Loophole Irks Contract Watchdogs
By Lara Jakes Jordan
Washington - A multibillion-dollar loophole slipped into a proposed crackdown on contract fraud has drawn the ire of a key Republican senator and the government's top watchdog of U.S. spending in Iraq.
The loophole would allow companies performing government work overseas to avoid having to report contract abuse. A review of documents shows it was added by Bush administration policy-writers after they received a draft of the proposed rule from the Justice Department.
Officials at the White House and the president's Office of Management and Budget, which oversees federal procurement policy, have declined repeated requests for information about the exemption for overseas contracts.
The proposed rule is part of a crackdown on contract fraud that the Justice Department estimates has cost taxpayers $14 million in bribes alone over the past five years.
"It's important for the loophole to be closed in order to ensure good government oversight," said Kristine Belisle, spokeswoman for the office of the Special Inspector General for Iraq Reconstruction.
Doing so "would be an additional tool for us and make the actions of the contracting company more transparent," Belisle said in an interview this week.
Sen. Charles Grassley of Iowa, top Republican on the Senate Finance Committee, called it "a disservice to taxpayers to exempt overseas contracts when holding bad actors accountable."
"And it could be a green light for fraud and abuse," Grassley said.
The loophole, first reported earlier this month by The Associated Press, was written into rules proposed by the Justice Department to use against businesses that fail to root out internal waste and abuse of government contracts.
An estimated $350 billion is spent on government contracts annually. Studies indicate at least $102 billion has been spent since 2003 on postwar contracts in Iraq and Afghanistan alone, where the Justice Department so far has charged 44 people as a result of investigations into kickbacks, bribes and other abuses of taxpayer's money.
For decades, contractors have been asked to report internal fraud or overpayment on government-funded projects. Compliance has been voluntary, and over the past 15 years the number of company-reported fraud cases has declined steadily.
Now, the Justice Department wants to force companies to notify the government if they find evidence of contract abuse of more than $5 million. Failure to comply could make a company ineligible for future government work.
The proposed rule, as written by policy-writers who are reviewed by the OMB, specifically exempts "contracts to be performed outside the United States." The rule was published in the Federal Register in November.
The Justice Department's request for the rule - dated May 23, 2007 - does not mention an exemption for overseas contracts. The request signed by Assistant Attorney General Alice Fisher suggests that some leeway could be given to small businesses only, but noted sternly that "the proposal does not relieve such contractors from the duty to report fraud."
"We believe all contractors, regardless of size, should be expected to report fraud when they become aware of it," Fisher wrote in the proposal, a copy of which was obtained by the AP.
The White House has repeatedly refused comment about the loophole. Jane Lee, a spokeswoman for the Office of Management and Budget, which oversees federal procurement policy, said it was inappropriate to discuss how or why the overseas exemption was included before the new rule becomes final. The rule is expected to become final later this year.
"All public comments will be reviewed and considered in response to this proposed rule," Lee said.
Additionally, officials with the Defense Department and the U.S. General Services Administration, which helped write the proposed policy, said they could not comment while the rule was still being considered.
The government has received more than 40 comments about the rule, mostly from businesses that oppose it and inspectors generals from federal agencies who support it.
Belisle, the spokeswoman for the Iraq inspector general, said her office was joining other agency watchdogs that have voiced concerns about the overseas loophole.
Viki Reath, a GSA spokeswoman, said the comments are being reviewed.
On the Net:
The contract fraud rule published in the Federal Register can be found at: