Spy satellites provide much of the intelligence community’s raw data, whether snapshots of Iran’s nuclear facilities or al-Qaida training camps. David Kaplan has the story on how the National Reconnaissance Office, the $7.5-billion-a-year agency that builds and operates the satellites, has had to contend with potentially massive fraud among its many contractors.

Bad Guys:

The “floodgates of fraud reporting” have opened at the National Reconnaissance Office, the nation’s top-secret builder and operator of spy satellites. This bit of news comes from no less a source than the NRO’s inspector general, Eric Feldman. Yet Feldman and other NRO officials are mum about just how big the flood is over there.

This might not be such a big deal were the stakes at hand not so high. The NRO and its many contractors have grown notorious for massive cost overruns and quality control failures so serious they threaten the U.S. edge in high-tech reconnaissance satellites. Whether they’re eavesdropping on al Qaeda communications or photographing Iranian nuclear facilities, these are the crown jewels of the U.S. intelligence community. But the current generation of spy satellites is burning out-and replacements are years away.

[…]What kind of fraud is he talking about? Hard to say, but there are huge sums in play. The NRO grabs some $7.5 billion of the $44 billion annual intelligence budget-and most of that amount is shelled out to contractors large and small. The agency’s troubled next-generation satellite, a $25 billion boondoggle called Future Imagery Architecture, has been so dogged by cost overruns and technical trouble that the director of national intelligence cut the project in half last year. Back in 1995, revelations surfaced that the NRO ran what some in Congress called a slush fund of over $1 billion, which the agency used to build a lavish new headquarters. The NRO director and his deputy were subsequently fired, and Congress stopped the agency from squirreling away unspent funds year after year.

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