columbia.
C&D's fraudulent billing started in 2000, Stroot, the Defense
Criminal Investigative Service's chief agent in Raleigh, North
Carolina, said in an interview. ``As time went on they got more
aggressive in the amounts they put in.''
The price the military paid for each item shipped rarely reached
$100 and totaled just $68,000 over the six years in contrast to the
$20.5 million paid for shipping, she said.
``The majority, if not all of these parts, were going to
high-priority, conflict areas -- that's why they got paid,'' Stroot
said. If the item was earmarked ``priority,'' destined for the
military in Iraq, Afghanistan or certain other locations, ``there
was no oversight.''
Scheme Detected
The scheme unraveled in September after a purchasing agent noticed
a bill for shipping two more 19-cent washers: $969,000. That order
was rejected and a review turned up the $998,798 payment earlier
that month for shipping two 19-cent washers to Fort Bliss, Texas,
Stroot said.
The Pentagon's Defense Logistics Agency orders millions of parts a
year. ``These shipping claims were processed automatically to
streamline the re-supply of items to combat troops in Iraq and
Afghanistan,'' the Justice Department said in a press release
announcing today's verdict.
Stroot said the logistics agency and the Defense Finance and
Accounting Service, which pays contractors, have made major
changes, including thorough evaluations of the priciest shipping
charges.
Dawn Dearden, a spokeswoman for the logistics agency, said finance
and procurement officials immediately examined all billing records.
Stroot said the review showed that fraudulent billing is ``not a
widespread problem.''
``C&D was a rogue contractor,'' Stroot said. While other
questionable billing has been uncovered, nothing came close to
C&D's, she said. The next-highest billing for questionable
costs totaled $2 million, she said.
Stroot said the Pentagon hopes to recoup most of the $20.5 million
by auctioning homes, beach property, jewelry and ``high- end
automobiles'' that the sisters spent the money on.
``They took a lot of vacations,'' she said.
