Prosecutions for Corruption in Iraq and Afghanistan Reconstruction Skyrocket

By DANA LIEBELSON

The Special Inspectors General for Iraq and Afghanistan are leaving no stone unturned as the U.S. undertakes its reconstruction efforts—and they’re stamping out more than a few cockroaches. As the U.S. pulls its troops out of these warzones, the number of people prosecuted for fraud and bribery continues to rise, according to two new IG reports released on Sunday.

The Special Inspector General for Afghanistan Reconstruction’s (SIGAR) quarterly report provides an update on the status of reconstruction programs since the last report in July, 2011. Of SIGAR’s 111 total ongoing investigations, about 61 percent involve contract fraud and 27 percent involve corruption and bribery. According to the new report, SIGAR’s investigations during this quarter led to two guilty pleas and five indictments of individuals charged with bribery in reconstruction contracts. In addressing contractor accountability, SIGAR made 18 suspension and debarment referrals.

Also during this quarter, a SIGAR investigation revealed the single largest bribery case since the decade-long war in Afghanistan began. In September, Sidharth Handa, a U.S. military reserve officer, was sentenced for soliciting more than $1.3 billion in bribes and conspiring to distribute heroin. Handa’s job was to assist in awarding U.S. funded reconstruction projects to local contractors, but he solicited bribes that amounted to about 10 percent of the contract cost.

The Special Inspector General for Iraq Reconstruction’s (SIGIR) quarterly report looks at action over the past year. In that period, SIGIR investigations resulted in the indictment of 21 people for aid-related offenses and recovered $83.4 million. In the last quarter alone, SIGIR made 4 suspensions and 11 proposals for debarment.  

The report outlines many lurid examples of corruption in Iraq during the last quarter. A U.S. Marine Corps gunnery sergeant pled guilty to stealing $124,000 worth of equipment; a former U.S. Army lieutenant colonel was sentenced to prison for accepting illegal gratuities from contractors (and hiding them in his mail); and an associate of a U.S. Marine Corps contracting officer conspired to launder about $150,000 in bribes.

Is the Air Force Rushing the JSF Into a "Serious Mishap"?

By NICK SCHWELLENBACH

The Pentagon's top official for weapons testing sent a sternly worded letter warning the Joint Strike Fighter (JSF) program and the Air Force that their plans to start unmonitored flight training on the Air Force variant of the JSF this fall "risks the occurrence of a serious mishap," according to an October 21 memo, first published by the Project On Government Oversight (POGO). The JSF program and Air Force disagree with the test official's assessment, saying they are appropriately mitigating safety risks. The dispute has gone all the way up to Defense Secretary Leon Panetta, reported Bloomberg Government's Tony Capaccio, who first reported on the memo in a story behind a paywall.

In the memo, Director of Operational Test and Evaluation Michael Gilmore explained that the relatively small amount of monitored flight hours on the JSF (and an even smaller amount on just the Air Force version of the plane), along with a higher abort rate than expected at this point in the program, indicate "the relative immaturity of aircraft." When the test office ran the numbers, they found the Air Force variant had an air abort rate "equivalent to 3,000 aborts per 100,000 flight hours" triple the rate the JSF program itself believes is prudent before unmonitored flight training begins.

Air aborts can be caused by aircraft system malfunctions, according to Air Force guidance. They can be expensive too. According to Bloomberg, "Aborts use up spare parts and lead to costly additional delays in a development phase that’s already been extended four years." Remember there are a limited number of test planes -- and if the pace of testing slows, the rest of the program can be affected.

Furthermore, the test office warned that "a high abort rate correlates to a higher risk of catastrophic failure, including a Class A mishap." Class As are bad, real bad. They involve damage greater than $2 million or even loss of an aircraft. Even worse, the Class As can involve death or permanent total disability for the test pilots.

