Did U.S. Army Officials Pocket Over $1 Million of Taxpayer Money? Exclusive Documents Reveal Investigation of 'Gross Mismanagement' Claims

Ukrainian marines listen to instruction in urban warfare techniques from a U.S. Army soldier during Rapid Trident, a bilateral military exercise, held in 2014 near Yavorov, Ukraine. U.S. Army Europe officials have been accused of "gross mismanagement" in handling American tax dollars. Sean Gallup/Getty Images

A U.S. State Department report out of Kiev, Ukraine, has accused officials at U.S. Army Europe of trying to cover up the "gross mismanagement" of more than $1.4 million in American taxpayer dollars.

Newsweek obtained a copy of a 31-page report containing allegations that officials at U.S. Army Europe intentionally concealed relevant information and lied to the U.S. Embassy's financial office to have more than $1.4 million in foreign military funds distributed without official authorization in the fall of 2017. The report, written by the Embassy's chief financial officer, is marked "Sensitive, but Unclassified."

According to the document, the U.S. Embassy said that it had received paperwork to account for more than $3,300 but that more than $1.1 million appears to have been spent without documented authorization as of July 2018.

"By Embassy standards, the scope of the violation is quite large," the report said.

An ongoing investigation is looking into the possibility that individuals within U.S. Army Europe pocketed the unauthorized taxpayer dollars, according to a Defense Department source with knowledge of the Pentagon probe. (You can read the full complaint to the inspector generals at the bottom of this article.)

Brad Moss, a Washington, D.C. attorney specializing in cases of national security, cited multiple issues after reviewing the complaint to the inspector generals.

"This bureaucratic mismanagement raises several areas of concern, both as a financial matter and from a legal perspective," Moss told Newsweek. "There is an obvious and immediate need to ascertain the scope of potential financial waste at issue and see if some—if not all—of it can be recouped."

"That aside, there is a clear need to flesh out exactly who at U.S. Army Europe knew the details of the disbursements and the deficient documentation authorizing them at the time, as well as why these disbursements were permitted, given the flaws in the approval process," Moss added. "If anyone is deemed to have knowingly engaged in an effort to defraud the U.S. government, there are severe civil and criminal liabilities that could come into play."

U.S. Army Europe disputed many of the allegations in the inspector general complaint. "We believe all outstanding ratification requests made by the Embassy were provided by U.S. Army Europe," said Beth Clemons, a spokeswoman for the command.

The letter also details an alleged financial plot run by the Ukrainian government, saying officials submitted invoices to both the Canadians and the Americans for the same set of meals between July 1, 2016, and January 31, 2017. The complaint indicates that the scheme may have existed since the program's inception back in 2015, resulting in hundreds of thousands of American tax dollars being wasted, according to the documents.

Separate from the alleged cover-up of unauthorized payments and the Ukrainian scheme, the report outlines how the lack of basic administrative and logistic controls over such items as food and fuel led to the likelihood that "a large sum of money was wasted in support of this program." Contacted by Newsweek, a spokeswoman for U.S. Army Europe said they have no evidence anyone manipulated embassy staff, intentionally concealed relevant information or lied, and no evidence any U.S. government person or agency made improper payments.

The command added that they are not aware of any allegations or evidence that U.S. government personnel profited from unauthorized transactions. "We have no evidence of what the Canadians were charged or paid, we also have no evidence at this point of a 'double-billing scheme,'" said the U.S. Army Europe spokeswoman.

Newsweek contacted both the Department of National Defense in Canada and the Ministry of Defense in Ukraine seeking information, but no reply was returned before publication. The U.S. State Department did not reply to requests for comment for this story.

A State Department source at the U.S. Embassy in Kiev, who asked not to be named, told Newsweek that Dr. James Moyer, the comptroller at U.S. Army Europe, finally brought the U.S. Embassy the paperwork that his team had failed to complete on September 12, 2018, two months after the inspector general filing and more than a year after the financial office first sought clarification about the unauthorized payments. Newsweek was unable to reach Moyer for comment.

All transactions in Ukraine are being reviewed by U.S. Army Europe to ensure there are no other outstanding transactions, said Clemons. The command said they believe the State Department referred the issue to the Pentagon's inspector general for review.

