Fraud in the DoD: Is the Current Fraud Penalty System an Effective Deterrence Tool?

Abstract

The purpose of this research is to assess the relationship between fraud penalties levied by the Department of Justice (DOJ) against defense contractors (firms) that commit fraud against the Department of Defense (DOD) and the effect of those penalties on future fraud recidivism. Using hand-collected historical data related to fraud committed against the DOD, we find a total of 511 fraud cases and $13.5 billion in fines between 1995 and 2018. An estimated regression model is used to analyze the relationship between fraud penalties and fraud occurrences. Multiple specifications of our model show little to no relationship between DOD- and DOJ-imposed fines and subsequent contractor fraud commission. Given the magnitude of resources deployed for setting and enforcing fines and penalties, the DOD should consider employing alternative tools to encourage compliance with procurement laws and discourage contractor fraud.