As Russian soldiers attacked trench lines in eastern Ukraine in 2024, Ukrainian artillery crews opened fire. But the rounds, instead of exploding near the advancing troops, flopped out of launch tubes or landed with quiet thumps. A Ukrainian arms factory, it turned out, had supplied the military with thousands of defective mortar rounds. A burly weapons factory boss, Leonid Shyman, would eventually be arrested and charged in one of the war's most public examples of defense-industry fraud.

But even as officials noticed that weapons were arriving faulty, government audits obtained by The New York Times show, Ukraine's Defense Procurement Agency continued to award Mr. Shyman's factory new contracts. The case reflects a persistent phenomenon of the war in Ukraine. Seven of Ukraine's top 10 military contractors won new business despite open criminal investigations for fraud, failures to deliver on earlier deals or the arrest of chief executives for corruption.

The internal government audits showed that in 2024 alone, Ukraine lost about $1.2 billion to fraud, waste and mismanagement. About $126 million was lost by bypassing lower bids and overpaying for weapons. Contracts were awarded without legal justification, the auditors said.

Arsen Zhumadilov, the director of the procurement agency, declined a request to comment and resigned, leaving the position on Monday.