Denver District Court Confirms Company Owes $2,461,535.28 For Underpaying Gas Royalties

Providing yet another example raising questions as to whether oil and natural gas companies operate in good faith when they are paying royalties, on Monday the Denver District Court confirmed a case in which they didn't. In support of a November 2008 jury verdict, the judge found that Williams Production Company:

• Breached their contract by underreporting and underpaying the share of gas volumes, natural gas liquids sales and heating content of the gas;

• Breached their contract by overcharging for gathering and transportation related services and for other operational and payment issues; and

• Breached their contract's duty to good faith and fair dealing. (Author's note: no kidding.)

In total, District Judge Robert L. McGahey, Jr. found that the plaintiff, Celeste C. Grynberg (wife of industry whistleblower Jack Grynberg of Grynberg Petroleum) and Grynberg Trusts is owed $2,461,535.28. For more information on Jack Grynberg's pursuit of companies that underpay the royalty payments owed to taxpayers, go here and here.

-- Mandy Smithberger

How to Catch the Next Madoff

Thanks to a series of Congressional hearings and a scathing 457-page report by the Securities and Exchange Commission (SEC) Inspector General (IG), we now have a pretty good idea of how the SEC failed to detect the infamous Bernie Madoff Ponzi scheme (inexperienced staff, investigations with an overly narrow focus, a failure to thoroughly investigate credible tips and complaints, poor supervision by senior management, a lack of communication between the various SEC offices investigating the case, an inexplicable failure to verify Madoff’s trading with an independent third party, a culture of deference to Wall Street, etc.). At one hearing, Harry Markopolos—a financial analyst and fraud examiner who tried several times to tip the SEC off about Madoff—told Congress that the “SEC staff was not capable of finding ice cream at a Dairy Queen” and that the SEC attorneys couldn’t “find steak at an Outback.”

Now the million dollar (or $65 billion) question is: how do we actually turn things around at the SEC so that it can once again become a “junkyard” watchdog capable of protecting investors from the next big Ponzi scheme?

Yesterday, the SEC IG issued two follow-up reports with a whopping 58 recommendations for improving the SEC’s investigative and enforcement practices in the wake of the agency’s massive failure in the Madoff case. Near and dear to our heart were the numerous recommendations for improving the agency’s handling of whistleblower tips and complaints. For example:

Flash Gordon -- Procurement Superhero?

According to many media reports, President Obama is ready to name Daniel Gordon, the Acting General Counsel at the Government Accountability Office, as the Administrator of the Office of Federal Procurement Policy (OFPP).

The position has been vacant during a very interesting time: the President has been releasing important contracting memos (this one too), and federal contract spending has increased dramatically because of the need to stimulate the economy.

According to reports, Gordon’s nomination is expected later this week and the position requires Senate confirmation, which might take months.  We hope the new OFPP Administrator uses their powers for the public good rather than succumbing to the dark side and the "ask and you shall receive" approach to government contracting.

-- Scott Amey

The Far Too Long and Winding Road Home Program

Concerned that survivors of Hurricanes Katrina and Rita could lose out on federal funds for rebuilding their homes, POGO sent letters to the Department of Housing and Urban Development’s (HUD) Inspector General (IG) and Members of Congress.

The volunteer-run Citizens’ Road Home Action Team (CHAT) brought to our attention the issues with HUD's The Road Home program, which is designed to compensate homeowners affected by Hurricane Katrina and Hurricane Rita. CHAT has compiled hundreds of egregious stories of applicants being given the runaround from ICF International — the former contractor managing the program — and from Hammerman & Gainer Inc. — the new contractor — such as being denied copies of their files and facing extraordinary delays. For example, Road Home applicant John Lange summarized his appeals process in a May 20, 2009 email to Senator Mary Landrieu (D-LA) and other Members of Congress:  

This process is coming up on three years now. It has been filled with countless phone calls and letters never answered. When you did get someone on the phone, they were almost always totally incompetent and never helpful. Employees of the Road Home were not allowed to respond in writing to any requests and often denied having made statements in previous conversations. Total deniability.  

