The Project On Government Oversight (POGO) Blog

What the $%# Is Happening with the Bailout?

We confess once again that we are not really economists, we are your loyal government watchdog, and we've been diligently poring through articles, books, and papers, attending seminars, even obtaining non-public CRS reports, all in an effort to comprehend and then explain this massive $700 billion bailout and what it means for the U.S. taxpayer.

Well, silly us!  It really doesn't matter what the Emergency Economic Stabilization Act of 2008 (EESA) says, or how the Troubled Asset Relief Program (TARP) was set up.  There's no point in trying to suss out the newly created oversight bodies, or all the overlapping reporting requirements, or how many of those reports will be public (only one is required to be), or even what factoids those reports might contain.

None of this really matters because, as it turns out, apparently the only thing that does matter is whether an institution's chieftains have good longstanding relationships with current or incoming Treasury officials.

Exhibit A might be the Washington Post's excellent piece on the “Familiar Trio at Heart of Citi Bailout,” which explains how the Citigroup bailout, the newest example of this ad hoc response to economic meltdown, was put in play “by three men whose professional lives have long been intertwined”: Treasury Secretary Henry Paulson, Citigroup board member and former Treasury Secretary Robert Rubin, and Timothy Geithner, president of the New York Fed and soon-to-be Treasury Secretary.  Rubin and Paulson were colleagues at Goldman Sachs.  Geithner worked for Rubin at Treasury during the Clinton administration.  As head of the Federal Reserve Bank of New York, Geithner has been directly responsible for oversight of Citigroup, and has been closely involved in discussing its rescue with Paulson.  Rubin has been on Citigroup's board since 1999.

How the OSC Can Get Its Bark Back

Today, POGO released an investigative report on the Office of Special Counsel's (OSC) handling of whistleblower cases from employees of the Federal Air Marshal Service (FAMS).  We chose this group as a case study for two reasons: 1) President Bush has pointed to the critical role the federal air marshals play as undercover law enforcement officers aboard flights and at airports, and 2) former Special Counsel Scott Bloch touted his work with the air marshals as evidence of the success of his tenure.

As we enter one of the busiest travel times of the year, it's a good opportunity to assess what's at stake when the OSC--the agency that federal air marshals and other government whistleblowers must turn to for help--does not fulfill its responsibility.  Our investigation found that when federal air marshals disclosed serious security concerns, the OSC did not rigorously investigate them.  Also, federal air marshals were rebuffed when they went to the OSC for help with getting their jobs back after they were fired or put on administrative leave as a result of blowing the whistle.

We recommend that President-elect Obama and Congress appoint and confirm a new Special Counsel who sets a tone of trust and ethics among his or her staff, and actively reaches out to federal agencies.  Ideally, this person should have a background in working constructively with whistleblowers and federal employees.  When this person gets in office, they should quickly make a number of reforms, including some great ideas suggested by former Special Counsel Elaine Kaplan and former OSC staffer Tim Hannapel.  However, we are not completely convinced that the OSC can be reformed enough to really meet the needs of whistleblowers, and we recommend that Congress task GAO or CRS with examining whether it should be replaced.

POGO also sent a letter to FAMS Director Robert Bray urging him to create an organizational culture where employees are not only encouraged to bring forward concerns and ideas for reform, but are also protected when they do so.  Bray recently expressed a commitment to “root out and report any instance of misconduct or criminal behavior.”   We encourage Bray to go a few steps further by rehiring those federal air marshals who improperly lost their jobs after disclosing incidents of workplace wrongdoing, but who would still like to come back and support FAMS' mission.  We also urge him to hold accountable those employees who retaliated against whistleblowers.

-- Ingrid Drake

Contract Spending Shocker

I was just looking around to find the FY 2007 contract spending total.  To my surprise, I noticed that the 2007 data has been replaced by updated FY 2008 and 2009 totals.

This was shocking on two fronts.  First, the government is usually years behind in reporting contract spending dollars.  Heck, the most recent summary report is only FY 2006.

