The Project On Government Oversight (POGO) Blog

Breaking: Former Air Force Acquisition Chief Probably WON'T Work for Northrop Grumman

In a refreshing change of pace from the usual Department of Defense departure song and dance of officials sucking up to defense contractors before joining their board, seeking a job, or whining about how ethics regulations make them economic monks, Aviation Week reports that former U.S. Air Force acquisition chief Sue Payton used her final days to tell Northrop Grumman that they need to improve management of the Global Hawk program.

-- Mandy Smithberger

FEMA Closed to Openness

Earlier this month we reported that new FEMA Chief of Staff Jason McNamara has to recuse himself for two years from participating in any matters that involve his former employer, Dewberry. That might be a difficult task because Dewberry is FEMA's second-largest contractor, with more than $1 billion in contract awards since 2000.

POGO had hoped that the Senate would inquire about this issue during Craig Fugate's confirmation hearing for FEMA Administrator last week. No questions were asked on that topic, so POGO has continued to inquire about any ethics and recusal opinions that might pertain to Mr. McNamara.

On April 21st, I received a "Screening Arrangement" detailing the internal procedures that will be taken to prevent Mr. McNamara from working with his former company. To my surprise, however, I noticed that the arrangement was written by Mr. McNamara himself, rather than by an ethics officer or his acting superior. The “fox guarding the hen house” isn't a new concept in Washington D.C., but this seems to go too far.

This week, FEMA denied my request for the underlying ethics opinions that detail the actual and apparent conflicts of interest that exist between Mr. McNamara and Dewberry, and the steps that should be taken to prevent conflicts from arising. POGO will appeal that decision.

President Obama has an uphill battle on his hands if he is truly going to create a more open government, default to openness in FOIA cases, and prevent the "well-connected" (p. 21 of 142) from taking over the federal government. Based on actions taken thus far and my interaction with government officials, I would say that we have a long road to travel before the culture of the government catches up to the rhetoric.

-- Scott Amey

GAO Warns DoD to Improve Its Management and Oversight of Acquisition Staff

Several weeks ago, POGO blogged about Defense Secretary Robert Gates' announcement of major changes in the Department of Defense's (DoD) procurement priorities and practices, including increasing the size of the defense acquisition workforce, converting 11,000 contractor positions, and hiring an additional 9,000 government acquisition professionals by 2015. Although it is good to see the government lessen its dependence on contractors, POGO believes that merely adding more people will not magically fix the problems in the contracting system. There also has to be greater care in the use of risky contracting vehicles and better oversight of the acquisition workforce.

The Government Accountability Office (GAO) has recently been focused on the latter concept. On Tuesday, John K. Needham, the GAO's director of acquisition and sourcing issues, testified before the House Armed Services Committee's Subcommittee on Oversight and Investigations on the importance of and need for greater management and oversight of the DoD's acquisition workforce. (A summary of Needham's testimony can also be found here.) It was the last in a series of hearings on defense procurement issues.

DoD spending on goods and services more than doubled to $388 billion from fiscal years 2001 to 2008. The number of weapon system programs has also grown. According to the GAO, the DoD lacks critical department-wide information on the use and skill sets of its acquisition workforce, which totals nearly 126,000 civilian and military employees.

In particular, it lacks information on the approximately 52,000 private contractor employees who support that workforce. The GAO surveyed 66 program offices and found that contractor personnel comprised more than a third (37 percent) of those offices' acquisition-related positions. In certain branches, however, the percentage is much higher. At the Missile Defense Agency, for example, contractor personnel comprise an astonishing 49 percent of the acquisition workforce. The GAO found that program office decisions to use contractor personnel are often driven by factors such as quicker hiring time frames and civilian staffing limits, rather than by more legitimate reasons such as the nature or criticality of the work and cost savings.

With such a large presence of contractors, insufficient oversight of the acquisition workforce not only hampers the DoD's ability to accomplish its missions, it also leaves it more vulnerable to fraud, waste, and abuse. Needham hammered this point home in his testimony:

"To the extent that the government does not have sufficient numbers or training in its acquisition workforce to properly oversee contractor personnel that are closely supporting inherently governmental functions, the greater the risk of contractor personnel inappropriately influencing the government's control over and accountability for decisions that may be based, in part, on contractor work."

-- Neil Gordon

Morning Smoke: Got Ideas for Improving Recovery.gov?

Stimulus Oversight Chief Wants Your Ideas [The Washington Post]

Hamre: Weapons Cuts Probably Here to Stay [Military Times]

Flawed Credit Ratings Reap Profits as Regulators Fail [Bloomberg]

F-22 Backers Question Gates' Cuts [Politico]

Hearing: "To receive testimony on the Secretary of Defense's 2010 budget recommendations" [Senate Armed Services Committee]

Hearing: "To receive testimony on reform of major weapons system acquisition and related legislative proposals" [House Armed Services Committee]

Hearing: "To receive testimony on the current and future roles, missions, and capabilities of U.S. military air power" [Senate Armed Services Committee]

Morning Smoke: Who's in Charge of TARP?

The Unbearable Opacity of TARP: Government agencies can’t tell us who's in charge [Real Time Investigations]

Obama Finds That Saving on Copters Could Be Costly [The New York Times]

Sen. Mikulski to "CLEAN UP" Outsourcing [Fedline]

Dept. of Defense May Hamstring Aerospace Development [St. Louis Post-Dispatch]

Appeals Court Rejects 'State Secrets' Claim, Revives Detainee Suit [The Washington Post]

Lawmakers Probe Defense Acquisition Workforce Issues [Government Executive]

Warner, Martinez and Brown Introduce TARP Transparency Act

Preserve Raptor Jobs Version 1.0

In another reminder that no defense contractor lobbying effort (or analysis) is really new, we thought we'd share this letter we came across when going through some old POGO files. An excerpt:

"Both the President and Congress are wrestling with the nation's budget deficit...Faced with today's budgetary pressures, however, I am concerned that we may once again find ourselves retreating from a hard-won position of strength." -- L.O. Kitchen, Chairman of the Board, Lockheed Martin

And more recently:

"America has maintained air dominance in every conflict since the Korean War, and now this administration is giving that advantage up...This is purely a budget-driven decision." -- Senator Saxby Chambliss (R-GA)

-- Mandy Smithberger

Times' Profile of Geithner Reveals New Details about Fed Contracts

The New York Times' in-depth piece on Treasury Secretary Tim Geithner and his cozy relationship with Wall Street includes some interesting new details about contracts awarded to BlackRock to manage the Federal Reserve's mortgage-backed securities purchase program:

"Mr. Geithner has also faced scrutiny over how well taxpayers were served by his handling of another aspect of the bailout: three no-bid contracts the New York Fed awarded to BlackRock, a money management firm, to oversee troubled assets acquired by the bank.

BlackRock was well known to the Fed. Mr. Geithner socialized with Ralph L. Schlosstein, who founded the company and remains a large shareholder, and has dined at his Manhattan home. Peter R. Fisher, who was a senior official at the New York Fed until 2001, is a managing director at BlackRock....

For months, New York Fed officials declined to make public details of the contract, which has become a flash point with some lawmakers who say the Fed's handling of the bailout is too secretive. New York Fed officials initially said in interviews that they could not disclose the fees because they had agreed with BlackRock to keep them confidential in exchange for a discount.

The contract terms they subsequently disclosed to The New York Times show that the contract is worth at least $71.3 million over three years. While that rate is largely in keeping with comparable fees for such services, analysts say it is hardly discounted.

Mr. Geithner said he hired BlackRock because he needed its expertise during the Bear Stearns-JPMorgan negotiations. He said most of the other likely candidates had conflicts, and he had little time to shop around. Indeed, the deal was cut so quickly that they worked out the fees only after the firm was hired.

But since then, the New York Fed has given two more no-bid contracts to BlackRock related to the A.I.G. bailout, angering a number of BlackRock's competitors. The fees on those contracts remain confidential." [emphasis added]

We've written before about the potential conflicts of interest that could arise from firms like BlackRock and PIMCO advising the Fed on the valuation of certain mortgage-backed securities, while investing in these same assets for themselves and private clients. An FAQ section on the New York Fed's website states that "each investment manager is required to implement ethical walls that appropriately segregate the investment management team that implements the Federal Reserve's agency MBS program from other advisory and proprietary trading activities of the firm." But Fed Chairman Ben Bernanke has admitted to Congress that "it's probably impossible to completely separate these firms from the other organizations." The fact that the Fed awarded three no-bid contracts to a well-connected firm like BlackRock to oversee these assets only adds to our concerns. We strongly urge the Fed to disclose more information on these contracts, and to explain in much greater detail what it is doing to identify and manage the potential conflicts of interest.

As Treasury Secretary, Geithner is now in a position to award additional contracts to BlackRock and PIMCO, both of which have applied to manage Treasury's Legacy Securities Program. Again, we question whether taxpayers' interests are best served by giving a select group of contractors such an influential role in the government's bailout programs, especially when these contractors are giving "independent" advice on assets in which they have a direct financial interest.

-- Michael Smallberg

Morning Smoke: Committees Report Mixed Progress on Cutting Wasteful Spending

Pelosi's Chairmen Give Mixed Grades on Waste [The Hill]

Outgoing Defense Acquisition Chief Warns against Excessive Regulation [Government Executive]

Plan to Cut Weapons Programs Disputed [The Washington Post]

Bair Seeks to Expand Power, Ending 'Too Big to Fail' [Bloomberg]

Fed Pushes Citi, BofA to Increase Capital [The Wall Street Journal]

Dissecting Tim Geithner's 658-Page Schedule [TPMMuckraker]

Morning Smoke: Geithner's Cozy Relationship with Wall Street

Geithner, as Member and Overseer, Forged Ties to Finance Club [The New York Times]

U.S. Steps Up Alert as More Swine Flu Is Found [The Washington Post] - For more background on the government's program to develop a pandemic flu vaccine, check out POGO's report, Pandemic Flu: Lack of Leadership and Disclosure Plague Vaccine Program

Freedom of Disinformation [The Daily Beast]

Specter Bills Seek to Rein in Executive Power [Secrecy News]

Levin Calls for Independent Prosecutor to Investigate Culpability in Detainee Abuse [The Washington Independent]

The Pecora Hearings: Is It Time for a Commission to Investigate Today's Wall Street Crash? [Bill Moyers Journal]

Nun to Lockheed: Put Humans First [CourierPostOnline]

Morning Smoke: House Introduces Acquisition Reform Legislation

House Unveils Acquisition Reform Bill [Navy Times]

The F-22 debate: Sestak vs Chambliss [The DEW Line]

Gonzales Said to Have Intervened on Wiretap [The New York Times]

2 Senators Agree to Let Defense Nomination Go Forward [Reuters]

Bank of America's Lewis May Face SEC Probe of Merrill Testimony [Bloomberg]

Financial Reforms We Can All Agree On [The Wall Street Journal]

TARP Watchdog Warns Congress About Conflicts of Interest

Fresh off his first announcement of criminal charges filed in connection with bailout fraud, Special Inspector General for the Troubled Asset Relief Program (SIGTARP) Neil Barofsky appeared before the Joint Economic Committee this morning to testify on the findings of his latest audit report.

Naturally, we were glad to see the Committee turn its attention to several issues that are near and dear to us.

Committee Chair Carolyn Maloney (D-NY) and other members asked Barofsky about his finding that the Public Private Investment Program (PPIP) is "inherently vulnerable to fraud, waste, and abuse." Barofsky reiterated that he is "extremely concerned" about the potential for conflicts of interest in the program, and warned of "catastrophic taxpayer losses" if measures are not put in place to identify and mitigate these conflicts.

He specifically mentioned the Legacy Securities Program, in which every dollar raised by private investors will be matched by one dollar in equity from Treasury and up to two dollars in non-recourse loans--in other words, up to 75 percent of the financing will come from taxpayers. As he pointed out, the potential for a conflict arises if "the fund manager has on its books, or is managing for other clients from which it derives fees, the exact same mortgage-backed security that it's going to go out and buy at a higher price." The fund manager could then overbid for these securities, unload its own holdings at the inflated price, and leave taxpayers to foot the bill if the price drops back down to its market level. Barofsky called for increased transparency so that Treasury can examine the books of these fund managers and identify any such conflicts.

POGO has raised similar concerns about the private fund managers hired to advise the Federal Reserve on its mortgage-backed securities purchase program. We've also been banging the drum about the potential for significant taxpayer losses in the Legacy Loans Program, and we hope that future hearings will take up the question about whether the FDIC has the statutory authority to guarantee up to $1 trillion in financing for the program.

Later in the hearing, Barofsky proudly reported that he got a 100 percent response rate from the 364 banks he surveyed about their use of TARP funds, including detailed information about the banks' lending activities. He said he hoped this would discredit the argument that it would be almost impossible to track what banks actually do with their bailout money. If Treasury continues to delay in requesting this information, we urge Congress to step in and demand that they obtain it, as has been proposed in pending legislation.

The Committee also learned that Barofsky is carrying out his crucial work with only 37 staffers working under him. He'll have a much easier time reaching his goal of 150 staffers once President Obama gets around to signing the recently passed SIGTARP Act of 2009, which will give Barofsky the authority to quickly hire new employees and retired government auditors.

Finally, we're glad Barofsky told the Committee that one-third of his investigations originated from whistleblower tips. This further underscores why it's so important for IGs to improve how they handle whistleblower cases, as we argued in our recent report on IG accountability.

-- Michael Smallberg

UPDATE: The SIGTARP bill was just signed into law.

In a State of Stimulus

With $787 billion in taxpayer funds at stake, POGO took great interest in the Senate Committee on Homeland Security and Governmental Affairs' hearing this morning, "Follow the Money: State and Local Oversight of Stimulus Funding." One of the witnesses was Gene Dodaro from the GAO, who just released a report on their initial findings on the oversight of stimulus funds.

One of the GAO's most important and immediate concerns, which has also been raised by Recovery Accountability and Transparency Board Chair Earl Devaney and other Inspectors General, is the lack of stimulus funding designated to state and local oversight efforts:

"...officials in most of the states and the District expressed concerns regarding the lack of Recovery Act funding provided for accountability and oversight. Due to fiscal constraints, many states reported significant declines in the number of oversight staff--limiting their ability to ensure proper implementation and management of Recovery Act funds."

Towards that end, the GAO recommends that “the Director of OMB should clarify what Recovery Act funds can be used to support state efforts to ensure accountability and oversight.” The OMB is currently finalizing its implementation guidance.

Congress may make additional funds available specifically for accountability and oversight--Rep. Edolphus Towns (D-NY), Chairman of the House Oversight and Government Reform Committee, announced yesterday that he was introducing such legislation. While there were many accountability provisions in the stimulus bill, the fact that state auditors would receive a storm of new work without funding to support them was apparently overlooked.

Targeted local and state stimulus oversight funding creates a huge opportunity for states to share best oversight practices and develop new ones. In the coming weeks, POGO will be working with its partners in the Coalition for an Accountable Recovery and the state and local good government leaders who participate in the Aspen Institute's Rodel Fellowship Program to identify some of the most effective and innovative state mechanisms to ensure that stimulus funds are spent fairly and transparently. We're already excited, for instance, that some states have announced plans to post campaign finance information for stimulus contractors and subcontractors in order to shine a light on how money can play a role in the procurement process. But in addition to highlighting what is being done well, POGO will also take note when a state is lagging behind on its oversight planning and functions. We will be looking for systemic issues, not specific example of wasteful stimulus projects, which are being tracked by other groups like Stimulus Watch. If you are aware of systemic oversight problems at the state and local level, please contact us at [email protected] or [email protected].

Highlighting the tensions between state and federal oversight efforts, Pennsylvania's Auditor General Jack Wagner wrote to the GAO earlier this month to say that he was "extremely concerned" about his state agencies' ability to oversee the use of federal stimulus funds. This drew the ire of Governor Ed Rendell, whose office "strongly disagree[d] that the Commonwealth's internal controls are not sufficient."

Note to Government 2.0 geeks: for one week beginning April 27th, The Recovery Accountability and Transparency Board and the Office of Management and Budget, in partnership with the National Academy of Public Administration, will host a national online dialogue to engage leading information technology vendors, thinkers, and consumers in answering a key question: What ideas, tools, and approaches can make Recovery.gov a place where all citizens can transparently monitor the expenditure and use of recovery funds?

-- Ingrid Drake