The testers, using a historical model with data from the JSF program plugged in, project "at least four ground aborts and four air aborts, including one in-flight emergency" if unmonitored flight training begins with the Air Force variant at its current level of maturity. The warning gets worse too: "Historical experience also indicates the rate of discovery of new failures during flight follows the air abort rate. Thus, there is a significant risk new failures will be discovered during flight training in an unmonitored environment for which there would be no corrective actions developed for the pilot to implement." Translated to English, this roughly means that after the air abort, the sh*t might continue to hit the fan in unexpected ways while still flying and there will be no emergency procedures developed beforehand to help the pilots get control of the situation.

Journalists Doubt Obama Administration's Dedication to Transparency

By DAHNA BLACK

Has access to government information improved under the Obama administration? According to a recent feature in the Columbia Journalism Review (CJR), science journalists feel there’s been little in the way of progress. Earlier this month, the National Press Club hosted a panel discussion, moderated by AP reporter Seth Borenstein, to explore that topic.

The panelists included:

• Curtis Brainard, Columbia Journalism Review (CJR);
• Joseph Davis from the Society of Environmental Journalists (SEJ);
• Felice Freyer from the Association of Health Care Journalists (AHCJ);
• Darren Samuelsohn, Politico’s senior energy and environment reporter;
• Clothilde Le Coz, Washington director for Reporters Without Borders; and
• Nancy Shute, President of National Association of Science Writers (NASW).

One chair on the panel remained empty – the one reserved for a representative from the Obama administration.

In September, HHS published a new media policy, “Guidelines on the Provision of Information to the News Media,” making it one of the first agencies to publish written rules against staff members speaking to reporters without reporting to the authorities. Under the new guidelines, “employees are encouraged to speak to reporters about their work whenever possible and appropriate.” However, the guidelines also say that “[w]hen approached by a reporter, HHS employees should work with their immediate supervisor and coordinate with the appropriate public affairs office/personnel in their agency.”

According to Nancy Shute, the new guidelines make it difficult for science journalists to do their job. “What you’re missing there is the ability to cover…good solid science that was financed with our taxpayer dollars and that we as journalists are just unable to cover because of the situation.”

Gabriela Schneider, communications director at Sunlight Foundation said in a recent article that the new guidelines “subvert the role of their public affairs departments. My counterparts within government are now less likely to help reporters understand scientific data; instead, they serve as gatekeepers whose primary role seems to be to thwart the public’s right to know.”

More DOJ Rules to Cripple FOIA

By ANDRE FRANCISCO

If you thought the Freedom of Information Act (FOIA) already had problems, hold on to your hat.

We warned you that a rule proposed by the Department of Justice (DOJ) would allow the government to lie about the existence of documents, but the Sunlight Foundation has a rundown of the many troubling rule proposals.

A small selection of the 15 proposed rules highlighted by the Sunlight Foundation:

• deny requests that aren't addressed to precisely the correct department
• automatically apply exclusions to FOIA whenever it can
• be able to destroy records that might be responsive to FOIA requests
• make it easier to deny fee waivers
• ignore your request for information to be given in a specified format

The last one may seem mundane, but imagine requesting a database as an Excel file only to have it show up as a printouts in a cardboard box.

Andre Francisco is a POGO Communications Associate

Follow @andrefrancisco

Morning Smoke: 10 Things the SEC Won't Tell You

MORNING SMOKE

Where there's smoke, there's fire. POGO's Morning Smoke is a collection of the freshest investigations, scoops, and opinions related to the world of government oversight. Have a story you'd like to see included? Contact POGO's blog editor.