More shocking, however, is that the government spent over $510 billion on goods and services in FY 2008.  Yes, over 1/2 a trillion dollars!  And if history repeats, this total will increase by an additional $10-$20 billion as agencies (cough cough DOD) report additional information.  Just to put this number in perspective: the amount spent on U.S. contracting in FY 2008 would rank as the 25th largest GDP in the world, higher than that of 200 countries including South Africa, Egypt, and Sweden.

President-elect Obama has stated that he wants to “cut federal spending on contracts by at least 10 percent.”  I don't believe that setting a specific threshold is the way to tackle the dramatic increase in federal contract spending, but even if he is able to live up to that promise, taxpayers will still be on the hook for $450 billion in 2010.  Cuts or no cuts, we should be focusing on what we are buying and how we are buying it to ensure that money is being spent on needs and that it is not being wasted.

-- Scott Amey

Chevron, GE Make Multinational Monitor’s “10 Worst Corporations” List

The latest issue of Multinational Monitor marks the 20th anniversary of its annual “10 Worst Corporations” list.  This year's list features Chevron Corporation and General Electric, two companies listed in POGO’s Federal Contractor Misconduct Database (FCMD), which compiles instances of misconduct for the top 100 federal contractors.

Chevron gets called out for the ongoing litigation in Ecuador over damages wrought in the Amazon rainforest over many years by its Texaco subsidiary.  The so-called "Rainforest Chernobyl" (described more fully in the FCMD here and here) is considered one of the world’s worst ecological disasters.  In July, an unnamed Chevron lobbyist caused quite a stir when he told Newsweek, "We can't let little countries screw around with big companies like this--companies that have made big investments around the world."  Chevron is understandably nervous about the lawsuit, which could cost the company billions if it loses.

Further down the list (the companies are compiled in alphabetical order, not degree of heinousness) is General Electric.  Multinational Monitor notes that GE has appeared previously in the “10 Worst Corporations” list for a variety of misbehavior.  This year, it returns for new reasons: alleged tax fraud in Brazil and the firing of a whistleblower who tipped off the media about it.

Although publications like Multinational Monitor focus on what’s wrong with corporations like the ones featured in the FCMD, POGO would like to send our readers (hello, KSBR!) off on this Thanksgiving holiday with an upbeat message: Not all contractors are evil.  Many do top-notch work and save the government money.

Happy Thanksgiving!

-- Neil Gordon

U.S. Offers to Help Secure HEU in South Africa -- What About in the U.S.?

On Sunday, 60 Minutes ran a segment about an attack on Pelindaba, a South African nuclear facility that has a large stash of bomb-grade highly-enriched uranium (HEU). 

What POGO finds entertaining is that the U.S. has offered to help with securing the facility and downblending the HEU so that it won't be attractive to terrorists.  Let's review the track record back at home.  Although it didn't generate much press coverage or congressional outrage, in April 2008 there was a failed force-on-force security test at Livermore Lab, which also houses a large stash of bomb-grade HEU and plutonium.  In one scenario, the mock terrorists were able to steal mock bomb-grade material and leave the site.  In another, the “terrorists” were able to gain access to the material with enough time to detonate a nuclear blast.

It’s also nice that we offered to downblend South Africa’s HEU, but not our own--the U.S. has several hundred metric tons of surplus HEU that need to be downblended.

Click below to watch the 60 Minutes segment:

-- Peter Stockton

Some Whispers About Obama Nominees Raise Ethical Concerns

As we've said before, we're excited that President-elect Barack Obama expects ethical conduct from his appointees.  And because we think ethical conduct does make the government more effective, accountable, open, and honest, we have to admit that we're concerned that we're hearing that retired Admiral Dennis C. Blair is being considered for Director of National Intelligence.