POGO asked the IG, as part of its audit of the program, to contact some of the Road Home applicants who can provide detailed accounts and documents about the extensive problems they encountered when trying to access the funds HUD allocated to help them rebuild their homes and lives in the wake of the two hurricanes.  POGO asked several Members of Congress who have jurisdiction over HUD to hold off from approving the Louisiana Recovery Authority’s request to divert the half- to one-billion dollars of uncommitted funds away from The Road Home program.

We recommend that no decisions about future uses of Road Home funding, such as diversion to potentially worthwhile projects like hospital renovation and mobile health clinics, should be made until the results of the IG’s audit are publicly released. We also recommend one way to ensure that all Road Home applicants are awarded fair compensation for their loss: applicants’ appeals should be re-opened so they can be heard by Administrative Law Judges, who at one point were the third-tier review panel for The Road Home Program.

We’ll keep you posted on what we hear back from the IG and Congress.

-- Ingrid Drake

Morning Smoke: Inspector General Outlines Thirty-Seven Improvements for the SEC

In Harsh Reports on S.E.C.'s Fraud Failures, a Watchdog Urges Sweeping Changes [The New York Times]

More Help Coming To Clean Up Crisis [The Washington Post]

Senate set to fund unwanted cargo jets [Politico]

NG Frets About Tanker Data [DoD Buzz]

Looking Through a Window Into a Room Full of Junk (A Capitol Hill Sketch) [Tech President]

Lobbyists, PACs Donate More to Democrats [Washington Wire]

Watchdog attorney is likely choice to run procurement policy shop [Government Executive]

Hearing on Federal Contracting Databases [Federal Eye]

Video: Hardware Hackers Build $250 Puke Ray Gun [Danger Room]

Hearing: "Credit Rating Agencies and the Next Financial Crisis" [House Oversight and Government Reform Committee] - Click here for hearing background

C-17 Earmarks: Seeing Red

POGO and Taxpayers for Common Sense just sent a letter to members of the Senate Appropriations Committee urging them to support the Department of Defense's priorities and to stop earmarking funds for the C-17 Airlifter program. From the letter:

When it comes to the C-17 program, Congress has earmarked with reckless abandon. Perhaps the grossest example of Congress’s irresponsible wasting of taxpayer funds was in 2007, when conference committees more than tripled the number of additional C-17s requested by House and Senate authorizers and appropriators. We have attached a chart to illustrate how Congress has been the wind beneath the wings of this Airlifter program from that point forward.

-- Mandy Smithberger

Morning Smoke: Earmarks Abound in New Defense Bill

Defense Bill, Lauded by White House, Contains Billions in Earmarks [Washington Post]

TARP $700B growing deep roots a year after Congress passed it [The Hill]

FDIC Prepayment Likely for Banks [The Wall Street Journal]

Meet the New Recovery.gov [The Fine Print]

Boeing Offering Two Bids, Two Planes [DoD Buzz]

Hearing: The Administration’s Flu Vaccine Program: Health, Safety, and Distribution [House Committee on Oversight and Government Reform]

Hearing: Improving Transparency and Accessibility of Federal Contracting Databases [Senate Homeland Security and Governmental Affairs' Ad Hoc Subcommittee on Contracting Oversight]

Morning Smoke: How Some Members of Congress Can Afford to Spend $91,004 at a Golf Resort

Leadership PACs: Let the Good Times Roll [ProPublica]

Expanding KC-X Scrutiny [Air Force Magazine]

Govt Defends Use of State Secrets Privilege [Secrecy News]

White House objects to extra C-17 planes [Government Executive]

As Subprime Lending Crisis Unfolded, Watchdog Fed Didn't Bother Barking [The Washington Post]

Fed Weighs Naming Borrowers [The Wall Street Journal]

Wall Street money rains on Chuck Schumer [Politico]

Politicians Influenced Device Approval, FDA Report Says [OMB Watch]

New Recovery.gov goes live [FedLine]

What Does a Defense Contractor Have To Do To Get Noticed?

As much as I love Rep. Grayson’s realization that the anti-ACORN bill (pages 236-238) would actually take down the entire military-industrial complex, I woke up this morning realizing it gets even better. Last year, when Congress was considering Rep. Carolyn Maloney’s bill to hold government contractors accountable, the Chamber of Commerce came out full force.