Financial Oversight

10 Things the SEC Won't Tell You
Quentin Fottrell, SmartMoney

Did you Hear the One About the Bankers?
Thomas L. Friedman, The New York Times

The Man Who Tried to Stop Madoff
60 Minutes Overtime, CBS News

SEC's Khuzami Faults Defense Lawyers for Conflicts of Interest
Joshua Gallu, Businessweek

Wall Street Reform Law Bogged Down
Josh Boak, Politico

Judge Rakoff Tees Up a Major Battle on the SEC's Standard Settlement Language and Procedures
Bruce Carton, Compliance Week

Open Government

Obama's DOJ Seeks to Weaken the FOIA
John Wonderlich, Sunlight Foundation

Sometimes the Freedom of Information Act Means Disinformation
David Stout, Main Justice

National Security

More Are Being Prosecuted for Crimes in Afghan, Iraq Rebuilding Effort, Reports Show
Associated Press

The Pentagon's Cookie Jar...
Mark Thompson, Battleland

The Bloated Nuclear Weapons Budget
Editorial, The New York Times

Money in Politics

Jack Abramoff, in New Book, Decries Endemic Corruption in Washington
Dan Froomkin, The Huffington Post

Contractor Compensation Reimbursement Requires Living "Within the Limits"

By SCOTT AMEY

This month has ignited a few hot debates related to federal contractors. One of those is over contractor executive pay reimbursement--a concern for a bipartisan group in Congress. Senators Barbara Boxer (D-CA) and Charles Grassley (R-IA) and Representative Paul Tonko (D-NY) have urged the "Super Committee" to help reduce the deficit by limiting taxpayer-funded salaries for government contractors.

Rep. Tonko has even proposed the Stop Excessive Payments to Government Contractors Act of 2011 (H.R. 2980) to limit the salary contractors can bill to taxpayers, keeping it under the level earned by cabinet-level secretaries (currently just under $200,000 per year).

Rep. Tonko told POGO:

I have joined my colleagues to strongly encourage the Joint Select Committee on Deficit Reduction to include in their plan my legislation which caps contractor salaries at $200,000. The taxpayers can no longer afford to reimburse private contractors for salaries that are more than three times the pay earned by Cabinet Secretaries, and nearly twice the pay of the President. Doing business with the federal government means that private companies have to live within the limits of the budget–these reimbursements need to be brought into line, and that will help taxpayers save billions of dollars over the next decade.

The proposal would expand the cap on executive compensation to all contractor employees and reduce this cap to $200,000. Currently, $693,951 in executive compensation--which includes wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans--is allowable under a federal contract. (Note--while the White House and Congress have frozen federal pay, the White House hasn’t released a 2011 figure for the contractor executive pay reimbursement cap, estimated to be $750,000 (see p. 21), despite asking for a cap of $200,000 for contractor executives.) 

POGO supports, as it has for years, congressional efforts to reduce taxpayers' burden for highly compensated contractor employees. Reducing the cap and applying it to all contractor employees would help reduce the burden on taxpayers. Taxpayers shouldn’t have to subsidize compensation that is more properly payable from contractor profits. The amount currently reimbursable to contractors significantly increases the cost of government contracts.

Contractors oppose any reduction of the cap, arguing that “[r]elying solely on the government scale would place both government agencies and private sector companies at a significant disadvantage in the competition for talent.” 

This entire debate reminded one POGO follower of a 1992 Calvin and Hobbes cartoon being passed around in the wake of the "Occupy" movement. I’ll share it here, and let you be the judge.

Another debate is over the 3 percent withholding tax for contractors. But I’ll leave for another day, although the problem with contractors owing federal taxes is quite pervasive, including contractors working for the IRS.

Scott Amey is POGO's General Counsel.

FOIA Friday: Previously Unposted SEC IG Reports Describe Employee-Assisted Ponzi Schemes and Weapons in the Workplace

FOIA FRIDAY

This week's documents: 14 investigative reports by the Securities and Exchange Commission (SEC) Office of Inspector General (OIG) Document dates: June 2008 - December 2009 Every Friday, POGO will strive to make one document available that we or others have obtained through the Freedom of Information Act (FOIA), especially documents that have not previously been posted online. Some of these documents will be more important than others, some may only be of historical interest— although relevance is in the eye of the beholder. POGO is doing this to highlight the importance of open government and FOIA throughout the year.

By MICHAEL SMALLBERG

A few years ago, we learned that most investigative reports issued by the Securities and Exchange Commission (SEC) Office of Inspector General (OIG) had not been posted online. In contrast to the OIG's audit reports, investigative reports often contain non-public information and privacy records, so they typically are not released to the public without approval and redactions by the Commission.