Over the course of our investigation of multiyear procurement for the F-22 in 2006, POGO found that Blair--then-President of the Federally Funded Research and Development Center (FFRDC) Institute for Defense Analyses (IDA), which was evaluating whether or not the F-22 met the legal requirements for multiyear procurement--was also a stockholder and board member for the EDO Corporation, a subcontractor for the F-22.  At the time this conflict was revealed, Blair told the Washington Post he did not recuse himself "because his link to EDO was not of sufficient 'scale' to require it."  Following the news, however, Blair resigned from EDO and from the IDA. The Department of Defense Inspector General later found Blair violated IDA's conflict of interest standards (standards that POGO was told we could not know), but that this conflict of interest did not alter the findings of IDA.  This incident also led to an internal reexamination and reform of ethical policies at IDA and Congressional scrutiny into FFRDCs.

Blair has a long and admirable history of service to the country, but the conditions under which he left IDA suggest he doesn't have the same take on conflicts of interest as are reportedly expected of the new Administration.

-- Mandy Smithberger

Not So Fast: Is Somebody in the Senate Blocking the SIGTARP Nomination?

Just as we were beginning to celebrate the appointment of Neil Barofsky as Special Inspector General in charge of overseeing the $700 billion Troubled Assets Relief Program (TARP), Christopher Dodd (D-CT)--Chairman of the Senate Banking, Housing, and Urban Affairs Committee--issued a statement claiming that the nomination has been “blocked on the floor by at least one Republican member”:

Unfortunately, the confirmation has been delayed by at least one Senator. That delay is regrettable and not in the best interest of American taxpayers. It is my sincere hope that those who are blocking this nomination will reconsider their actions and confirm Mr. Barofsky at the earliest opportunity.

We'll keep you updated as we learn more.  In the meantime, we encourage anybody with more information on the possible blockage of Barofsky's nomination to post a comment below.

-- Michael Smallberg

GAO: Air Force Needs Timely and Accurate Estimates of Costs

It seems like a lot of the advice for improving spending at the Department of Defense (DOD) comes down to pretty common sense concepts: don't accept shoddy ships, don't give the Department of Defense things they didn't ask for.  Maybe even choose programs based on strategic needs.  And a report released Friday by the Government Accountability Office (GAO) points out another problem that seems to be able to be solved by the common sense solution of making procurement decisions based on, oh, realistic cost estimates.

Yet again, the Air Force is being criticized for low-balling cost estimates.  This time, the GAO is concerned about the Air Force's numbers for their Future Strategic Airlift.  From the report:

The Air Force currently estimates it will spend $9.1 billion on upgrading the C-5s.  However, this estimate may be understated because DOD did not apply risk or uncertainty analyses...At the same time, the Air Force has not priced or budgeted for a new upgrade program it plans to begin in fiscal year 2010 to address certain modernization deficiencies and to add new capabilities.

And possibly even worse, it sounds like the manufacturer is even telling the Air Force that they're severely underestimating costs:

At some point, the C-17 production line will shut down, and DOD will have to pay substantial costs that have not yet been budgeted.  The manufacturer and Air Force shutdown estimates differ significantly--about $1 billion and $465 million, respectively--in large part because the manufacturer’s estimate included assumptions about demolishing facilities and environmental remediation, while the Air Force's did not.

The GAO recommended that DOD prepare updated C-5 modernization cost estimates, but DOD disagreed, saying that recent estimates are sufficient, and that mitigating factors have already been identified.

DOD claims to be--and I think many officials genuinely are--concerned about improving their business practices, as can be seen in the somewhat recent establishment of the Business Transformation Agency (BTA).  When I talked to BTA Director David Fisher last week, he told me that one of his goals is to help decisionmakers to have the context and information necessary to make smart business decisions, though he also admitted that BTA is struggling to come up with their own performance measures to determine how to measure their success.  Still, accurate and realistic cost estimates are one of the most basic pieces of information decisionmakers need, and the GAO report reveals that the Air Force doesn't even have that.

-- Mandy Smithberger

MMS Takes Action: RIK Personnel Receive Letters and Firing(s?)

Minerals Management Service (MMS) Director Randall Luthi announced that personnel actions had been taken against eight employees included in the recent Interior Department Inspector General investigation into the Royalty-In-Kind (RIK) program.  Personnel actions "range from a letter of warning and reprimand up to and including permanent reassignment from the RIK program, suspension without pay, demotion to a lower pay grade, and termination from Federal service."  The Department of the Interior didn't reveal the exact number of employees fired, citing privacy reasons, but without information concerning the specific actions taken, it is difficult to know how meaningful these actions are.

"The behavior of some MMS employees prior to 2007 was clearly inappropriate and warranted strong administrative action," said Luthi in the press release from MMS.  Yep.  So whither strong action against Greg Smith?  Time will only tell if things will change at the Department of the Interior.

-- Mandy Smithberger

UPDATE: The Associated Press gives a little more insight into the specific punishments doled out: "One of those employees, Donna Hogan, said disciplinary action was based on the severity of the charges and whether the person was in a supervisory position.  Hogan--who the report said accepted 13 meals valued at $249 and a ticket to a Toby Keith concert--said she received a warning letter."  Additionally, an anonymous source told McClatchy Newspapers that two marketing specialists in the Lakewood office, Stacy Leyshon and Cristel Edler, were fired.

Congress Takes Action on Bailout Oversight

It's a good thing that the Republican leadership on the Hill has (finally) named its members of the Congressional Oversight Panel.  The AP's John Dunbar reports that Senate Minority Leader Mitch McConnell and House Minority Leader John Boehner named Senator Judd Gregg of New Hampshire and Rep. Jeb Hensarling of Texas to the two Republican slots on the oversight panel.  (In case you forgot the names of the Democratic members, here's a quick reminder.)

-- Beverley Lumpkin

DHS Oversight of Contract Oversight

The Department of Homeland Security lacks appropriate oversight of its contracts, according to a new GAO report.  This is no small oversight, seeing as DHS has received over $40 billion since FY 2006 (its FY 2008 total is $14.9 billion).

Despite systems to track finances and insights into cost, schedule, and performance of contracts, the process hasn't worked well.  Projects have reported cost growth, schedule slips, and performance shortfalls.

GAO found that policies were not followed, basic acquisition documentation was missing, and that:

...almost a third of DHS's major investments received funding without having validated mission needs and requirements--which confirm a need is justified--and two-thirds did not have required life-cycle cost estimates.  At the same time, DHS has not conducted regular reviews of its investment portfolios--broad categories of investments that are linked by similar missions--to ensure effective performance and minimize unintended duplication of effort for investments.  Without validated requirements, life-cycle cost estimates, and regular portfolio reviews, DHS cannot ensure that its investment decisions are appropriate and will ultimately address capability gaps.

POGO has testified before Congress about its concerns with the agency's poor contract management policies and procedures, the acquisition of infant technologies, and buying under emergency circumstances when competition is, by necessity, limited or non-existent.  In the years following 9/11, a lot of people cut DHS some slack because it was an infant agency.  But the time has come for DHS to right its contracting ship, starting with the Deepwater program.

-- Scott Amey

Contractors in Iraq Lose Immunity

For U.S. contractors working in Iraq, the writing was on the wall back in July when word got around that the Status of Forces Agreement (SOFA), the long-term security pact being negotiated to keep U.S. forces in Iraq after this year, would strip immunity for contractors.  This week, the Associated Press reports that the Pentagon and State Department officially delivered the bad news to the contracting community that they will no longer “enjoy the wide range of immunity from Iraqi law that has been in effect since 2003.”  The SOFA will take effect pending Iraqi parliamentary approval.

No more “Get Out of Jail Free” card for the likes of Blackwater, DynCorp, and Triple Canopy.  From now on, if they step out of line, they will be subject to prosecution under Iraqi law.

Meanwhile, Blackwater is currently on the hot seat for its involvement in a firefight in Baghdad in September 2007 that left 17 Iraqi civilians dead.  Federal prosecutors are reportedly close to seeking indictments for the Blackwater guards involved in the incident.

-- Neil Gordon