A House subcommittee plans to ask officials of General Dynamics Corp. about allegations that the company charged the government millions of dollars for such expenses as entertaining top Pentagon figures and personal use of corporate jets.
The investigation took a politically sensitive turn, according to sources familiar with the probe, when it turned up information that General Dynamics entertained numerous members of Congress and their aides, as well as administration officials. The entertainment took place at golf resorts, Las Vegas casinos, Kennedy Center shows and at Washington restaurants such as Maison Blanche, the sources said.
The nation's largest defense contractor also charged the Pentagon for membership fees at Congressional Country Club, Burning Tree Club, the Pentagon Officers Athletic Center, Army Navy Country Club, Skyline Racquet & Health Club, Country Club of Fairfax, the Capitol Hill Club and the Democratic Club, according to the sources.
General Dynamics spokesman Peter Connolly said yesterday that the company charged the government only for legitimate business expenses and is negotiating with Pentagon auditors about the disputed charges.
Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce subcommittee on oversight and investigations, has scheduled a hearing Feb. 25 on the allegations, some of which are based on audits of General Dynamics by the Defense Contract Audit Agency.
One issue that the subcommittee and auditors have questioned is why General Dynamics charged these costs through partially blank expense vouchers that do not list who was being entertained.
Connolly stressed that the auditors' findings on company expenses for 1978 through 1983 are not final. The government, which provides 90 percent of General Dynamics' funding, is supposed to pay only expenses related to official business.
"We don't claim entertainment expenses," Connolly said. "They're not an allowable expense, and we recognize that . . . . It's irrelevant whether the recipients are listed because we don't charge entertainment."
Connolly said the company follows "very specific criteria for what is an allowable business conference and what is entertainment . . . . Because the auditors challenge a figure does not mean a figure is improper. It's a matter the company has to justify."
Connolly also disputed the auditors' challenge of $22 million for use of two corporate jets. "The company continues to insist that these charges are valid business expenses," he said.
Dingell's hearing is one of several inquiries involving the St. Louis-based company this month.
General Dynamics Chairman David S. Lewis also is scheduled to testify before a Connecticut federal grand jury probing allegations that the firm submitted fraudulent claims on submarine contracts in the 1970s. And he is to appear here before a Navy tribunal examining allegations that the company provided tens of thousands of dollars in gifts to now-retired admiral Hyman G. Rickover.
Both the Internal Revenue Service and the Securities and Exchange Commission have contacted Dingell's staff for information about General Dynamics. The SEC is examining whether the company adequately disclosed cost overruns and other problems to its shareholders, according to those familiar with the subcommittee probe.
In addition, the sources said, aides to Rep. Julian C. Dixon (D-Calif.), new chairman of the House ethics committee, have asked Dingell's subcommittee for its information on the company's entertainment of members of Congress.
Connolly said he is not aware of any probe by the IRS or the SEC probes and had no information on such entertainment of members of Congress.
Several Pentagon officials interviewed by Dingell's subcommittee, including generals and admirals, have confirmed that General Dynamics had paid their expenses for some meals and outings, the sources said.
A Defense Department directive prohibits officials from accepting gratuities from military contractors. Federal law bars government employes from accepting gratuities in exchange for official acts.
Members of Congress are permitted to accept travel and lodging expenses from private firms, but it must be reported on their financial-disclosure forms if valued at more than $250.
Sources said the Pentagon audit findings, some of which have been reported by the St. Louis Post-Dispatch, include the following:
* The auditors have questioned $1.3 million in 1982 expenses from a "corporate travel" account covering the company's St. Louis headquarters and Washington office. The auditors said that $607,000 was for such unallowable expenses as liquor and travel by executives' wives and that another $602,000 lacked adequate documentation.
Connolly said the company withdrew $118,000 in expenses from this account because they were found to include entertainment.
Part of the dispute involves the company's policy of not identifying guests on expense vouchers. In a 1981 memo, General Dynamics accounting official Paul T. Scanlan, saying he was correcting an employe's vouchers, wrote: "For future reference, please do not list names of conferees on the documentation. List only the number of persons and purpose of business conference."
* The auditors questioned such company expenses as taking guests to Pine Valley golf resort in New Jersey and an Air Force dress ball in New York. They also questioned a $17,000 initiation fee at Old Warson Country Club in St. Louis and thousands of dollars for meals and drinks at Desert Horizon Country Club in Palm Springs, Calif.
* Expenses for company conferences at Sea Island, Ga., and other resorts also are under scrutiny. In one such meeting of 70 executives and their wives at Wigwam Country Resort in Arizona, the auditors questioned $67,000 in expenses, including a Mexican banquet, steak fry, cocktails and lodging for spouses.
* The auditors questioned whether the $22 million charged over six years for executives' flights on the company's two jets was related to Pentagon business. Several charges were for flights to Aspen, Colo., and West Palm Beach, Fla.
The dispute includes 76 flights by Lewis to Albany, Ga., where he has a family farm, at an estimated cost of $320,000 over three years. During the same period, 1981 to 1983, he charged 66 trips to San Francisco, Dayton and Wichita for meetings of three companies of which he is a director.
In addition, the auditors questioned why General Dynamics regularly threw away passenger lists for the jets, which can cost as much as $3,000 an hour to operate.
Connolly said that no federal law requires that passenger lists be retained but that the company began doing so last year. He said Lewis uses the corporate jets for security reasons because he is a potential target for terrorists.
In a letter last fall, Dingell asked Navy Secretary John F. Lehman Jr. why General Dynamics has been paid $10.5 million for the disputed flight charges.
"It is not clear why the Navy has not brought fraud charges against General Dynamics for knowingly charging millions of dollars to the government for numerous flights which have nothing at all to do with government business," Dingell wrote.
Dingell also described allegations that flight logs for several of Lewis' Albany trips "were deliberately altered after the pilot signed them to make it appear that the flights were training flights which perhaps could be more legitimately charged to the government."
In a recent letter regarding General Dynamics, an IRS regional official told Dingell that the agency wants to examine "possible fraudulent record-keeping, possible overstated charges to government contracts and alleged attempts to influence government officials through gifts and bribes."
General Dynamics has paid no federal income tax since 1972 by making use of various tax deductions. A study by Citizens for Tax Justice found that the company, while reporting $930 million in earnings from 1981 to 1983, was one of several defense contractors that paid no federal income tax during that period.
"We have satisfied all the requirements of the IRS," Connolly said.