Pentagon steps up its war on unscrupulous defense contractors

Joe Sherick grins as he tosses the two pieces of cord across the table. One is genuine parachute cord. The other is a fake, made from old tire cord that had been stained with dye and kerosene.

The Pentagon's inspector-general is grinning - and not just because his agency nabbed another unscrupulous defense contractor who would have endangered lives while trying to cheat Uncle Sam out of nearly $700,000. This avuncular watchdog with 41 years' government service also loves the sweet irony of the case: The prosecutor was a former paratrooper and the judge was a World War II pilot. Both had more than a passing interest in parachutes.

The Defense Department has taken lots of flak recently over management of its multibillion-dollar procurement. Much has been made of $435 claw hammers and $1, 118 plastic stool-leg caps, and such horror stories underlie declining public support for increased defense spending.

But in recent months, government officials have done much to clamp down on the military ''waste, fraud, and abuse'' presidential candidate Ronald Reagan promised to attack. People like Joe Sherick, a highly respected civil servant, are roving like alligators through what White House budget director David A. Stockman once called a ''swamp'' of mismanagement and abuse at the Pentagon.

And their snapping and snarling has begun to pay off. Some recent statistics:

* The number of indictments and convictions resulting from internal Defense Department investigations last year rose 86 percent to 765.

* The number of companies who used to do business with the Pentagon and have been either suspended or forbidden from doing any future business because of shady practices jumped 80 percent to 323 over the same period.

* The total amount of defense contract charges questioned by defense auditors (and subsequently sustained) has risen to nearly $1 billion annually, a 37 percent increase in two years.

* Substantive calls to the Defense Department's toll-free ''waste, fraud, and abuse'' hot line (800-424-9098) have jumped from about 200 in 1980 to several thousand a year. In January alone, 318 such calls were made by whistle blowers.

* More than 20 major defense companies (either on the Fortune 500 or the list of top 100 Pentagon contractors) are under investigation. They are suspected of cost mischarging, defective pricing, or product substitution.

Much of this involves outright fraud. A hospital owner and chief administrator recently agreed to pay the US government $1.3 million in damages and penalties for illegal billing under the Defense Department's health program. A ''Silicon Valley'' company tried to sell the Pentagon lesser-quality computer chips.

But officials say even larger sums will be found in Pentagon mismanagement. That's why the department's largest-ever audit, involving 300 personnel, now is focused on spare parts pricing.

At last count, federal procurement totaled $170 billion a year, and the Defense Department accounted for a whopping three-fourths of that sum. There is thus the potential, as Mr. Sherick conceded the other day, for ''a lot of closets in the Department of Defense and a lot of skeletons in those closets.''

US military personnel (uniformed and civilian) total some 3 million. Of these , about 20,000 are auditors, investigators, or inspectors. Since Caspar W. Weinberger took over as defense secretary, the number of Pentagon watchdogs has increased by 2,433. The Defense Criminal Investigative Service has been created. It began with 100 agents two years ago, now has 230, and plans to employ 450 by 1986. And Pentagon investigators now are working directly with the Justice Department to facilitate indictments.

A law passed in 1978 provided for a new inspector general at the Pentagon, but the post was not filled until Mr. Weinberger did so two years ago. Since then, many of the ''horror stories'' about spare parts and cost overruns have come from the Pentagon's own watchdogs.

This has caused the defense secretary some chagrin (as Mr. Sherick says, ''My good news is his bad news''). But apparently there has been no pressure to let up.

''I have no problem with him,'' says Sherick, who notes wryly that with more than four decades' tenure he has little cause for job security concern. Weinberger ''knows I'm out there banging on doors and opening them. I get all kinds of support, and I haven't asked for any resources I haven't gotten.''

While Capitol Hill critics continue to fire away at other defense agencies, especially the Defense Contract Auditing Agency (DCAA), they apparently trust the Pentagon's inspector general. In fact, proposed legislation would bring the DCAA under Sherick's control.

Less than 1 percent of all defense employees are professional investigators and auditors, but the word is being spread that all Pentagon workers should consider themselves watchdogs. One worker recently blew the whistle on a contractor who tried to sell the Pentagon leaky boots designed for troops in the arctic.

Says Sherick: ''You've got to get informants and that's what the hot line does for you.''

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