A Mission Expands and Spending Speeds Up

A Ukrainian serviceman fires his gun in the direction of Russia-backed separatists during night combat near the village Zaytseve not far from the the Gorlivka town late on June 20, 2018. More than 10,000 people have been killed in a simmering conflict between Ukrainian army and Russian-backed rebels in the country's east since the insurgency broke out in April 2014. ANATOLII STEPANOV/AFP/Getty Images

Four years ago, the Russian Federation thrust Ukraine into a Kremlin-manufactured shadow war between separatists that sided with Moscow and those aligning towards Europe and NATO after the annexation of Crimea by the Russian Federation.

A year and a half later, the U.S. State Department announced an expansion of U.S. European Command's mission in Ukraine beyond the once-limited scope of training Interior Ministry national guard units.

Using Global Security Contingency Funds, a joint fund between the State and Defense Department, the Barack Obama administration sought to bolster Ukraine's security by training the country's regular army and special operation forces. Congress, however, wanted to provide a robust military aid package to arm Ukraine with mortar systems, ammunition, and the Javelin anti-tank missile.

The late Senator John McCain, the Arizona Republican who chaired the Senate Armed Services Committee at the time, dismissed Obama administration fears that sending lethal weapons would escalate the violence.

But the Obama administration's viewpoint in Ukraine prevailed, and the U.S. opted to provide non-lethal aid such as tactical vehicles and night-vision capabilities. Canada provided similar assistance, sending thermal vision equipment and medical training.

While expressing some of the same concerns voiced during the Obama era, the Donald Trump administration has provided Javelins and other arms, a move that angered Moscow and deepened U.S. involvement.

But before the expansion, the U.S. Embassy's finance office in Kiev began receiving payment requests from the Office of Defense Cooperation to support the Joint Military Training Group-Ukraine.

The payments would be in local Ukrainian hryvnia currency with U.S. European Command retaining administrative responsibility. Once the expansion took place, the funding for U.S.-backed Ukrainian programs switched to Title 22 Foreign Military Funds that are allocated to the State Department via Congress and often transferred to the Pentagon to execute security assistance programs.

Jeanie Clayton, a foreign service financial management officer for the U.S. Embassy in Ukraine, had grave concerns about how the Department of Defense processed large payments to support soldiers in both the U.S. and Ukrainian Army since she began her role in June 2017.

From a financial perspective, the embassy operates in a different commerce environment because the U.S. Disbursing Office did not have a local account to pay Ukrainian vendors providing services to U.S. European Command like food, Wi-Fi and laundry support. The Defense Finance and Accounting Service, the agency charged with the Pentagon's finances, was not able to pay local vendors in Ukrainian currency.

So instead, the burden of bill-paying fell to the embassy's finance office with the deputy chief of mission having to approve large payments associated with joint training programs under U.S. European Command.

Between 2015 and September 2017, the embassy processed more than $13.3 million in Acquisition Cross Support Services Agreement (ACSA) payments. ACSA agreements are inter-governmental activities that support military exercises between countries.

The letter to the inspector general states that the Office of Defense Cooperation did not consult with the embassy finance office to assess whether the office could support the payment responsibility.

"Rather, the invoices suddenly began to appear with no discussion or forewarning during the time period which embassy finance staff were overwhelmed with a dramatic increase in assistance funds and the overall growth of the mission," Clayton wrote. The embassy staff were "stretched beyond capacity" and had "no ability to develop the expertise" to support the program from a financial standpoint.

"From the moment these invoices arrived, embassy staff were under enormous pressure to pay them immediately," said a timeline of activity in the Embassy report obtained by Newsweek. An embassy Defense Department employee allegedly tipped off officials working at the Hetman Petro Sahaidachnyi National Ground Forces Academy in Livi, Ukraine, about the embassy's finance office receiving the invoices.

This past January, Clayton was toldthat in the fall of 2017, she unknowingly disbursed several unauthorized payments totaling about $1.4 million in American taxpayer dollars to the Ukrainian Army Academy in support of the Joint Military Training Group-Ukraine where U.S. Army soldiers have supported joint military exercises for the past three years under an ACSA program.

She would later learn through an internal investigation conducted by her office that individuals within U.S. Army Europe's G8 Tactical Support Division allegedly intended to conceal relevant information and lied to the financial office at the embassy. In the aftermath, officials at U.S. Army Europe reportedly tried to cover up the unauthorized payments by backdating fake documents before the service period, a claim the command disputes.

U.S. Army Europe said they were aware of the previous transaction issue, saying, "Once we discovered the issue, an AR 15-6 investigation was conducted. The investigation found that while administrative errors were made in the processing of payments for services, there was no indication that the payments were improper.

"As a result, the command took immediate action to remedy the situation by changing administrative procedures, personnel, and ratification processes," said U.S. Army Europe spokeswoman Clemons. "The command is reviewing all past and present financial transactions in Ukraine to ensure the new implement payment processing procedures are effective."

A U.S. Army official with knowledge of the feud between the U.S. Embassy and the command told Newsweek that they believe the invoice figures are correct and void of malicious wrongdoing; however, due to administrative discrepancies, U.S. Army Europe was never going to be able to produce documentation showing that the payments were legitimate.

A U.S. Army officer with knowledge of the allegations said that when the embassy would attempt to rectify the situation with the officials in U.S. Army Europe's G-8, no one would pick up the phone. However, the source claimed Clayton inflated the perception of the problem to compel the Defense Department to take over the task of disbursing ACSA funds because the embassy's financial office is not equipped to handle the work.

The Army source said the payments were mishandled on paper but not in practice.

An Alleged Cover-Up

A woman holds a placard reading 'Stop the creation of a new totalitarian empire' as she, together with other people, holds a huge Ukrainian and Crimean flags sewed together during an action in front of US embassy in Kiev on March 19, 2014. YURIY KIRNICHNY/AFP/Getty Images

On September 5, 2017, the U.S. embassy received several invoices about services in 2016 amid a "frenzy of year-end activity." The invoices totaled over $1 million.

Embassy staff asked U.S. Army Europe why they were having to process payments more than a year after the invoices were issued, and why there were discrepancies between the memo showing the period of performance and the invoice documents.

Adam Perreault, a budget analyst with U.S. Army Europe's G-8 section, told embassy staff that the Joint Military Training Group-Ukraine was sending their invoices in late and in February. His office was notified to stop making payments due to the double billing scheme theory. But, Perreault said, the financial scheme was investigated, and two weeks later, his office was told to resume payments.

The Inspector General complaint states that the response from Perreault appears to have been designed to manipulate the embassy financial office into making improper payments because he did not mention the unauthorized commitments.

In the ratification package documents obtained by Newsweek, Perreault writes that he discovered there was no service support agreement in December 2016—nine months before the email to embassy staff.

"Mr. Perreault's explanation sounded plausible to me at the time, I now believe it was dishonest in two respects," wrote Clayton.

The financial officer said U.S. Army Europe had an obligation to inform the embassy of unauthorized payments and that despite the May 2017 investigation, the double billing scheme was real, resulting in "hundreds of thousands of dollars of wasted funds," according to Clayton's complaint.

U.S. Army Europe confirmed that an investigation was conducted in May 2017, which recommended further action be taken to prevent future administrative errors and cited new remedy procedures that had already been implemented. The command said there was no evidence of a double-billing scheme.

At a meeting at the U.S. embassy on March 5, U.S. Army Colonel Paul Henry, the deputy G8, and William Pray, the budget management branch chief within the G8 Tactical Support Division, met with embassy staff to discuss the concerns over the unauthorized payments.

The meeting was attended by various representatives from the State Department; the Office of Defense Cooperation; and the 7th Army Training Command.

Clayton asked Pray to explain "how it was possible that the dates on the orders did not reveal the existence of the unauthorized commitments" between July 1, 2016, and January 31, 2017.

His response, she said, was, "That's because they backdated them." Clayton wrote in the documents that a standalone system generates ACSA orders and does not integrate with a separate system maintaining financial records, making it easy to falsify dates. 

As the meeting continued, Clayton told Pray that U.S. Army Europe G-8 has an ethical and legal responsibility to disclose all relevant facts to the embassy.

Pray is alleged to have replied that "laws were broken" and facts had been withheld from the embassy concerning official transactions.

U.S. Army Europe told Newsweek that neither Pray nor Henry recalls making such statements during the meeting and that they have no evidence anyone manipulated embassy staff, intentionally concealed relevant information or lied, and no evidence any U.S. government person or agency made improper payments.