So in January 2010, we filed a Freedom of Information Act (FOIA) request with the SEC for all OIG investigative reports issued over a roughly two-year period.

Over 20 months later, we received the final batch of reports from the SEC, which we have now made available on our OIG investigation resource page.

The OIG has already provided summaries of these reports in its semiannual updates to Congress, and some of the investigations have already been covered in the press. Until now, however, the SEC had not released the reports themselves.

In the latest batch of investigative reports, you can read about a non-public draft of an SEC staff report on credit rating agencies that was apparently leaked to The Wall Street Journal, which we blogged about last week; an employee in the Office of Real Property and Facilities Support who unwittingly assisted in the operation of a Ponzi Scheme orchestrated by Jerome Carter, who claimed he could obtain amazing returns on investments by predicting the future; a Division of Enforcement employee who brought knives into the SEC building, explaining that he “always carried a knife, being from Texas”; an attorney from the Denver office who misused his official position to assist his girlfriend with private litigation; a Division of Enforcement attorney who failed to maintain active bar status; a Division of Trading and Markets employee who intentionally falsified her employment application; a Division of Investment Management employee who had excessive, unauthorized absences from duty; and an IT specialist who used SEC resources in support of a private business:

Further Debunking the Myth that the Department of Defense is a Jobs Program

By BEN FREEMAN

While I, in The Hill, and many others have already critiqued the Aerospace Industries Association (AIA) study claiming that over a million jobs will be lost if the spending at the Department of Defense (DoD) is cut during the debt deal, it's impossible to understate the lack of scientific rigor that appears to have gone into this analysis.

Most notably, there is no actual report. The “Full Impact Analysis” is a short document that literally claims to be a “Summary of Findings.” According to an AIA spokesman, this is the only written report produced by the analysis. I requested data files from the analysis, but have not received them. Without a full report or access to the data, it’s impossible to verify any of the authors’ claims.

What is known about the actual analysis indicates that the assumptions driving the jobs claim are, quite simply, not true.

First, the study begins by assuming that defense spending has already been cut, which Congressional Budget Office (CBO) Director Doug Elmendorf debunked the day after the report was released.

Second, building upon this flawed assumption, the report assumes that if the Super Committee fails to reach an agreement and the dreaded sequestration is triggered, a total of $1 trillion will be cut from defense spending. Elmendorf’s written testimony shows that even in this worst case scenario for the Pentagon, its spending would be reduced by $882 billion over the next ten years. Most importantly, more than $500 billion of this reduction would occur from 2017-2021, which invalidates the report’s assumption that the defense budget will be reduced by $100 billion every year. Thus, even if we were to naively believe the report’s logic in this worst case scenario for the DoD, its spending would be reduced by less than $100 billion in 2013—and consequently the job loss claim is inaccurate.

Third, as I discussed in The Hill, the report fails to consider the fact that if defense spending is not cut, the government will have to cut other services or raise taxes. This report has thus done what we in the scientific community refer to as utilizing an underspecified model. In other words, the authors fail to consider alternative explanations—a core requirement of any scientific analysis.

All things considered, the AIA report is, at best, faux science.

Ben Freeman is POGO's National Security Fellow.

Follow @BenFreemanDC

State Department Refuses to Cooperate in Audit, Criticized for Handling of Iraqi Police Program

By DANA LIEBELSON

The Special Inspector General for Iraq Reconstruction (SIGIR) managed to release an audit on the State Department's poor handling of the Iraqi police force program on Monday, despite the agency's aggressive attempts to stonewall the investigation. According to the critical report, the Department has no specific plan to effectively assess the Iraqi police program as the U.S. pulls out of Iraq.  

The State Department (DoS) has refused to make life easy for the SIGIR. The Washington Times reported in June that DoS was blocking inspectors from assessing the State’s multi-billion dollar Iraqi police training program.   