Her bill made the perfectly sane and reasonable argument that if a contractor was found guilty of a violation of law two times, it would no longer be eligible for federal contracts. And these violations are not simply filing false forms: they have in the past been for things like knowingly providing substandard equipment to our troops or violating the Arms Export Control Act by selling military equipment to known enemies of our government. 

This two strikes and you’re out rule was considered totally over-the-top by the contractor lobbyists and the subject of heated debate in the House and Senate. After some maneuvering by Sen. McCaskill, the language was included on the Defense Authorization bill so that at least defense contractor misconduct would be officially chronicled in a public database. But no – even THAT was still just a little bit too aggressive. It was actually Democratic committee staff who didn’t want to be so mean to the apparently thin-skinned defense contractor industry.

In the end, the Senate agreed to create the database, but decided it would not be publicly available because they didn't want to embarrass contractors.  In the House, Rep. Henry Waxman made sure the contractor responsibility database survived conference. But you guessed it, the law that was passed by Congress and signed by President Bush was stripped of the repeated bad-actor provision.  So now that the Democratic Congress has easily passed a bill that was intended to embarrass ACORN, I’m left wondering: what does a defense contractor have to do to get noticed?

-- Danielle Brian

FPDS-NG: Innovative Solution or Dying Relic?

Each day I help the public, the media, Hill staffers, or other groups find information on federal contracts. And each day I’m reminded about the deficiencies of the Federal Procurement Data System-Next Generation (FPDS-NG). Intended to be the portal to everything government contracting, most people I speak with have never heard of the database or, if they have heard of it, they refuse to use it.  

Why? The database isn’t user-friendly, making it nearly impossible to extract any useful contract numbers. POGO’s not alone in this complaint. The Acquisition Advisory Panel met “some significant frustrations” when it attempted to mine data from FPDS-NG and even designated an entire chapter of its final report to contract data concerns.

Irony Is a Disciplinarian Feared Only By Those Who Do Not Know It

As the Air Force begins another competition for their new tanker (a program that has seen bid protests and Boeing committing one of the largest ethics violations in years), Boeing's chief counsel for ethics and compliance, Stephen Epstein, offers advice on what companies should do to avoid violating revolving door prohibitions. He draws his expertise, in part, from experience: he's also the former director of the Department of Defense's standards of conduct office.  

While everyone insists that the tanker competition will be different this time, this hire indicates that Boeing may still have an excessive reliance on former government employees to monitor their own compliance with relevant laws.

(h/t Kierkegaard)

-- Mandy Smithberger

TARP Turns One Year Old, but Still Experiencing Growing Pains

The one-year anniversaries of the collapse of Lehman Brothers and the passage of the Emergency Economic Stabilization Act have provoked a good deal of soul-searching and reflection on the state of the economy and the effectiveness of the government’s massive bailout programs. At a hearing held yesterday by the Senate Committee on Banking, Housing, and Urban Affairs, Assistant Secretary for Financial Stability Herbert Allison, Jr. acknowledged that “the financial system remains fragile,” although he tried to make the case that the Treasury Department has made significant progress stabilizing the system, restarting the credit market, and extending relief to distressed homeowners. 

Subsequent testimony by a trio of TARP watchdogs—Special Inspector General for the Troubled Asset Relief Program (SIGTARP) Neil Barofsky, Chair of the Congressional Oversight Panel Elizabeth Warren, and Comptroller General Gene Dodaro—provided additional encouraging signs that the bailout has helped bring the economy back from the brink. But the watchdogs also reported that Treasury is continuing to ignore some fairly basic recommendations that would make the bailout programs more transparent and accountable (Barofsky testified that “Treasury’s basic attitude towards transparency...remains a significant frustration”). By refusing to implement these recommendations, Treasury has made it exceedingly difficult for outside stakeholders to evaluate whether or not the bailout has been successful.

POGO hasn’t taken a stand on the strategic merits of the TARP. But based on yesterday’s hearing and previous reports issued by the TARP watchdogs, here are some of the best recommendations we’ve heard to make Treasury’s bailout programs more transparent and accountable in year two: