WASHINGTON -- A retired Army Reserve officer called the Pentagon's fraud hotline last year to complain that the Defense Department had overpaid for kitchen appliances: $1,000 for popcorn makers and toasters, $5,500 for a deep-fat fryer that cost other government agencies $1,919.
Although the officer provided a four-page spreadsheet showing 135 cases of higher prices, the Defense Department dismissed the tip without checking with him.
"We've got an agency that is not doing its job of being a watchdog for the taxpayers," said Rep. Walter Jones (R-N.C.).
Documents acquired by Knight Ridder under the Freedom of Information Act reveal Paul Fellencer Sr. tried to blow the whistle on what he estimated was as much as $200 million of wasteful spending.
At issue is a multibillion-dollar Pentagon purchasing system called the prime vendor program, which uses middlemen who set their own prices, instead of direct purchases from manufacturers or competitive bidding.
A Knight Ridder investigation of the program found that, for 102 of 122 pieces of food equipment, the Pentagon had paid higher prices to prime vendors than the government did to contractors outside the system. For example, the Pentagon paid $20 apiece for ice cube trays that retail for less than a dollar.
Last year, the Pentagon's waste-and-fraud hotline received four tips complaining about the prime vendor program. One was from Fellencer, who documented Defense Department purchases in a spreadsheet complete with stock numbers and purchase orders. It showed that the Pentagon had spent 39 percent more using prime vendors, compared with buying the items through the civilian General Services Administration. The data were provided to officials at the hotline.
Pentagon investigators never called Fellencer. They spent a total of eight hours investigating his tip, talked to the officials responsible for the program and dismissed the tip as "unsubstantiated," the documents obtained by Knight Ridder show.
"They never did anything; not a whisper from them," Fellencer, a retired Army Reserve lieutenant colonel, told Knight Ridder. "It's just typical. I'm just so frustrated."
According to Diana Stewart, a Defense Logistics Agency spokeswoman, investigators didn't need to contact Fellencer because his letter and spreadsheets "provided adequate information for the examining official to conduct the review and investigation of the complaint."
Stewart defended the agency's inquiry. She said a Defense Logistics Agency investigator found that prime vendors were charging reasonable prices most of the time, "based on interviews with the food service-equipment prime vendor team and his own evaluation of a statistically valid sample of food service-equipment item prices."
The Defense Department touts the program as one of its "best practices" and credits it with timely deliveries that have eliminated the need for expensive inventories and warehousing.
Fellencer's spreadsheet included the following:
An April 2004 purchase of two deep-fat fryers for $5,501.20 apiece; the same item was on the General Services Administration price list for $1,919.
A December 2003 purchase of an electric waffle iron for $1,781.90, compared with the GSA price of $655.96.
A January 2004 purchase of a $1,033 popcorn maker that could have been bought for $768.95.
Four toasters bought in September 2003 for $1,025 apiece that other federal agencies were buying for $790.60.
Fellencer, the president of the Eagle Marketing Group of Houston, told the hotline he thought that, over all, the prime vendor program "involves as much as $200 million in misspent money."
Other tips to the fraud hotline involved allegations that prime vendors substituted cheaper materials than the ones they'd been paid for and that Defense Logistics Agency officials in South Korea were receiving gifts of food, drink and visits by "juicy girls," an expression for female bar companions. Those complaints either were called unsubstantiated or sent to other agencies for criminal investigation.
Today, food service-equipment industry leaders -- many of them unhappy with the prime vendor program -- are slated to meet with Defense Logistics Agency officials in Philadelphia to discuss the future of the system.
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