What the Movie “War Dogs” Teaches Auditors About Procurement Fraud

The movie “War Dogs,” a 2016 film directed by Todd Phillips and based on a true story, provides an engaging narrative that can serve as a cautionary tale for auditors. It showcases the complexities of procurement fraud within the government contracting sector. The story follows two young arms dealers, David Packouz and Efraim Diveroli, who win a $300 million Pentagon contract to supply ammunition to Afghan forces. Their subsequent actions offer several key lessons for auditors about procurement fraud.

Miles Teller, left, and Jonah Hill in a scene from "War Dogs." Photo Credit: Warner Bros. Pictures

1. Understanding Red Flags in Bidding Processes

“War Dogs” demonstrates how fraudulent activities can begin at the bidding stage. The protagonists manipulate the system by presenting themselves as a legitimate, capable business while concealing critical deficiencies and misrepresentations. Auditors should be vigilant for red flags such as unusually low bids, discrepancies in bid documentation, and sudden appearances of new contractors with little to no prior experience. A thorough review of the bidding process, including background checks and verification of contractor capabilities, is essential to uncover potential fraud.

2. The Importance of Due Diligence

The film emphasizes the need for rigorous due diligence. Packouz and Diveroli bypass numerous regulatory requirements and fail to perform adequate due diligence on their suppliers. For auditors, this highlights the importance of verifying the legitimacy of subcontractors and suppliers. Auditors should ensure that proper due diligence is conducted, including background checks, financial health assessments, and compliance with regulatory requirements. This helps prevent fraudulent entities from infiltrating the supply chain.

3. Monitoring Contract Performance and Compliance

Once the contract is awarded, monitoring its performance and compliance is crucial. In “War Dogs,” the contractors deliver substandard ammunition by repackaging Chinese-made products, violating U.S. embargo laws. Auditors should regularly monitor contract execution, ensuring that the goods or services delivered meet the specified quality standards and comply with all legal and contractual requirements. This includes on-site inspections, periodic reviews, and audits of contractor performance.

4. Ethical Behavior and Whistleblowing

The movie underscores the role of ethical behavior and the significance of whistleblowing. Packouz’s growing discomfort with the unethical practices ultimately leads to his cooperation with authorities. Auditors should foster a culture of ethics and transparency within organizations. Encouraging and protecting whistleblowers who report suspicious activities is vital for detecting and addressing procurement fraud. Establishing clear reporting channels and ensuring anonymity can help in surfacing fraudulent activities.

5. The Consequences of Fraud

“War Dogs” illustrates the severe consequences of procurement fraud, both legally and reputationally. The protagonists face criminal charges and significant penalties for their actions. Auditors should communicate the potential consequences of procurement fraud to all stakeholders, emphasizing the legal, financial, and reputational risks involved. This awareness can deter individuals from engaging in fraudulent activities and encourage adherence to ethical practices.

Conclusion

The story depicted in “War Dogs” serves as a powerful reminder of the complexities and risks associated with procurement fraud. For auditors, the film offers valuable lessons on identifying red flags, conducting thorough due diligence, monitoring contract performance, promoting ethical behavior, and understanding the serious consequences of fraud. By applying these lessons, auditors can better safeguard their organizations against the dangers of procurement fraud and ensure the integrity of the procurement process.

To learn more about procurement fraud, check out our upcoming course Recent Government Fraud Cases and Lessons for Auditors.