The Department of Defense (“DOD”) is responsible for almost half of the federal government’s discretionary spending and spends more on contracting than all other federal agencies combined, obligating about $445 billion in fiscal year 2024. Given the renewed focus on fraud detection and prevention across the U.S. government – as highlighted both by the efforts of the Department of Government Efficiency (“DOGE”) and by recent congressional committee hearings focused on reducing waste, fraud, and abuse – the issue of fraud in DOD has become increasingly relevant.
On June 4, 2025, the House Committee on Oversight and Government Reform’s Subcommittee on Government Operations held a hearing titled “Safeguarding Procurement: Examining Fraud Risk Management in the Department of Defense,” during which congressional members examined strategies to combat fraud in DOD – including procurement fraud – and the steps the department is taking to address the problem.
At the hearing, Seto J. Bagdoyan, Director of Forensic Audits and Investigative Services at the U.S. Government Accountability Office (“GAO”), testified about DOD’s capacity to manage fraud risks, which he said, “falls well short across multiple fundamentals.” The Director’s testimony was based on GAO work from 2019 to 2024 related to DOD fraud risk management, and on GAO’s 2025 High Risk List report.
This blog post briefly summarizes GAO’s findings with respect to DOD’s fraud exposure and GAO’s subsequent conclusions and recommendations for DOD. The post concludes with a brief discussion of considerations for government contractors related to ongoing developments in DOD’s fraud risk management practices.
I. GAO’s Findings Regarding DOD’s Fraud Exposure
GAO notes that “the scope and scale [of DOD’s contracting activity]” makes the DOD inherently susceptible to fraud, including procurement fraud. DOD has recognized that it may face many procurement fraud risks, including bid rigging, inflated prices, counterfeit parts, conflicts of interest, false documentation for contractor payments, and overbilling. According to GAO, DOD’s reported confirmed fraud – $11 billion over seven years – reflects a small fraction of DOD’s potential fraud exposure. DOD’s reports, for instance, did not include undetected fraud and potential fraud that has not yet been investigated.
Additionally, “even a small percentage of DOD’s $1 trillion in annual spending lost to fraudsters is a significant diversion of resources from its warfighting mission.” As examples, GAO cited findings from its previous reports on DOD fraud cases, which included:
- Two contracting companies who misrepresented their ownership statuses to bid on contracts for which they were not eligible, which defrauded the U.S. of more than $200 million.
- A contracting company who falsified documents to conceal its failure to maintain required manufacturing standards and produced gun parts with several deficiencies, which defrauded the DOD of $124,000 and posed potential safety hazards and had potential national security impacts.
- The owner of a contracting firm who bribed U.S. Navy officials for classified information and preferential treatment, which defrauded the Navy of tens of millions of dollars.
II. GAO’s Conclusions and Recommendations for DOD
GAO found that DOD has failed to demonstrate a strong commitment to managing fraud risk and that it has not taken effective steps to develop a robust fraud risk management program. Accordingly, in February 2025, GAO expanded DOD’s financial management area on GAO’s High Risk List to include fraud risk management.
GAO based its assessment of DOD’s shortcomings on GAO’s 2015 Fraud Risk Framework. Since 2016, the Office of Management and Budget (“OMB”) has required federal agencies, including DOD, to adhere to the Fraud Risk Framework. GAO’s findings for DOD across the Fraud Risk Framework’s key areas are summarized below:
- DOD has begun to implement fraud risk management leading practices but has not fully established a conducive organizational culture.
- DOD provides some guidance on identifying fraud risks but does not comprehensively assess risks in a fraud risk profile.
- DOD issued an antifraud strategy but does not include control activities that align with leading practices.
Based on its findings, GAO “has made 17 recommendations across three DOD fraud risk management reports for DOD since 2019… 13 of these recommendations have not been implemented, including two that were designated as priority recommendations.”
III. Considerations for Government Contractors: Ongoing Developments in DOD’s Fraud Risk Management Practices
As military spending continues to face congressional scrutiny, government contractors should expect further changes to DOD’s fraud risk management practices. This section highlights a few likely developments:
A. Publication of a revised DOD fraud risk management strategy that addresses at least two outstanding priority GAO recommendations by July 2025.
In 2024, DOD indicated that it planned to publish a revised fraud risk management strategy to address several of GAO’s outstanding recommendations. DOD is expected to complete its revision by July 2025. This strategy is expected to:
- Establish data analytics as a method for preventing, detecting, and responding to fraud; and
- Direct all components to plan and conduct regular risk assessments that align with leading practices in the Fraud Risk Framework.
Additionally, given GAO’s testimony, it is possible that this strategy will also aim to clarify roles and responsibilities regarding fraud risk management at the department, including within military components.
B. Collection and analysis of adjudicated confirmed fraud cases “to identify root causes, lessons, and other relevant information” by November 2025.
In response to GAO’s 2024 recommendation, DOD established a Confirmed Fraud Working Group consisting of members of the military criminal investigative organizations and the Risk Management Internal Control Program. According to DOD officials, the Confirmed Fraud Working Group will work to collect and analyze adjudicated confirmed fraud cases to identify root causes, lessons, and other relevant information by November 2025.
C. Increased DOGE involvement in fraud-related matters at DOD.
A June 23, 2025, memorandum by DOD’s Under Secretary of Defense titled “Implementation of Department of Government Efficiency Cost Efficiency Initiative” provides that DOGE will have the opportunity to review and provide input on certain requirements packages for DOD contracts before those packages are submitted.[18] If DOGE does not respond within two business days, the contracting activities may proceed.[19] The Under Secretary’s memorandum does not detail what DOGE’s review will entail. Additionally, when asked whether DOGE had consulted with DOD OIG, DOD’s deputy inspector general for investigations, Kelly Mayo, said: “DOGE hasn’t come to the OIG at this point. We have not seen anybody.”[20] However, given DOGE’s directive to “bring accountability and transparency to federal spending” and the Under Secretary’s memorandum, it is likely that DOGE will be a key player in ongoing fraud detection and prevention efforts at DOD.
D. Renewed commitment by leadership to combat fraud at DOD, including procurement fraud.
In 2024, DOD officials told the GAO they believed fraud in the department was minimal compared to overall spending. However, the congressional scrutiny on fraud at the department, the increasing frustration of GAO with DOD’s responses to its recommendations, and the involvement of both the DOD OIG and DOGE in fraud detection and prevention efforts at DOD, make it likely that department leadership will begin to demonstrate a greater commitment to combatting fraud. Any such commitments will need to include efforts to combat procurement fraud, which makes up $7 billion of DOD’s reported $11 billion of confirmed fraud over a seven year period.[1]
[1] Many thanks to summer associate, Maria Jerez, for providing critical research assistance for this article.