In a hearing with the Commission on Wartime Contracting, Patrick Kennedy, DoS’s Under Secretary of State for Management, justified the decision by claiming SIGIR didn’t have jurisdiction for the investigation. He said, “SIGIR is perfectly free…to audit the reconstruction activities in Iraq. They are not free to audit the base element of the State Department. That is within the jurisdiction of three other entities.”

Stuart Bowen, the SIGIR himself, begged to differ. He told The Times, “It is simply a misapprehension to conclude that our jurisdiction only applies to bricks-and-mortar reconstruction. To the contrary, Congress charged us with overseeing the expenditure of funds in Iraq.”

Three of Five Accounting Oversight Board Members Recused Themselves from Meetings on Deloitte

By MICHAEL SMALLBERG

We mentioned in a recent post that the Public Company Accounting Oversight Board (PCAOB)--a non-profit corporation overseen by the Securities and Exchange Commission (SEC)--had finally released a 2008 report that criticized the auditing practices of top 100 federal contractor Deloitte & Touche.

This week, Jonathan Weil at Bloomberg added a disturbing footnote to the story: turns out three of the five current Board members “had recused themselves from participating in meetings or discussions this year concerning Deloitte, because of past or current ties to the firm, according to three people with knowledge of the matter."

Weil highlights the ties between the Board members and Deloitte:

The board members—Lewis Ferguson, Jay Hanson and the board’s chairman, James Doty—were appointed by the Securities and Exchange Commission in January. Doty had been a partner at the law firm Baker Botts LLP, where Deloitte is a client. Ferguson was a partner at the law firm Gibson Dunn & Crutcher LLP, which also represents Deloitte. Hanson, a former partner at the accounting firm McGladrey & Pullen LLP, has a daughter who works for Deloitte in its Phoenix office.

These are hardly the only connections between the PCAOB and the “Big Four” auditing firms (Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG). For instance, Weil notes that Baker Botts (Chairman Doty’s former employer) also represents Ernst & Young, while Gibson Dunn (Ferguson’s former employer) represents all four firms.

These revelations about the cozy ties between the SEC/PCAOB and the Big Four will probably come as no surprise to close followers of the auditing industry. Francine McKenna has pointed out, for instance, that the SEC’s current chief accountant, James Kroeker, is a former Deloitte partner; Kayla Gillan, former Deputy Chief of Staff to SEC Chairman Mary Schapiro, left the agency to become the head of PwC’s new Regulatory Relations Group; and Thomas Ray, a former Chief Auditor and Director of Professional Standards at PCAOB, left the organization to become a partner at KPMG.

Tales from the Chamber: Weakening Foreign Corrupt Practices Act, Contractor Accountability

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That's nothing. We've got something for you that makes those creatures look like marshmallow cupcakes. Click here to enter the Chamber…

POGO's Danielle Brian to Give TEDx Talk on Saturday

By ANDRE FRANCISCO

Danielle Brian, POGO's executive director, will be speaking as part of the TEDxMidAtlantic conference on Saturday Oct. 29. 

Danielle will be speaking about how even in the current climate of political demonization, there are opportunities for ordinary people to meet—without abandoning their beliefs—and work towards practical solutions.

The theme of this year’s TEDxMidAtlantic conference, an independently organized offshoot of the annual TED conferences, is "A Sense of Place." From the TEDxMidAtlantic web site:

Our existence is defined through our experience of place: our place on Earth, in the universe, in culture, and in time. Understanding place is critical to the spread of knowledge, ideas and to progress. From the smallest sub-atomic particles to cities, to galaxies and undersea mountain ranges, everything has a place. TEDxMidAtlantic 2011 celebrates and explores place, mobility, context, and locality – and humanity’s ongoing desire to achieve a sense of place.

The conference begins at 8 a.m. on Saturday and will be streamed live. Other speakers include Jose Andres, Reggie Watts and the cast of The Wire.

Andre Francisco is a POGO Communications Associate

Follow @andrefrancisco

Image via TEDxMidAtlantic.