Tag Archives: Government corruption

Taking Washington’s Revolving Door To A Criminal Extreme

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(Illustration: CJ Ostrosky / POGO)

THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)

The Public Company Accounting Oversight Board (PCAOB) was created after accounting scandals at major companies such as Enron and WorldCom wiped out thousands of jobs and cost investors billions of dollars.

The supposedly independent regulator is inextricably tied to the industry it oversees, a Project On Government Oversight (POGO) investigation found.

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“On a spring day in 2015, his last day on the job at the board that oversees corporate auditors, Brian Sweet stuffed an external hard drive containing confidential board records into his computer bag along with hard copies of other confidential board documents.

Then Sweet said goodbye to his life as a regulator inspecting the big accounting firm KPMG and walked through the revolving door to a new job at KPMG’s Park Avenue offices in New York. The partnership at KPMG came with pay of $525,000, more than double the approximately $240,000 he had been getting at the oversight board.

Only a thin, porous border separates the auditing regulator from the auditing industry.

As Sweet would later testify, his bosses at KPMG soon made clear how they expected him to earn it.

KPMG had been performing disastrously on inspections conducted by the Public Company Accounting Oversight Board (PCAOB), and it was under pressure to improve. In the annual inspections, the oversight board scrutinizes a sample of the audits that major accounting firms perform on companies listed on U.S. stock markets. Advance word of which audits the PCAOB planned to inspect would give KPMG an edge.

On Sweet’s first day at the firm, over lunch at a posh Mediterranean restaurant, KPMG brass pumped him for information on the PCAOB’s inspection plans. His second day on the job, in a tête-à-tête in an executive conference room, as Sweet recalled, his boss’s boss referred to the uneasiness Sweet had shown divulging such information and told him he needed to remember where his paycheck came from. His fourth day on the job, while Sweet and his new boss, Thomas Whittle, walked back to the office from lunch at a Chinese restaurant, Sweet told Whittle that he knew which audits the oversight board planned to inspect that year—and that he had taken PCAOB documents with him.

That evening, “Thomas Whittle came by my office where I was sitting and he leaned against the door and asked me to give him the list,” Sweet testified.

Ties That Bind

Brian Sweet was part of a pipeline that funneled confidential information from KPMG’s prime regulator to KPMG. 

The conspiracy took Washington’s notorious revolving door to a criminal extreme. According to the Justice Department, KPMG partners hired PCAOB employees, pumped them for inside information on the oversight board’s plans, and then exploited it to cheat on inspections. Meanwhile, PCAOB employees angled for jobs at KPMG and divulged regulatory secrets to the audit firm.

The case laid bare inner workings of the revolving door in detail seldom seen.

The case has led to a series of convictions and guilty pleas—and a $50 million administrative fine against KPMG. It also laid bare inner workings of the revolving door in detail seldom seen.

Beyond the conduct labeled as criminal, in little-noticed testimony the case revealed a series of side contacts between senior KPMG partners and top officials of the PCAOB—one, or in some cases two, members of its five-member governing board. The low-profile meetings at locations such as the Capital Hilton, which is steps from the PCAOB’s Washington headquarters, gave KPMG leaders a preview of questioning they would later face at periodic meetings with the full board.

But all of that is just part of a larger picture: The supposedly independent regulator is inextricably tied to the industry it oversees, a Project On Government Oversight (POGO) investigation found.

Hundreds Pass Through Revolving Door

Based on an analysis of profiles from the professional networking site LinkedIn, as of November 2019, it appeared that more than 40% of PCAOB employees had worked for the so-called Big Four audit firms—Deloitte & Touche, Ernst & Young (EY), KPMG, and PricewaterhouseCoopers (PwC), POGO found. The Big Four overwhelmingly dominate auditing of the biggest corporations.

A search of LinkedIn turned up more than 340 people whose profiles said that they were currently employed at the PCAOB and that they previously worked for at least one of the Big Four. The oversight board’s budget for 2019 included a staff of 838.

At the same time, LinkedIn profiles showed more than 160 people working for the Big Four who had previously worked for the PCAOB. Scores have gone back and forth.

The numbers may not be complete; they include only people on LinkedIn whose profiles POGO could locate and access.

For current employees who went directly from the Big Four to the PCAOB or vice versa, half of the LinkedIn profiles indicated they did so with a gap of two months or less.

Ties like those may help explain why a supposedly strong and independent regulator has a history of bending to industry.

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For example, as POGO has documented, the accounting oversight board has a weak record of disciplining Big Four auditors for apparent violations identified by its own staff. When it does take disciplinary action, it has shielded auditors and their clients from public scrutiny by withholding key information from public records.

Though Congress empowered the oversight board to write new rules for auditors, the PCAOB has to a significant extent preserved the industry-written rules it inherited—rules that can make it difficult to hold auditors accountable. Recently, it has watered down rules meant to keep auditors relatively independent from the companies they audit.

In addition, the oversight board has ultimately refrained from adopting some of the most far-reaching reforms it has considered, such as requiring companies to periodically change audit firms. That would assure that, from time to time, new firms would step in with a strong incentive to expose any fraud or error their predecessors condoned or overlooked—lest they become liable for those problems themselves.

PCAOB spokesperson Torrie Matous did not respond to questions for this story.

Promises Unfulfilled

The PCAOB was created after accounting scandals at major companies such as Enron and WorldCom wiped out thousands of jobs and cost investors billions of dollars. Its mission is to protect investors, including anyone who is depending on a pension fund, 401(k) account, or individual retirement account to support them in retirement. It oversees the audit firms that certify corporate financial statements. More specifically, it is responsible for writing, checking compliance with, and enforcing auditing rules. The goal is to reduce the danger that companies will cook their books or otherwise mislead investors.

The Public Company Accounting Oversight Board, Explained:

When Congress designed the oversight board in 2002, lawmakers said it would provide an independent check on corporate auditors. They said it would end a system in which corporate auditors largely regulated themselves.

“This legislation establishes a strong independent accounting oversight board, thereby bringing to an end the system of self-regulation in the accounting profession which, regrettably, has not only failed to protect investors, as we have seen in recent months, but which has in effect abused the confidence in the markets,” Paul Sarbanes (D-MD), the chairman of the Senate Banking Committee at the time and chief author of the legislation, said on the Senate floor.

“This legislation builds a strong and independent board to oversee the accounting industry,” echoed Senator Mike Enzi (R-WY). “It will eliminate the climate of self-regulation that has historically guided accounting.”

As the connections between the regulators and the regulated illustrate, the promises of independence were overstated.

Swamped

The revolving door is hardly unique to the PCAOB. It’s endemic to Washington, and it’s one of the reasons federal Washington is known as a swamp. Though the revolving door is subject to various ethics rules, it’s not inherently illegal.

It can infuse regulatory agencies with knowledge of industry and expertise. It also comes with risks. Will revolvers use regulatory power to serve the public interest or to advance the private agendas of once and future employers in the private sector? Can regulators who come from industry escape the culture, values, and world view of the firms that shaped them?

When they move from agencies to industry, will they use the knowledge and relationships they developed working as regulators to help their employers game the system and gain an unfair advantage? Fundamentally, will the regulatory agency be captured by the industry it regulates?

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To some extent, it may be unsurprising that people who oversee corporate auditors have a background in corporate auditing, and that people who leave the regulatory agency go on to earn livelihoods that draw upon their professional knowledge and experience.

“It is essential that regulatory bodies understand market developments and that firms incorporate regulators’ views when implementing new technologies and techniques,” Julie Bell Lindsay, executive director of Center for Audit Quality, an industry-funded advocacy group for audit firms, said in an unsolicited statement for this story. Lindsay was responding to inquiries POGO had made to audit firms.

Ernst & Young spokesperson John La Place expressed a similar view.

“In the ordinary course of its business, EY hires qualified professionals who have prior experience at government entities,” he said by email in response to questions from POGO. “These individuals contribute valuable insights and diverse perspectives that enhance the firm’s quality of service to clients in addition to addressing risks, complying with regulations and upholding our values and commitment to independence.”

But in the depth and breadth of its ties to four huge firms that wield highly concentrated power, the accounting oversight board appears to take the revolving door to an unusual extreme.

The agency and any agency employees contemplating future private-sector careers related to auditing are exceptionally dependent on the very oligopoly they are responsible for overseeing.

Combined with the PCAOB’s extreme lack of transparency and public accountability—it operates largely in secret, makes limited public disclosures, and is immune from the Freedom of Information Act—it’s a recipe for trouble.

Pumped

By the end of 2014, KPMG was in deep trouble with its overseers. That year, the firm failed 54% of its inspections.

At a December 2014 meeting with the PCAOB’s governing board, KPMG leaders were sharply rebuked.

Looking back on it from the witness stand, a senior KPMG partner named Thomas Whittle remembered the meeting as “sort of a punch in the gut.”

Whittle shared managerial responsibility for improving the firm’s inspection results, and his turnaround strategy included recruiting a PCAOB employee named Brian Sweet. Sweet understood KPMG’s problems better than most, because he was one of the people assigned to inspect the firm.

To welcome Sweet to the firm, several KPMG partners, including David Middendorf, the head of the firm’s national office, took him to lunch at Avra, a Greek restaurant near KPMG’s Manhattan executive offices where the current fare includes octopus carpaccio and tuna tartare. By Sweet’s sworn account, the conversation moved far beyond pleasantries. As they sat in a curved booth, Sweet testified, Middendorf and another partner asked him about the PCAOB’s still secret inspection plans for the year.

In Sweet’s telling, he acknowledged that he knew which audits the oversight board planned to inspect. They asked if a company called Stonegate Mortgage was one of them. Sweet recalled that he “confirmed it to them without trying to just come right out and say yes.” Middendorf asked if a big block of time the PCAOB had already indicated it had reserved for an inspection in San Francisco was for Wells Fargo.

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“I remember kind of shrugging my shoulders and indicating, ‘Well, could it be anyone else?’” Sweet testified.

As Sweet recalled, Middendorf slapped the table and exclaimed, “I knew it.”

Why didn’t Sweet just say yes? “Because I knew that by directly answering ‘yes’ was a very clear violation of the PCAOB’s ethics code because it was such confidential information,” Sweet testified when Middendorf went on trial last year for his role in the affair.

Testifying in his own defense, Middendorf described the lunch in more benign terms. He testified that he told Sweet, “I only want you to share what you’re allowed to share.” He added that he did not feel he pressured Sweet.

The day after the lunch, Sweet met with Middendorf in an executive conference room. Middendorf was Whittle’s boss. As Sweet recalled, Middendorf referenced Sweet’s uneasiness confirming Stonegate Mortgage and indicated “that while I might have felt that that was a gray area, that I was there at the firm to share insight and add value wherever I could and that was his expectation of me.” Middendorf urged him to maintain strong contacts with his former colleagues at the PCAOB, Sweet testified.

“I remember that David Middendorf also indicated or told me that I needed to remember where my paycheck came from and that I was now a partner at KPMG,” Sweet testified.

According to the Justice Department, KPMG partners hired PCAOB employees, pumped them for inside information on the oversight board’s plans, and then exploited it to cheat on inspections.

By Sweet’s account, he got the message.

Later that week, as Sweet and his immediate supervisor, Whittle, walked back to the office from lunch at a Chinese restaurant, Sweet told Whittle that, not only did he know the PCAOB’s inspection plans for the year, but also he had taken PCAOB documents with him. That evening, “Thomas Whittle came by my office where I was sitting and he leaned against the door and asked me to give him the list,” Sweet testified.

Sweet told Whittle he needed a few minutes. In part, he needed time to think. Then, he fished out one of the documents he had taken with him from the PCAOB, a partial list. “I went over to Tom’s office and went to his desk and handed him the list.”

Sweet described taking the document back and then returning to his hotel room for the night.

Whittle remembered those events somewhat differently. According his testimony, as best he could recall, the list didn’t come up until he stopped by Sweet’s office, and he initially balked at accepting it. Before taking such a serious step—a step he thought was wrong—he wanted to check with Middendorf, he testified. According to Whittle, Middendorf told him to get the list.

There’s no dispute over what happened the following morning. By email, Whittle asked Sweet to give the list to his executive assistant. “Brian, could you have Lisa scan and send me the banking selection list? Thanks,” Whittle wrote.

Sweet gave Whittle’s assistant more than just the list of bank audits the PCAOB planned to inspect.

“I’d appreciate the team’s discretion to make sure it isn’t too widely disseminated.”

BRIAN SWEET IN AN EMAIL TO THOMAS WHITTLES

“Just so you know, it is actually the full list of anticipated inspections (including non-banks),” Sweet told Whittle by email. “I’d appreciate the team’s discretion to make sure it isn’t too widely disseminated,” he added.

“Brian, got it and understand the sensitivity,” Whittle replied. “Have … a great weekend. Enjoy your DOM.”

The “DOM,” Sweet explained, was a bottle of Dom Perignon champagne the firm had sent to welcome him as a newly minted partner.

But, during Sweet’s early days at the firm, Whittle also offered a warning, Sweet testified. “I remember him telling me that I was most valuable to him the first day that I joined KPMG and effectively that I had less value as time went on.” In other words, “That my usefulness was only because of the role that I played in the PCAOB and that the utility of what I knew, the benefit that the firm got from what I knew would decline over time.”

Whittle recounted that conversation in similar terms.

“I told him that he was of most value because he had just come from the PCAOB and knew how they operated and knew what their issues were, but over time that information will be less relevant as they make changes in personnel and they come up with new issues,” Whittle testified.

Whittle also said he wanted to make sure that, as time passed, Sweet was “seen as adding value to the firm in other ways.”

Sweet and Whittle pleaded guilty to federal charges and testified for the prosecution as cooperating witnesses when Middendorf stood trial in early 2019. The case offered a view of the revolving door’s inner workings and showed that only a porous border separated the auditing regulator from the auditing industry.

“Anonymous Email”

Sweet was part of an expanding network that connected KPMG to the PCAOB, according to his testimony and other evidence presented in court.

When Sweet decided to leave the PCAOB for a partnership at KPMG in 2015, he recalled, he shared the news with a PCAOB colleague named Cynthia Holder, who, like him, worked on inspections of KPMG.

“She was very happy for me but also told me that if the firm, KPMG were hiring other people, that she also wanted to leave the PCAOB and would love to join KPMG,” Sweet recalled.

During his first days at the firm, Sweet called Holder and requested a favor. Could she remind him about some information that he had helped draft for a report the PCAOB was preparing about KPMG?

“She was very happy for me but also told me that if the firm, KPMG were hiring other people, that she also wanted to leave the PCAOB and would love to join KPMG.”

TESTIMONY OF BRIAN SWEET

Less than two weeks after Sweet arrived at KPMG, he got an email from Holder’s personal AOL email account. The subject line: “Anonymous Email.” The body of the email contained only a smiley face. But attached was the information Sweet had requested.

It was, he testified, “very valuable” to KPMG.

Within several weeks of arriving at KPMG, Sweet testified, he got a call from Holder on a different matter. Holder was working on a PCAOB inspection of a KPMG audit, and she wanted Sweet’s advice. She was considering citing a potential problem with the audit, and she wanted his opinion, Sweet testified.

Sweet said he advised her not to write it up. He testified that she agreed, saying, “OK, yeah, that’s what I thought too.”

Later that year, Sweet testified, he helped Holder get a job at KPMG. Following his example, he said, she brought confidential PCAOB records with her.

KPMG made a concerted effort to recruit others from the oversight board, and the firm tapped Sweet to identify candidates, Sweet and Whittle testified. Like Holder, some were involved in inspecting KPMG and had expressed an interest in joining the firm.

One sent Sweet a copy of his résumé—and then cut KPMG slack on an inspection, Sweet testified.

The recruitment effort yielded 10 or more hires, Sweet estimated.

“Stealth” Cleanup

At KPMG, Holder maintained a running dialogue with a colleague of hers still at the PCAOB named Jeffrey Wada, who fed her information, Sweet testified.

On March 28, 2016, Holder texted Sweet to phone her as soon as he could, “with three exclamation points,” Sweet recounted. When they connected, Holder told him that Wada had given her the names of the KPMG bank clients whose audits the PCAOB would inspect in 2016.

“She explained to me that Jeff had gone into the PCAOB’s IIS system [Inspections Information System] and had accessed the planning information for the PCAOB’s KPMG inspection team and had specifically gone into the schedule,” Sweet testified.

Sweet said he understood that the audits on the list had already been completed but were still in the 45-day window when KPMG could revise or augment the audit documentation without flagging the changes.

What ensued was an urgent, “stealth” effort by KPMG personnel to scrutinize the records of the audits on the list that had the highest stakes, Sweet testified.

“I remember Tom Whittle specifically saying that we needed to maintain a circle of trust, that only the people in that room were to know the real reason for why we were doing these rereviews,” Sweet said.

“This was confidential information that had been stolen from the PCAOB, and rather than report it back, we were deciding to take action to do things to improve, potentially manipulate the PCAOB’s inspection results.”

TESTIMONY OF BRIAN SWEET

“This was confidential information that had been stolen from the PCAOB, and rather than report it back, we were deciding to take action to do things to improve, potentially manipulate the PCAOB’s inspection results,” Sweet said.

As part of the effort, Sweet recalled proposing changes to audit records.

The review of one audit uncovered “very significant audit deficiencies,” prompting KPMG to change the conclusion of its audit, Sweet said. By preemptively flagging problems at that company, KPMG deterred the oversight board from inspecting that audit.

The covert program succeeded, Sweet said. Generally, inspections of the audits subject to the “stealth rereviews” showed “significant improvement,” Sweet said.

In a presentation KPMG prepared for a meeting with the PCAOB, the audit firm attributed the improvement to its internal quality control efforts. The results, the presentation said, had been “terrific.”

But Whittle worried that the success might be hard to repeat. “On the one hand, I was very pleased that our inspection results were so—were so good, but also concerned that if we didn’t have that same information in a subsequent period, that we could see a return of deficiencies that would be difficult to explain,” he testified.

“Sell Myself to KPMG”

The following year, Holder again obtained inside information.

On January 9, 2017, Holder told Sweet that Wada had given her a list of audits the PCAOB was likely to inspect that year, and she conveyed the information.

After midnight that night, Wada poured out his hopes and frustrations in an email to Holder.

“I am now trying to sell myself to KPMG,” Wada typed.

The email included a copy of his résumé and brought into sharp relief what a tangled web connects the oversight board and the industry it oversees.

Wada had gone from the big audit firm Deloitte to the PCAOB, and said he dreamed of moving to a new job at KPMG.

“It’s funny how I was on the fast track to partner and clearly recognized for my talents at Deloitte and then I ended up at this effin place with all the BS politicking that I loath [sic] and now I can’t get a GD promotion to save my life just because I refuse to kiss people’s asses and spread the political rhetoric,” Wada wrote. “God, this place sucks.”

As potential references, Wada cited KPMG auditors whose work he had inspected—people over whom he had served in a watchdog role.

“I can give you a list of names of the partners I inspected over there in Tokyo. One of the senior partners on the Honda Engagement Team really liked my style and respected my approach,” Wada wrote.

In the late-night email, Wada asked, “Please let me know what else you need from me.”

Weeks later, Wada texted Holder, “Okay, I have the grocery list.” Then, a minute later, “All the things you’ll need for the year.”

The next day, in a 48-minute phone call, Wada read Holder the complete confidential list of KPMG audits to be inspected by the PCAOB in 2017, according to an indictment.

Barbecued Evidence

Then it all unraveled.

In February 2017, as he moved to exploit the extraordinary information, Sweet got careless. Going outside the tight circle of trust, he told members of KPMG audit teams that their audits were slated for inspection. One was appalled that the firm had acquired and planned to act on inside information. As she reported it up her chain of command and word spread, others were similarly outraged. KPMG initiated an internal investigation.

Holder, a former FBI agent with experience in organized crime cases, coached Sweet on how to carry out a cover-up, Sweet recalled. “Cindy suggested that we get burner phones. Cindy and I talked about using Instagram as a code that if either of us posted a picture, like a direct message in Instagram of a college football team picture, that that would be a code to then dial into a conference call number,” Sweet testified.

“I was trying to cover my tracks.”

TESTIMONY OF BRIAN SWEET

Holder claimed to have hidden confidential PCAOB information in an electrical socket, Sweet said.

Sweet resorted to more basic tradecraft. After being questioned by a KPMG lawyer, he burned some of the evidence in his backyard barbecue.

“I was trying to cover my tracks,” he testified.

Cooperating

“KPMG immediately notified regulators and took decisive action to separate partners and personnel who behaved inappropriately from the firm, and cooperated with the government and our regulators to investigate and remediate this matter,” KPMG spokesperson Andrew Wilson said in a statement to POGO. “We learned from this experience and we are a stronger firm today due to the steps taken to strengthen our culture, governance and compliance program.”

Firms typically settle enforcement actions brought by the Securities and Exchange Commission (SEC) without admitting or denying wrongdoing. Extraordinarily, in 2019, when KPMG agreed to pay $50 million to settle the SEC’s administrative case, the accounting firm admitted the facts laid out by the SEC. KPMG also acknowledged that its conduct violated a rule requiring it “to maintain integrity” and “to comply with ethics standards,” the SEC enforcement order said.

It appears that, in reaction to the scandal, KPMG has changed its hiring practices.

“We do not recruit directly from our regulatory agencies, nor directly hire anyone who worked on KPMG matters in a regulatory capacity,” Wilson told POGO by email. “In the rare instances when we hire professionals with regulatory experience for our Audit practice, our goal is to ensure that our firm and our clients are up to speed on the latest professional standards and regulations so that we can continue to deliver high quality audits that the capital markets can rely upon.”

Wilson wouldn’t say when or why KPMG adopted that approach to hiring.

Lawyers for Sweet, Holder, and Whittle did not respond to emails for this story.

Airport Rendezvous

KPMG had another special channel to the PCAOB. It went straight to the oversight board’s governing board.

There’s no suggestion it involved any criminality, though when it came up in court there were questions about how it comported with the PCAOB’s ethics code.

In 2015, the two seats on the PCAOB governing board reserved for accountants were held by Jay Hanson and Jeanette Franzel. Franzel was formerly a government auditor; she had worked at the Government Accountability Office. Hanson had spent more than three decades at the accounting firm McGladrey & Pullen, now known as RSM, where he rose to the position of national director of accounting.

Called as a witness for the defense when KPMG’s Middendorf went on trial, Hanson was asked about a series of contacts he had with Middendorf and other senior KPMG partners. Those contacts preceded periodic meetings at which KPMG leaders faced questioning by the PCAOB’s full governing board.

Hanson said he invited the contacts. “Sometime after I started with the board in 2011, I was approached by a member of leadership of another firm with just a request that they wondered if I would be willing to meet with them before their scheduled meeting with the board to share my personal views on what I thought was most important to get out of the meeting,” Hanson testified. “And after having several meetings like that with other firms, I made it known to all firms that I could that if anybody wanted to talk to me before the meeting, phone call or meeting, I would be willing to do that.”

Hanson said he believed that the so-called “preboard” meetings would help KPMG be better prepared for the actual board meetings. He said he generally reviewed the agenda with Middendorf for the upcoming board meeting.

Under questioning, Hanson said Franzel sometimes accompanied him to the preboard meetings.

“Generally other than Ms. Franzel, I did not make it a habit of telling my fellow board members about the meetings,” Hanson said.

One meeting took place at the Capital Hilton, about a block from the oversight board’s Washington headquarters. Another took place at the elegant Hay-Adams hotel, just north of the White House and only slightly farther from the PCAOB.

On a third occasion, the men from KPMG met Hanson outside Terminal B at Washington’s Reagan National Airport, at a spot called Cibo Bistro & Wine Bar. “I recall that they flew in to meet with me,” Hanson testified.

At each of those preview meetings, Hanson—or Hanson and Franzel—“handed us a draft agenda of the meeting with the PCAOB board that would take place sometime after,” Middendorf later stated.

There was also a preview by phone, the result of a request Middendorf made by email on September 6, 2016.

“Jay, I hope you had a great Labor Day weekend,” Middendorf wrote. “I wanted to reach out and see if you and Jeanette would have some time to meet with Scott Marcello [of KPMG] and myself before the meeting with the board to help us prepare and get some idea of what may be on the agenda.”

“We have not had our internal prep meeting yet and I can’t find that it has been scheduled,” Hanson replied. “However, let’s get something on the calendar to talk.”

KPMG was officially given copies of the agendas shortly before the board meetings. The meetings with Hanson gave KPMG more time to prepare, Middendorf testified.

“I don’t believe what I did was wrong. I thought it was probably stretching the limits in a gray area, but not something that I did wrong.”

TESTIMONY OF DAVID MIDDENDORF, THE FORMER HEAD OF KPMG’S NATIONAL OFFICE

Hanson testified that he didn’t “recall specifically” whether at any of the preboard meetings he gave draft agendas to Middendorf.

“My general practice was meeting with the firm when they had the agenda in their hands, and sometimes just for pure logistics to get something on the calendar . . . expecting that by the time I came, the firm would have the agenda from the board—or from the staff . . . as a basis for the discussion,” Hanson said.

“I do recall a meeting where, to my surprise, the agenda had not been provided to the firm yet and I used my personal copy of the draft agenda with my views of what the agenda should be,” Hanson said.

With supporting exhibits, Middendorf described returning to New York with the fruits of encounters with Hanson and Franzel and promptly meeting with KPMG executives such as the CEO, the chief operating officer, and a vice chair to go over the information. He recounted that, after one of his trips to Washington, KPMG executives sprang into action to prepare for their upcoming meeting with the full PCAOB board. He said they wrote a script.

In a similar vein, Whittle said he recalled “at least one time we did get a draft or something through one of the board members.” Whittle said KPMG used it “as if it was the actual agenda, and we tried to prepare remarks that would be responsive to it.”

Section EC9 of the PCAOB’s ethics code says: “Unless authorized by the Board, no Board member or staff shall disseminate or otherwise disclose any information obtained in the course and scope of his or her employment, and which has not been released, announced, or otherwise made available publicly.”

At Middendorf’s trial, Hanson was asked if he violated that rule during the meeting where he acknowledged using his copy of the draft agenda.

“No,” he answered.

“Why is that?” he was asked.

“I had the draft that I believed should be the agenda and discussed my views on that but did not represent it as a board agenda, represented it as my personal agenda,” he said.

Pressed as to whether he actually told Middendorf that he was merely expressing his personal view, Hanson waffled.

“I don’t recall explicitly doing that,” he said.

Hanson abruptly resigned from the PCAOB on December 23, 2016. When he testified in March 2019 during Middendorf’s trial, he described himself as retired.

During the trial, at a sidebar conference with lawyers in the case, the judge said that information that might have been used to impeach Hanson—in other words, to challenge his credibility—was filed under seal. “I can say it relates to the terms of Mr. Hanson’s separation from the PCAOB. Beyond that, I don’t think I can go into it,” the judge said.

POGO tried unsuccessfully to contact Hanson via telephone, LinkedIn, and FedEx.

Interviewed for this story, Franzel declined to discuss the preboard contacts in any detail. “As a regulator I had contact with the firms because we regulated the firms,” she said. “And it was always in the context of my regulatory role and responsibilities.”

Since leaving the PCAOB governing board in 2018, Franzel has joined an advisory board of the Center for Audit Quality. That group describes itself as an advocacy organization for audit firms. The advisory board offers “a forum for dialogue and a source of guidance” for a program on research grants, the group’s executive director, Lindsay, said in a statement.

Franzel also became an adviser to Ernst & Young (EY), one of the Big Four audit firms.

“Her insights and experience are of great value to EY as we deliver on our commitment to the highest quality in audits,” John La Place, the spokesperson for EY, said in an email to POGO. “EY and Ms. Franzel are aware of the ethical requirements resulting from her role as a former PCAOB Board member, and we are confident of her and our ongoing compliance with those obligations,” he added.

Under the PCAOB ethics code, people who leave the oversight board “shall not practice before the board” on particular matters they worked on while at the board and must wait a year before practicing before the board on other matters.

Franzel deflected questions about her relationships with EY and the industry group.

Today, Middendorf is free on bail while appealing his conviction. He has been sentenced to a prison term of one year and one day—not for his meetings with Hanson, but rather for participating in what the Justice Department has summarized as a scheme to steal confidential PCAOB information and cheat on inspections.

Middendorf had no comment for this story, his lawyer Nelson Boxer said.

However, in court, Middendorf reflected on his role in the effort to exploit inspection secrets. If nothing else, his defense reflected the values of one former boss at one of the major audit firms.

“I don’t believe what I did was wrong,” the former head of KPMG’s national office told the jury. “I thought it was probably stretching the limits in a gray area, but not something that I did wrong.”

https://www.pogo.org/investigation/2020/01/how-accountants-took-washingtons-revolving-door-to-a-criminal-extreme/

Alaska Company Pays $2 Million in Army Corps of Engineers Bribery And Kickback Suit

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Photo by: LM Otero

“ANCHORAGE DAILY NEWS”

“Court records indicate that from 2008 to 2009, three then-KIC employees unlawfully paid James G. Tuskan, a former worker with the U.S. Army Corp of Engineers.

James Tuskan pleaded guilty to conspiracy to defraud the U.S. government and was later sentenced to 15 months in prison. Christine Hayes and Anthony Acri pleaded guilty to conspiracy to commit wire fraud, with each receiving a five-year prison sentence. “

_____________________________________________________________________________

“An Alaska company and its subsidiary have paid more than $2 million to settle a lawsuit filed by the federal government that accused the company of paying kickbacks and bribes to secure government contracts at an El Paso Army post, officials said.

Kikiktagruk Inupiat Corp. and KIC Development LLC agreed to the $2,025,000 settlement last month, the El Paso Times reported. A federal court complaint shows the scheme involved a construction work contract at Fort Bliss that was part of a “$3 billion effort to transform” the base.

The scheme was revealed in 2010 after a KIC worker reported the alleged crimes committed by the company’s vice presidents Anthony Acri and Christine Hayes, as well as project manager Earl Hall, according to court documents and officials with the U.S. Attorney’s Office for the Western District of Texas.

The bribes included airline flights, money for hotels and vacations, and payments to Tuskan’s family.

Court documents show some of the bribes happened prior to Tuskan supposedly arranging for the Army Corps in Fort Worth to award KIC with the contract exceeding $2 million in 2009. KIC was subsequently awarded a $15 million contract to provide design, construction work, repairs and renovations to two buildings at Fort Bliss.”

https://www.adn.com/alaska-news/crime-courts/2019/05/03/alaska-company-pays-2m-in-army-post-kickback-bribery-suit/

Immigration And Customs Officials Leave Agency to Serve Its Top Contractor

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“THE PROJECT ON GOVERNMENT OVERSIGHT”

“Tracey Valerio turns out to be just one of a bevy of top officials to work for GEO and other private prison companies after throwing in the towel at ICE and the federal Bureau of Prisons.

Government executives seem to form close relationships with the private companies they oversee on taxpayers’ behalf, only to accept lucrative employment with these same contractors later on.”

_____________________________________________________________________________

“In April 2018, Tracey Valerio, the top official in charge of “all agency contracting” at Immigration and Customs Enforcement, resigned. Within months, she was recruited as a paid expert witness in a lawsuit to defend ICE’s biggest contractor—a large, private prison and immigrant detention company known as the GEO Group.

The lawsuit charged Florida-based GEO with violating minimum wage laws by paying the same immigrants now being locked up in record numbers by the Trump administration as little as $1 a day for menial work such as cleaning toilets. That case and others like it threaten GEO’s profits.

But paying immigrants too little is hardly the only issue. Valerio, the top ICE contracting official who became GEO’s paid witness, not only went spinning through her agency’s revolving door, she was accused of violating the law and an agency rule in the process.

The previously unreported allegations against Valerio were made during a court hearing earlier this year, according to court records, and in an official letter complaining about her role from a senior ICE lawyer that was reviewed by the Project On Government Oversight, a non-profit watchdog group. ICE has objected to the information she provided in the case.

“As Ms. Valerio was not authorized to speak on behalf of the agency or provide the information contained in the declaration submitted, ICE objects to the submission of the declaration to the extent that it purports to be provided on behalf of the agency or express agency views,” ICE attorney Anne M. Rose wrote in the letter  to the court on August 1.

There are laws on the books intended to mitigate ethics concerns related to the conflicts of interest that these job moves can create. One of them is the Procurement Integrity Act. Though seldom enforced and riddled with loopholes, a section of the act specifically prohibits former federal contracting officials from accepting compensation for at least one year from companies to which their agencies awarded a contract worth $10 million or more.

GEO won several contracts this size from ICE in Valerio’s last year as ICE’s executive associate director for management and administration. GEO is also by far ICE’s largest single contractor, winning more than $327 million in funding from ICE in the fiscal year 2018, the first full budget cycle for the agency year under President Trump. Perhaps reflecting the current administration’s hard-line posture regarding immigration enforcement, this is a marked increase over the $199 million ICE awarded to the company during fiscal year 2016, the last full fiscal year during the Obama administration, according to contracting data at USAspending.gov.

Starting in July 2018, less than three months after she left ICE, Valerio was working as a paid expert witness for GEO to help in its defense in an ongoing lawsuit.

Wage Disparity

The lawsuit involves former detainees from the Northwest Detention Center in Tacoma, Washington, who claim the company was violating minimum wage laws by paying them just $1 a day for work such as cleaning toilets or working in a kitchen.

Critics of the program, which was authorized by an immigration law dating back to 1950, say paying immigrant detainees below the minimum wage is unlawful, because most have not been convicted of or pleaded guilty to any crime and thus there is no valid legal basis for excluding them from minimum wage law. The vast majority face only civil immigration charges. ICE and its contractors vigorously dispute that legal interpretation, however. This legal debate is the complex dispute at the center of this lawsuit and similar ones around the country.

Activists and one former insider, Kevin Landy, who ran ICE’s Office of Policy and Planning, also say the detainee work program means companies like GEO Group do not employ as many local residents, in what are  often economically depressed communities where detention centers are located. A GEO official agreed in a 2016 deposition that GEO would have “to pay more people [who are not detained] to do that work [such as cleaning] if there were no voluntary work program.”

But for now, there is such a work program run by ICE, and many of its contractors, including GEO, use it to put detainees to work for far less money than what they would have to pay local residents who must be paid at least the minimum wage.

According to an Aug. 2, 2018, court transcript obtained by the Project On Government Oversight, attorney Mark Emery with the law firm Norton Rose Fulbright said he represents “the GEO Group in all of the detainee work cases that are currently pending right now.” He stated, “The authorization that ICE gives us is to pay at least $1 a day. We pay $1 a day. This is the exact same rate ICE pays at its own facility. This is the same rate that’s paid in all of the facilities, unless there is some other arrangement made.”

As an expert witness for GEO, Valerio submitted a sworn written declaration dated July 20. Her declaration supports GEO’s argument that it is unable to pay detainees more than a $1 a day because that’s all Congress has funded.

She wrote, under oath, that she was responsible for “the development and implementation of ICE’s budget and all agency contracting was under my purview and supervisory responsibility.”

“ICE could not expend more than $1.00 a day for detainee wages in a” detention center “without Congress setting a higher rate and appropriating the funds needed to pay the higher rate,” Valerio wrote. “In my capacity wherein I was responsible for advising and developing the budget for the [ICE] Director who then advised the DHS Secretary and, in turn, the President on appropriations requests, I relied upon the Congressional rate.”

Emery, the attorney for GEO, pointed to declarations from Valerio and others as support for GEO’s position. “An important point that I hope has come out in the briefing, and should come out in the declarations filed today, and other declarations we filed,” said Emery, “is that GEO doesn’t pay—GEO doesn’t decide what to pay detainees.”

Yet GEO sometime pays detainees above $1 a day at other ICE detention facilities it runs, such as at the South Texas Family Residential Center where it pays $3 a day.

Pointing to this example, Andrew Free, an attorney for the former detainees, argued in the Aug. 2, 2018, court hearing that the federal law does not restrict pay to $1 a day and that as a result detainees could be paid more.

GEO’s attorney Emery acknowledged that “the rate could be raised,” but ICE would have to make that decision, not GEO.

Judge Robert J. Bryan, who is overseeing the case, appeared inclined to want a jury to address the complex questions: “Isn’t it a jury question as to what the employment relationship, if any, was, and how these various contract provisions and legal provisions should be applied?”

Lawsuits often go through months and years of proceedings and still may never get before a jury. If this case ultimately comes before one and if it is decided in the plaintiff’s favor, such a verdict could mean that GEO has to pay detainees—at least at the Northwest Detention Center—Washington State’s hourly minimum wage for any work they do, along with possible back wages.

But this central legal dispute wasn’t the only point raised in the August hearing.

In the course of his arguments, Free alleged Valerio may have violated the Procurement Integrity Act by being paid as GEO’s expert witness in the case within months of leaving ICE, according to the transcript.

The law covers indirect compensation even when a contractor pays “an entity other than the individual, specifically in exchange for services provided by the individual.” This would seem to cover Valerio’s services as an expert witness.

Free also cited another potential violation by Valerio, who did not check with ICE before allegedly disclosing internal ICE information in court as an expert witness. As he put it: “she’s actually serving as a paid consultant for GEO, and submitted … [her] declaration in violation, apparently,” of an agency rule that bars disclosure of certain government information in court without agency authorization.

Following objections from ICE and plaintiffs in the court case, Valerio abruptly ceased working as a paid expert witness for GEO Group. According to the transcript, Free said, “I would love to depose Ms. Valerio. We have not had an opportunity to do that yet. Ms. Valerio was subpoenaed, and her testimony was replaced by some other ICE officials. It was scheduled for Washington, D.C. We later found out that the government was going to move to quash those subpoenas.”

Joan Mell, a lawyer for GEO, told the judge, “it is GEO’s position that ICE has not instructed us to withdraw the declaration” by Valerio.

Judge Bryan responded, “I read her declaration, and saw who she is and where she came from, and the contents of her declaration. I didn’t think it made a whole lot of difference in anything.”

Because she did not respond to queries and the court deadline for disclosures on expert witness expenses are not due until March, it is unclear how much Valerio was paid as an expert witness (although it was likely much more than $1 a day). The average paid to expert witnesses for reviewing a case on behalf of a defendant is $398 an hour, according to a 2017 survey of expert witness fees.

Both ICE and GEO declined to comment, citing ongoing litigation.

At roughly the same time that Valerio was being paid as a GEO expert, she was quoted in an interview to NPR where she acknowledged the role of cheaper alternatives to detention like the electronic monitoring of undocumented immigrants, but stressed that “confinement sends a very, very strong message” to immigrants who may be in the country illegally. Her remarks mesh with GEO’s financial interests in that the company makes money both as ICE’s largest operator of detention facilities and on electronic monitoring of immigrants as they await processing by immigration courts.

Valerio is far from the only ICE official to go through the revolving door and, once in the private sector, to be employed or otherwise compensated by major ICE contractors, like GEO.

Last year, as The Daily Beast first reported, Valerio’s former boss Daniel Ragsdale left as ICE’s deputy director to work as a GEO executive. In 2012, David Venturella—formerly head of ICE’s Enforcement and Removal Operations—joined GEO as an executive vice president. Another former senior ICE official, Mary Loiselle, managed GEO’s family case management contract for ICE—a less restrictive program for asylum seekers than detention—until it was shut down by the Trump administration last year. As of July, Loiselle also is treasurer of the privately run ICE Foundation, whose leadership has cozy ties to GEO and other companies with business before the agency, according to an investigation by Sludge, an online investigative site.

Regarding ethics concerns with former ICE officials going to work for ICE contractors, an ICE spokesman wrote, “the personnel associated with a private business would not impact acquisition decisions unless—perhaps—they employed an individual suspended, debarred or declared ineligible by the U.S. government.”

“Acquisition decisions are made based on the ability of any given vendor to adequately provide services needed and the costs associated with those services,” the ICE spokesman wrote.

GEO says it “strives to enlist the top talent from within our industry, which means recruiting individuals with the appropriate experience and expertise to fill critical positions across our organization.” The company says limiting “recruitment efforts to only the private sector would exclude many accomplished and experienced individuals who have built their careers in public service.”

But this practice can create, at a minimum, appearances of conflicts of interest, especially when an official goes to work for a contractor soon after taking actions that seem to benefit it.

“A Recent DOJ Directive”

GEO has also brought on board former officials who work at other federal agencies where it has major contracts, such as the Justice Department’s Bureau of Prisons. After ICE, the Bureau is the second largest source of GEO’s federal contract awards.

In January 2018, Frank Lara, then the Bureau’s assistant director for correctional programs, issued a directive—first obtained by Government Executive—calling for transferring more inmates to privately run federal prisons, a move that is likely to benefit GEO’s bottom line. The directive states it aims to “alleviate the overcrowding at Bureau of Prisons’ (BOP) institutions and to maximize the effectiveness of the private contracts.” It only cites one facility by name, Rivers Correctional Institution, a facility in North Carolina run by GEO, which has been criticized for poor medical care. Months earlier, the Bureau also awarded GEO a$19 million contract for its prison services at Rivers and another $14 million contract to GEO for its prison in Big Spring, Texas.

On an earnings call in April 2018 GEO executives had with financial analysts, a GEO executive referred to Lara’s January memo. “We continue to be encouraged by a recent DOJ directive regarding increasing population levels in private contract facilities in order to relieve overcrowding in BOP-operated facilities,” said David Donahue, GEO’s senior vice president for corrections and detention.

According to a transcript of the call on GEO’s website until last week, Donahue referred to Lara’s memo as “our recent DOJ directive.” In response to queries about Lara and the directive, GEO provided audio of Donahue saying “a recent DOJ directive.”

The transcription “error… appears to be the basis for your thesis that our company somehow had an involvement with the DOJ directive in question, which is in fact not the case,” GEO vice president Pablo Paez emailed POGO. He also said neither GEO nor its lobbyists were in communication with Lara or anyone else at the Bureau or the Justice Department regarding the directive.

Regardless, GEO’s lobbying efforts during the Trump administration are related to the topics addressed in the memo. One lobbying firm working for GEO is Ballard Partners, which is led by Brian Ballard, whom Politico dubbed “The Most Powerful Lobbyist in Trump’s Washington.” Ballard Partners has disclosed that it has lobbied on “the use of public-private partnerships in correctional services” as well as “Labor policy; Immigration regulation.” The other firm is Bradley Arant Boult Cummings, which has disclosed that it lobbied on “federal government use of contract correctional facilities.” The lobbying firms did not respond to queries.

Lara left the Bureau where his position involved “oversight of 11 private correctional facilities under contract with the Bureau,” including GEO facilities, and in August began working as GEO’s director of operations.

In October 2018, 18 Democratic senators asked the Justice Department’s inspector general to investigate Lara. “Though this may just be another disturbing incident of the revolving door between former BOP officials and private prison corporations, Lara’s work on expanding use of private prisons, including facilities owned and operated by his new employer, raises unique questions,” according to the senators’ letter.

GEO told POGO, “At no point was Mr. Lara’s consideration for employment with GEO connected in any way to any of the actions he may have taken as a senior executive with the BOP. Furthermore, to our company’s knowledge, Mr. Lara’s oversight responsibilities with the BOP did not encompass procurement or contract decision-making.”

The Bureau declined to comment.”

https://www.pogo.org/investigation/2018/12/locking-in-profits-top-ice-officials-leave-agency-to-serve-its-top-contractor/




$3,700 Generators and $666 Sinks: FEMA Contractors Charged Steep Markups on Puerto Rico Repairs

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FEMA Contractor-Guide-300x279

                                             Image: FEMA Contractors Guide

NEW YORK TIMES” By Frances Robles

“Extravagant markups, overhead and multiple levels of middlemen have helped lead to huge costs in the FEMA-financed repair program.

Known as Tu Hogar Renace — Your Home Reborn — the program is spending $1.2 billion in Puerto Rico to repair up to 120,000 homes.”


“Juan F. Rodríguez had substantial damage to his house in northeastern Puerto Rico after Hurricane Maria slammed through in September 2017, but he felt better when he was told that the Federal Emergency Management Agency would pay for $5,000 in repairs.

The contractor hired by Puerto Rico’s FEMA-financed housing recovery program treated the roof with sealant, replaced four feet of cabinets and installed smoke detectors around his house with Velcro.

“I looked around and said, ‘Wait a minute, that treatment costs $100, and I can buy those cabinets for $500,’” Mr. Rodríguez said. “I know. I worked construction. Let’s say they did $2,000 worth of work, because prices are high now and you have to pay for labor. But $5,000?”

Mr. Rodríguez wasn’t the only homeowner who complained after the devastating storm — the worst to hit Puerto Rico in 89 years — that federal taxpayers were being charged far more for emergency home repairs than residents ever saw in improvements to their homes.

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CreditSaul Martinez for The New York Times

 

More than 60 percent of what FEMA is spending in the program, the largest emergency housing program in the agency’s history, is not paying for roofs, windows or doors, The New York Times found in a review of its expenditures. Instead, it is going toward overhead, profit and steep markups.

Homeowners, who were approved for up to $20,000 each in aid, in nearly every case received less than half of what they were approved for, while layers of contractors and middlemen took the rest, a review of hundreds of invoices and contracts associated with the program shows.

The significant costs of transportation, warehousing, insurance and other services that are built into the prices for repairs are not unusual for FEMA disaster relief programs, which reflect the substantial expense of operating in disaster zones. But in Puerto Rico those costs were often so much greater than what would have been possible if homeowners had done the work themselves that they caused a public uproar.

A local opposition legislator, Luis Vega Ramos, called the housing program, which is operated by the Puerto Rico Department of Housing with FEMA funding, a mixture of “incompetence and corruption.” He called for federal investigators to examine the contracts awarded to repair companies to make sure the government was getting what it paid for.

“The government’s responsibility is to watch out, to be custodians of the proper and effective use of those funds,” he said. “I don’t understand why they need to pay hundreds of millions of those dollars to middlemen who turn around and permit overpricing.”

The pricing issues and widespread complaints of long waits and shoddy work highlight the challenges of managing a billion-dollar disaster aid program in a region that is far from the mainland, with institutions that historically have had limited outside oversight or accountability.

Puerto Rico housing officials said they were proud of the repair program, and that prices were in many cases less than those paid in other disasters, including repairs after Hurricanes Irma and Maria hit the Virgin Islands, which have similar transport challenges.

Michael Byrne, FEMA’s federal coordinating officer for Puerto Rico, said the housing department had done an impressive job of getting homes repaired quickly for people who had nowhere else to turn.

“By the end of November, I fully expect them to have repaired about 120,000 homes,” Mr. Byrne said. “That’s pretty impressive.”

Records show a large gap between the amounts FEMA contractors hired by the Department of Housing were paid and the actual cost of the work that was ultimately performed. Across the board, from removing debris and cleaning mold to repairing roofs and installing appliances, the amounts for labor and materials that were paid to the people who actually performed the work were only about 40 percent of what FEMA was assessed, meaning homeowners got less help than many of them expected.

In case after case, a door worth about $50 would be billed to FEMA at perhaps $700, with a succession of intermediary contractors passing along costs and profits along the way, according to María Elena Villalobos, who worked as both an inspector and an administrator for several companies in the housing repair program. “A lot of the money went down the drain,” Ms. Villalobos said.

The Tu Hogar Renace program was intended for homes that were not damaged enough to be considered destroyed, and could be made habitable with relatively quick remedies like roof repairs, electrical work and the replacement of doors and windows, sinks, toilets and appliances.

The housing department hired seven major contractors to do the repair work and two more firms to manage the program. The job was so expansive and the timeline so tight that the companies hired subcontractors, who in turn hired smaller companies to carry out the actual repairs.

Thousands of Puerto Ricans are still living in ruined homes.CreditDennis M. Rivera Pichardo for The New York Times

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Money allocated by federal programs was barely enough to cover repairs for many homeowners.CreditDennis M. Rivera Pichardo for The New York Times

The private company that received a separate $202 million contract to manage the overall Tu Hogar Renace program, Adjusters International, was itself run by a former senior FEMA official, Daniel A. Craig, who worked at the agency during the Bush administration and was the Trump administration’s nominee to be deputy director of FEMA last year. He was forced to withdraw after the Project on Government Oversight let some members of Congress know that the inspector general’s office had investigated Mr. Craig for going on job interviews with companies that had received no-bid contracts after Hurricane Katrina.

The investigation found no evidence of wrongdoing, but Mr. Vega, the Puerto Rican opposition legislator, questioned how Mr. Craig’s company had come to be selected to run the program. Adjusters International was chosen by the housing department after a bidding process.

Mr. Craig, in an interview, said his company won the contract as a result of its capabilities, not because of any past connections to FEMA. Contracts establishing prices for goods and services were not within the scope of his company’s management oversight, but were handled directly by the housing department, he said.

Mr. Craig’s company was not the only one with connections. One of the seven major contractors doing the repairs for Tu Hogar Renace — Excel Construction, based in Baton Rouge, La. —  donated $100,000 in 2016 to Trump Victory, a joint fund-raising committee set up by the Trump campaign and the Republican National Committee.

The bureaucracy around the housing repairs was so complex that the first repairs did not begin until more than five months after the hurricane. A full year after the September 2017 storm, a New York Times review found that thousands of Puerto Ricans were still living in ruined houses. For many of them, the FEMA money left over after trickling down through so many middlemen hardly made a dent in what they needed.

Lisandra Oquendo, who lives in Punta Santiago on Puerto Rico’s eastern coast, was told that her house had been approved for $18,000 in FEMA repair funds, and she was stunned at how little was accomplished with the money. The contractors patched up her roof, gave her a generator, replaced more than a dozen broken window crank operators, installed several appliances, two windows and a door, and cleaned mold off the walls. But because her roof is made of concrete, she said, they told her they could not repair it.

“They said, ‘We don’t do paint, we don’t do floors, we don’t work with cement,’” she said. “So what do you do?”

Contractors have said that the rates they collect cover a variety of expenses, including shipping fees, workers’ compensation insurance, vehicle and warehouse rental, taxes and profit. But prices charged for equipment and appliances often bore little relation to what was charged on the retail market, even in storm-ravaged Puerto Rico.

According to Department of Housing records, FEMA paid for about 12,400 people to receive generators at a cost of $3,700 each. The 5,500-watt portable devices and supplies they came with cost the contractors about $800 each, other documents show. FEMA paid $666 apiece for new bathroom sinks, but the contractors who actually bought and installed them paid $260 apiece. FEMA paid almost $4 a square foot to repair roofs; the work was done by subcontractors for $1.64 a foot.

The deal the Department of Housing signed required smoke detectors in every sleeping area, so each of the 122,000 houses in the program was equipped with the devices, for which FEMA was billed $82 apiece. A receipt reviewed by The New York Times showed that one subcontractor ordered them in bulk from an Ace Hardware store in the city of Aguadilla for $6.99 each.

“Fifty-eight percent is being taken off the top as overhead and profit from the two contractors above us,” said Brandon Padgett, owner of BVP Construction in Houston, which conducted repairs on 52 houses under the program. “Is there 58 percent overhead and profit needed to implement this? No, because we are doing 90 percent of the work.”

Several smaller companies, including Mr. Padgett’s, which were required to buy their materials from the middlemen, registered complaints with FEMA and with Puerto Rico’s consumer affairs agency, saying that the markups amounted to illegal price gouging.

James Little, who owns J & G Construction in Texas, a company hired as a subcontractor to carry out repairs, said that a lot of the markup was legitimate, because the principal contractors who split up the work had to rent vehicles, pay for warehouses and fly hundreds of people to the island. But some of it, he said, was just greed.

Both Mr. Little and Mr. Padgett are involved in payment disputes with LionsGate Disaster Relief, the Louisiana subcontractor that hired them.

A LionsGate official said prices charged for repairs were reasonable, given the constraints under which companies were operating in the aftermath of the storm, which left large areas of the island facing fuel and supply shortages.

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José Luis Aponte Cruz and Wanda Millán Ruiz at their home in Punta Santiago.CreditErika P. Rodriguez for The New York Times

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Ms. Millán said her husband had to reinforce the job Tu Hogar Renace did, because the workers who came did not have any wood or enough nails.CreditErika P. Rodriguez for The New York Times

“The prices in Puerto Rico are a little bit higher than what we are used to,” said Kristopher Clark, the chief operations officer for LionsGate. “It’s not a crazy high price. It’s enough for us to make a little bit of money, and enough for the subs to make a little bit of money.”

He said he paid a markup on materials to the two larger companies that hired him. He also charged markups and service fees to the smaller companies that he brought on. But he denied that the prices were unreasonable. “I know our margin is stiff,” he said. “It’s a difficult margin to navigate if we are not doing volume.”

One of the prime contractors that hired Mr. Clark, J.W. Turner Construction, is a veteran disaster relief company that has worked on a number of previous disaster relief programs managed by FEMA. The owner, James W. Turner, said that in several of those cases, the prices charged were even higher. In Puerto Rico, he said, it was insurance and local taxes that brought up the rates.

“The profit percentage is going to be lower in each house in Puerto Rico than any house we have ever done,” Mr. Turner said.

Francisco Díaz-Masso, the owner of a Puerto Rico construction firm that is another one of the prime contractors, said he had to fly in materials because of the urgency of the project, which drove up costs.

“That rate doesn’t show in that price all that’s behind it, all the logistics, the amount of effort, the amount of people putting all this together, the pre-purchasing of most of this,” Mr. Díaz-Masso said.

The Department of Housing said Tu Hogar Renace guidelines for awarding contracts and setting prices were approved by FEMA. The prices charged for equipment and services were opened to bidding and then chosen by a process called “interquartile range,” where the low and high outlier bids for each item are eliminated and all the companies agree to be paid the middle price.

A Department of Housing evaluation committee awarded contracts to all seven companies that submitted bids on time.

FEMA officials said the agency uses a nationwide construction cost database to establish prices, adjusted for “supply chain challenges” in a place such as Puerto Rico.

“Looking at individual line item prices can be inaccurate and misleading,” Mr. Byrne, FEMA’s federal coordinating officer in Puerto Rico, said in a statement. “It doesn’t take into consideration the context of actual location, difficulty of installation and other factors. We will not pay costs that cannot be justified. As with all FEMA programs, we will do a rigorous analysis of what was actually expended. We will only pay for things that were reasonable.”

In an interview with the local Telemundo station, the housing secretary, Fernando Gil Enseñat, suggested that the high prices did not matter, because FEMA was paying them.

“The people, the beneficiaries, don’t have to pay a single cent — these are federal funds,” Mr. Gil said. “If the person had to pay that, obviously that would worry me a lot.”

The housing department declined to make Mr. Gil available for an interview.

Mr. Craig, the ex-FEMA official managing the program, emphasized that Tu Hogar Renace will be the largest undertaking ever attempted under FEMA’s emergency shelter program. He said the program has delivered what it set out to do during a year when much of the island was without electricity and transportation connections were extraordinarily difficult.

“It has been done very efficiently,” he said. “Costwise, for the island of Puerto Rico to get that many people back in their homes that quickly is an incredible undertaking for the program itself, the government of Puerto Rico and the Department of Housing of Puerto Rico.”

 

“ABOUT THE AUTHOR”

Frances Robles is a national and foreign correspondent based in Miami. Before joining The Times in 2013, she worked at the Miami Herald, where she covered Cuba and was based in both Nicaragua and Colombia.

 

 

Federal Official Boosted Use of Private Prisons; Now He Has a Top Job at One

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Bureau of Prisons Revolving Door

“GOVERNMENT EXECUTIVE.COM”

“In January, Government Executive reported that Frank Lara, then the bureau’s assistant director for correctional programs, sent a memorandum with the subject line “increasing population levels in private contract facilities” to agency leaders.

A few months later, Lara announced his retirement. Earlier this month, he began working at the GEO Group as its director of operations. The company is one of the largest contractors housing federal inmates.”


“A former federal official who earlier this year instructed the Bureau of Prisons to identify inmates to be transferred to private detention centers has left his government job for a position with one of the largest contractors housing federal prisoners.

In it, [the memo] Lara tasked facility leaders with identifying inmates for transfer to private facilities, saying it would “alleviate the overcrowding at Bureau of Prisons’ institutions and maximize the effectiveness of private contracts.”

The company is one of the largest contractors housing federal inmates. In fiscal 2018, for example, GEO Group has received $147 million in awards from the bureau, according to federal spending data. While Lara’s memo went out to all bureau leaders, it mentioned only one facility by name: Rivers Correctional Institution in Winton, N.C., which is owned and operated by the GEO Group.

The GEO Group did not respond to several emails, and when asked about the hiring over the phone, a company official hung up. Government Executive was unable to reach Lara directly.

Eric Young, president of the union local that represents bureau correctional officers, called Lara’s move, “The biggest damn conflict of interest that I’ve ever seen.”

Just prior to the memo’s release, dozens of bureau officials, including Lara, attended a conference hosted by the American Correctional Association. The conference was sponsored by the GEO Group, among others. The bureau said it spent $153,000 on travel costs associated with the conference. The Washington Post reported last year that GEO held its own annual conference at a Trump resort in Florida, and that it donated $225,000 to a pro-Trump super-PAC in the run up to the 2016 election and an additional $250,000 to his inauguration.

GEO Group has been one of the largest clients of the lobbying firm Ballard Partners since Trump took office, registering as a client in February of 2017 and since spending $850,000 with the group, according to lobbying disclosures. Politico deemed Ballard “the most powerful lobbyist in Trump’s Washington.” According to the Center for Responsive Politics’ Open Secrets database, Ballard has held 355 meetings with White House officials and 56 with representatives of the Justice Department, the Bureau of Prisons’ parent agency.

The revolving door at the Bureau of Prisons is not new. CoreCivic, for example, GEO Group’s main competitor in the contract prison space, has frequently hired ex-federal officials for leadership positions. Harley Lappin served as the bureau’s director before transitioning to becoming CoreCivic’s executive vice president and chief corrections officer. William Dalius worked at the bureau for 30 years, most recently as the administrative division assistant director and chief financial officer. He is now the vice president for operations at CoreCivic. Kim White was a regional director at the bureau and later the assistant director for human resources. She is now CoreCivic’s assistant director of human resources. John Baxter spent 24 years at the bureau before joining CoreCivic and is now its vice president for mental health services. Charles Cox spent 23 years at the bureau, during which, according to his résumé, he played an “instrumental” role in developing the agency’s “private secure and community corrections procurement strategies.” After his retirement, Cox went to work for Corrections Corporation of America, CoreCivic’s predecessor. After a stint back in public service at the county level in North Carolina, Cox finished his career as a vice president at GEO Group.

Rodney King, a spokesman for CoreCivic, said experts in corrections overwhelmingly come from the public sector and therefore the company must recruit from former public officials.

“Our goal is to recruit and retain the best people from the biggest pool of talent, whether that means developing and promoting from within our organization or recruiting experienced professionals from outside CoreCivic,” King said. “We of course recruit from the public sector for a wide range of roles at our company. Not doing so would severely limit the pool of qualified candidates for jobs with our company. That applies not just to positions in our leadership ranks, but also our teachers, treatment specialists and corrections officers.”

Nick Schwellenbach, the director of investigations at the Project on Government Oversight, said the revolving door creates ethical issues. “It raises some severe questions about who these senior executive branch officials are working for,” he said. On Lara specifically, he added the transition “definitely flunks” the smell test.

Pushback From Congress

Lara’s memo followed guidance from Attorney General Jeff Sessions last year that reversed an Obama administration policy to phase outthe use of private prisons. In 2016, former Deputy Attorney General Sally Yates issued a memo instructing the bureau to either end private facility contracts when their terms expired or “substantially reduce [their] scope” to correspond with declining inmate populations. Sessions said Feb. 23, 2017, that Yates’ decision “changed long-standing policy” of the bureau and impaired its “ability to meet the future needs of the federal correctional system.”

Many lawmakers expressed outrage at the time, accusing Trump of rewarding his campaign donors.

“This is how our corrupt political and campaign finance system works,” Sen. Bernie Sanders, I-Vt., said after Sessions’ announcement last year. “Private prison companies invested hundreds of thousands of dollars in Donald Trump’s presidential campaign and today they got their reward.”

The bureau began contracting with private prisons in 1997 to address overcrowding. Contract facilities currently house about 18,000 federal inmates, or 11 percent of the total population. A 2016 inspector general report found the contract prisons “incurred more safety and security incidents per capita than comparable BOP institutions and that the BOP needs to improve how it monitors contract prisons in several areas.” The private facilities confiscated eight times as many contraband cell phones, had higher rates of assaults (both inmate-on-inmate and inmate-on-officer) and were placing inmates’ rights and needs at risk.

Lara’s memo came just days after the bureau held a conference call with facility administrators, instructing them to prepare for a 12 percent to 14 percent reduction in their authorized staffing levels. Such cuts would result in shedding 5,000-6,000 jobs, at least some of which are currently vacant. Trump’s fiscal 2018 budget proposed a cut of about 6,000 bureau positions, more than 1,800 of which were correctional officers.

The bureau has faced increasing pressure from Capitol Hill as it has continued efforts to eliminate the positions, with lawmakers ramping up pressure on the agency to add to its workforce. The federal prisons overseers have so far not backed down from the scheduled elimination of around 6,000 vacant positions, as well as additional vacancies that have arisen during an extended hiring freeze at the agency. The bureau has increasingly depended on a process known as “augmentation,” in which non-correction officers are reassigned to guard duties.

The fiscal 2018 omnibus spending measure President Trump signed into law in March provided a $106 million increase to the Bureau of Prisons budget. A Senate report on the omnibus directed the bureau to “curtail its over-reliance on augmentation and instead hire additional full-time correctional staff before continuing to augment existing staff.” A bipartisan group of lawmakers, however, have raised concerns that the bureau had no plans to implement the changes mandated by Congress, and multiple sources told Government Executive earlier this year that the agency had not backtracked from its planned staffing cuts.

Bureau Director Mark Inch resigned abruptly in May, just nine months after taking office. The New York Times subsequentlyreported that Inch had become frustrated by the administration flouting “departmental norms” and Sessions leaving him out of meetings on “major staffing, budget and policy decisions.”

https://www.govexec.com/management/2018/08/federal-official-boosted-use-private-prisons-now-he-has-top-job-one/150911/

Who Will Fill McCain “Shoe In The Revolving Door” at the Military Industrial Complex?

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Who Will Fill The Shoes“BLOOMBERG GOVERNMENT ”

“Through successive administrations, McCain railed against the persistent revolving-door between the Pentagon and the defense industry, and the conflicts those ties pose.

His commitment to reining in Pentagon contracting abuses was hardened during the Boeing tanker scandal.”


“No one in the modern era has had more influence on how the Defense Department purchases weapons — or how the agency keeps watch over those multibillion-dollar programs — than Sen. John McCain (R-Ariz.), who died Aug. 25 after a battle with brain cancer.

McCain was the main force behind several of the biggest procurement-focused Pentagon reorganizations since the sweeping changes of the Goldwater-Nichols Act of 1986.

He was a passionate voice against fraud, waste and abuse at the DOD. He regularly took government and contractor witnesses to task for cost-overruns and other management missteps that hurt taxpayers.

“He will be remembered as one of the very few in Congress who was unrelenting in his drive to hold both industry and the executive branch equally accountable to deliver on time, on cost,” Thomas Spoehr, director of the Heritage Foundation’s Center for National Defense, told Bloomberg Government in a written statement.

“There have been many who have been hard on industry or hard on the administration, especially if they come from the other political party,” said Spoehr. “Senator McCain was an ‘equal-opportunity’ critic of both.”

Bloomberg Government communicated with Spoehr, and the others, in May.

‘A DEEP CONCERN’

McCain’s tenure shaping defense acquisition policy took place in three distinct phases, analysts say: his leadership in the Boeing tanker scandal, which first surfaced in 2003; his role in the formulation and passage of the Weapons Systems Acquisition Reform Act of 2009; and most recently, his chairmanship of the Senate Armed Services Committee, which began in 2015.

McCain’s interest in DOD acquisition dates to at least 1987, when he was tapped for a seat on the Armed Services Committee as a rookie senator. McCain descended from a line of Navy admirals, and served as a naval aviator before being captured and held as a prisoner of war during Vietnam.

In December of 2003, after Darleen Druyun left for a job with Boeing, DOD officials announced they were investigating the former principal undersecretary of the Air Force for acquisition for corruption.

That led to Druyun’s guilty plea for inflating the price of a contract for a new fleet of mid-air refueling tankers, while secretly negotiating for her Boeing job. Soon after, McCain began to dig deeper.

McCain’s efforts helped lead to Boeing’s chief financial officer, Michael Sears, getting fired and sentenced to four months in jail. They also spurred the cancellation of the Air Force contract — which saved the government $6 billion, he said at the time.

“He had a deep concern about wrongdoing” in DOD’s procurement system, as reflected in the Druyun case, Peter Levine, a former long-time SASC staffer, told Bloomberg Government. The tanker scandal “was the first instance that really got him energized.”

McCain’s leadership skills, strong sense of outrage, and unflagging energy drew others to his cause, said Levine, currently a senior research fellow with the Institute for Defense Analyses. “People paid attention to him,” he said. “He often brought the rest of the committee along with him.”

BIPARTISAN SUPPORT

Streamlining DOD’s massive acquisition process became a mission of McCain’s soon after he joined the committee, former aides said.

This initially culminated with the unanimous passage of the Weapons Systems Acquisition Reform Act of 2009. By then, McCain had become ranking Republican member of the SASC.

Among other things, the bill, co-sponsored by then-Chairman Carl Levin (D-Mich.), created the Cost Evaluation and Program Assessment office, which provides the secretary of defense with independent cost analyses of new programs.

At the bill-signing ceremony, President Barack Obama, who beat McCain in the 2008 presidential race, praised his formal rival for persistent attempts to ensure cost-accountability at the Pentagon.

In fact, McCain raised the issue of defense procurement overhaul during the first meeting between the two after the election, Obama said. “We pledged to work together to get it done,” he said.

In part through the weapons reform act, McCain “solidified his expertise regarding Pentagon purchasing and defense contractors,” Mackenzie Eaglen, a defense analyst and fellow with the American Enterprise Institute, a Washington think tank, told Bloomberg Government in a written statement.

“It’s indisputable that he was a leader for the committee, his party, and the U.S. Senate writ large on all of these policy questions,” said Eaglen.

‘ENOUGH SAID, GENERAL. OKAY?’

McCain rarely hesitated to tear into Pentagon officials whose projects progressed slower than expected, or cost more than estimated, or suffered mishandled execution.

Such projects included Lockheed Martin Corp.’s F-35 Joint Strike Fighter; Lockheed’s F-22 “Raptor” jet fighter; the $6.5 billion Warfighter Information Network built for the Army by General Dynamics Corp.; and the Littoral Combat Ship, two versions of which are being built by Lockheed and Austal Ltd.

The General Dynamics program amounts to “a network that doesn’t work,” McCain said at a December 2017 hearing in which he also slammed the F-35 as a trillion-dollar program “that continues to operate in dysfunction.”

At times, McCain’s temper got the better of him, as evidenced by testy questioning at committee hearings. In March 2016, about a year after he became Armed Services chairman, one such exchange took place when McCain questioned Air Force Chief of Staff Gen. Mark Welsh over the agency’s plans to replace the A-10 jet, which had been making bombing runs over Iraq and Syria.

McCain became increasingly irritated as he and Welsh sparred.

“But you haven’t got a replacement for it, General,” McCain said. “You sit here and say that you do. This absolutely flies in the face of facts. So — enough said, general. Okay?”

“Okay, chairman,” said Welsh, softly.

SPEEDING ACQUISITIONS

As he took the reins of the Armed Services panel in January of 2015, McCain’s pique at both industry and government for shepherding overly costly defense programs had intensified.

He was ready to push for his most significant procurement revamping yet.

By the end of that year, McCain had written a provision into the 2016 National Defense Authorization Act (P.L. 114-328) to “devolve” responsibility for DOD acquisition programs to individual service chiefs. This decentralization made the service chiefs “milestone decision authorities” — officials designated responsible for major defense acquisition programs — instead of DOD’s centralized Office of Acquisition, Technology and Logistics (AT&L).

McCain continued his push to streamline the system in the 2017 defense authorization bill, when he fought for AT&L to be split into two new Defense Department units — acquisition and sustainment (A&S), and research and engineering (R&E) — each with its own undersecretary.

THE REVOLVING DOOR

In his last few years, McCain used his bully pulpit to go after high-level DOD nominees by asking them to explain how they would make sure their industry backgrounds wouldn’t affect their ability to work exclusively in the interests of taxpayers.

More than 80 percent of top DOD officials under President Donald Trump have defense contractor work experience, a Bloomberg Government report recently found — much higher than the percentage of those appointed to the same positions by Obama.

During several confirmation hearings from June 2017 through the end of that year, McCain, at times joined by Sen. Elizabeth Warren (D-Mass.), targeted Trump nominees, including those for deputy secretary of defense, Patrick Shanahan, and DOD undersecretary for policy, John Rood.

“You should not be making decisions that are related to your previous employment, or would affect the fortunes of one of them,” he told Rood.

Groups like the Project on Government Oversight, a Washington nonprofit, have praised McCain for raising awareness about the revolving door and the effects it can have on the system.

“A lot of his work has come to assessing whether the weapons systems we buy are affordable or effective. He’s recognized that part of the problem with our unaffordable systems is the influence of the revolving door,” Mandy Smithberger, director of POGO’s Straus Military Reform Project, told Bloomberg Government in a written statement.

MCCAIN’S LEGACY

Armed Services Committee staffers remember McCain with great respect. “From the beginning of his career, he’s been dedicated to eliminating waste, fraud and abuse, and bolstering integrity in Congress and at the Defense Department,” Evelyn Farkas, a former Senate Armed Services Committee staffer who is now a nonresident senior fellow at the Atlantic Council, told Bloomberg Government.

McCain will be difficult if not impossible to replace as Congress’s leading Pentagon overseer and reformer, analysts say. Rep. Mac Thornberry (R-Texas), chairman of the House Armed Services Committee, does bring a zeal to change the system, they say. But some question Thornberry’s willingness to engage in McCain-level oversight, especially of industry.

“No one today has the standing, understanding, and frankly the passion to explore defense acquisition issues that Senator McCain has,” said Spoehr of the Heritage Foundation. “Congressman Mac Thornberry comes the closest. It is not clear who, if anyone, can fill this void.”

https://about.bgov.com/blog/mccain-recalled-unrelenting-pentagon-watchdog-reformer/

The Tax-Day Impact Of The Project on Government Oversight (POGO)

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POGO and Your Taxes

“POGO”

“POGO exposed the fact that the Pentagon was buying $7,600 coffee makers and $435 hammers.  [POGO works] with government insiders in order to sound the alarm on wrongdoing by government contractors and workers and to save taxpayer dollars—all on behalf of the public.

[POGO] investigations have found billions of dollars in actual and potential savings. Here are some of the highlights.”

__________________________________________________________________________________________

“In a 1999 report, POGO pointed out that if contractors could inflate the price of everyday items like coffee makers and hammers, how much were they overcharging for things taxpayers didn’t understand, like high-tech weapon systems? Our investigations have found billions of dollars in actual and potential savings. Here are some of the highlights.

POGO publicized over $893 billion in improper payments.

The American taxpayers lose hundreds of billions of dollars every year because the federal government makes payments to the wrong people or institutions, or in the wrong amount. For example, the government sometimes sends benefits to individuals who are deceased, or FEMA pays fraudulent claims following disasters like hurricanes. Unfortunately, the government doesn’t do enough to address the problem. In 2016, POGO completed a set of reports that publicized $893 billion in improper payments between FY 2008 and 2015. In our reports, we provided recommendations to identify and recover improper payments that potentially could save the government billions of dollars. Currently, POGO is advocating for a bipartisan bill, the Stopping Improper Payments to Dead People Act. This act would allow the Social Security Administration to share its database of deceased people with many other government agencies to reduce inaccurate payments to dead people.

In 2001, POGO’s reporting causes military to stop two wasteful weapons projects, saving $49 billion.

In a blistering set of reports sent to the White House in 2001 on the defense weapon acquisition process, POGO exposed how multiple weapon systems wasted taxpayer money and ultimately made us less safe. One example was the Crusader howitzer cannon, which entered into the acquisitions phase before United Defense finished its preliminary design. Our analysis cited a Government Accountability Office report that found the Crusader weighed too much, underwent shortcuts in testing, and was behind schedule. Another example was the RAH-66 Comanche helicopter, which suffered from many of the same problems. While military planners designed the helicopter to be inexpensive, the cost quickly ballooned from $12.1 million to $58.9 million a copy as the development cost increased and the testing schedule was delayed.

POGO investigation into F-35 leads to $21 billion to $40 billion in taxpayer savings.

Multiple POGO investigations have found serious problems in the F-35 program. In one report last year, we discovered that the Air Force wanted to leave several older F-35s unfinished because paying to update them would make it harder to buy new fighters. The Air Force bought the F-35s while still designing and testing the aircraft—a decision POGOand the Government Accountability Office have independently labeled as a major driver of increased cost. After POGO published its report, the Air Force decided to stop the plan, preventing between $21 billion and $40 billion in waste.

POGO investigations help get the Deepwater contract cancelled, saving $24 billion.

In 2007, POGO investigated a $24 billion Lockheed Martin and Northrop Grumman project to update the U.S. Coast Guard’s equipment that resulted in millions of wasted dollars. To save money, the Coast Guard initially allowed the two private contractors to oversee and manage the project. Relying on private contractors to conduct inherently governmental functions ultimately cost the Coast Guard millions, because the contractors made numerous design and technical mistakes. After POGO’s investigation, media attention, and several high-profile disasters, the Coast Guard took back management of the project, and later asked for a $96 million refund.

POGO reporting helps shut down the wasteful Superconducting Super Collider, saving $11 billion.

POGO led the way in campaigning to cancel the Superconducting Super Collider, a grossly over budget project run by contractors that took advantage of weak oversight and permissive spending guidelines to overcharge the federal government. According to invoices obtained by POGO, the principal subcontractor charged the government $21,369 for office plants in a year and $1,107 dollars for Christmas cards, among other waste. POGO’s investigation turned the Super Collider into the largest government project ever cancelled at that time, saving taxpayers roughly $11 billion dollars.

Our investigation into Boston’s “Big Dig” helps save taxpayers roughly $11 billion.

Even before Boston’s Harbor Tunnel Project, known as the Big Dig, became a national embarrassment, POGO investigated the devastating impact of private contractors spending billions of tax dollars to build a highway project with little federal or state oversight. The Big Dig started with a $2.3 billion budget but, with contractors given a free rein, it ballooned to around $24.3 billion as the project suffered from delays, bad planning, and mismanagement. Initially, federal taxpayers were on the hook for 80% of the funding, but POGO’s investigation helped reduce losses by getting Congress to freeze federal spending at $8.6 billion, saving federal taxpayers roughly $11 billion.

POGO helps cancel the F-22, saving $4.268 billion in one year.

Much like the F-35, the F-22 cost much more than advertised and drained resources from other critical Air Force priorities—like training pilots. Also like the F-35, POGO campaigned heavily to end the program. After almost a decade’s worth of reportspress releases, and conversations with Members of Congress and their staff, POGO finally succeeded in helping get the program shut down—thanks in large part to Senators Carl Levin (D-MI) and John McCain (R-AZ). Cancelling the production of 240 F-22s saved taxpayers $4.268 billion that year alone.

POGO helps the government collect over $1 billion in additional oil royalties to date.

During the late 1990s, POGO investigators uncovered how the Interior Department ignored the fact that several oil companies chronically underpaid the Federal Treasuryon royalties they owed for oil they extracted from public lands. In 1997, POGO filed a False Claims Act lawsuit against 16 major oil companies. By 2001, the companies settled the lawsuit. The U.S. Treasury recovered nearly half a billion dollars in unpaid royalty revenue, and began collecting $67 million more per year in royalties owed to the public.

POGO reporting causes Air Force to suspend bad Hamilton Sundstrand contract, saving $664 million.

Every year, POGO warns the government about no-bid contracts fleecing American taxpayers. In 2006, POGO investigators published a previously not-public Department of Defense Inspector General report finding that defense and aviation contractor Hamilton Sundstrand raised the price of several mechanical parts by nearly 900 percent with no reasonable justification. We wrote to Congress showing how contractors were taking advantage of acquisition regulation loopholes to reduce oversight. Our work led the Air Force to suspend the 9-year, $860 million dollar contract, saving taxpayers $664 million dollars.

POGO advocates for bipartisan compromise to reduce contractor compensation, saving $200 million per year.

Prior to 2013, an outdated law that was used to determine contractor compensation packages allowed some companies to receive excessively high executive salaries and benefits—at the expense of taxpayers. This system allowed contractors to receive more money than comparable employees in the federal government. After years of work by POGO, a bipartisan group of legislators voted to reduce the cap from $952,308 to $487,000, saving taxpayers $200 million per year.

POGO investigation helps Air Force save $168 million on C-130J military airlift contract.

The C-130J was a mechanically flawed cargo plane that cost more than expected and the Pentagon didn’t want. A 2005 POGO report highlighted that the Air Force dubiously labeled the C-130J a “commercial” item in order to decrease oversight, a decision that ultimately led to many of the C-130J’s problems. After the Pentagon said they didn’t need the plane, a group of influential military contractors and U.S. Senators lobbied hard to preserve the unnecessary aircraft. POGO worked with Senator McCain and other Members of Congress to restructure the C-130J contract and save taxpayers $168 million.

POGO helps publicize $100 million in fraud by Northrop Grumman.

In 2014, POGO investigators made public a Defense Department Inspector General report that found Northrop Grumman knowingly overcharged the federal government around $100 million for an anti-terrorism program. The U.S. Army contracting agency tasked with overseeing the contract was not conducting proper oversight—until whistleblowers, POGO, and the Defense Department Inspector General got involved. We highlighted how Northrop Grumman and its subcontractor DynCorp defrauded the government in multiple ways. They billed the government for more labor hours than there are in a day and for employees who lacked required education qualifications. They also classified one employee for seven different positions including “depot aircraft mechanic, a senior general engineer, an integrated logistics manager, a quality assurance manager, a program manager, a senior pilot, and a senior technical writer.”

POGO’s investigations into waste, fraud, and abuse of power by the federal government are a core part of the organization’s mission.”

http://www.pogo.org/blog/2018/04/pogos-outsized-tax-day-impact.html

The “Government-To-Contractor Revolving Door” In Ohio

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   Ohio-State-Capitol-Building-in-Columbus-Ohio-at-dusk-L177213015   Old-Revolving-DoorCVS Hip2Save

Images: “Have Camera Will Travel” – “Preferred Window and Door” and “Hip 2 Save”

“COLUMBUS DISPATCH”

“Margaret Scott had responsibility over the Ohio Department of Medicaid’s pharmacy program until she departed last fall.

Within a month, she was working for a company that is receiving billions of pharmacy dollars from Ohio’s Medicaid managed care programs.”


“Scott and the contractor, pharmacy giant CVS, aren’t answering questions about what happened. But the state’s ethics watchdog — while not speaking specifically about Scott’s situation — said it’s illegal for a state employee to continue to be involved in decisions that might affect an outside business while negotiating a new job with that business.

Scott’s case might be of particular interest because CVS’s “pharmacy-benefit manager” contracts with Medicaid managed-care organizations are drawing scrutiny from legislative leaders. The Dispatch on Tuesday reported on accusations by independent pharmacists that CVS — which holds four of the five such contracts in Ohio — is charging an excessive price from taxpayers for drugs and reimbursing retail pharmacies with lowballed rates in an attempt to push out competition.

According to her LinkedIn page, Scott was with the Department of Medicaid from 2004 until last October. Then in November, she was a clinical adviser for CVS.

Melissa Ayers, a spokeswoman for the Department of Medicaid, said Friday the agency is still looking into the matter. But she said that Scott did not have authority over the CVS pharmacy-benefit manager contracts because those were between CVS and the managed-care companies that contract with the state.”

ww.dispatch.com/news/20180316/one-month-shes-supervising-state-drug-program-next-month-shes-with-cvs

 

 

Have We Kept Madison’s Republic?

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Illustration by POGO.

“THE PROJECT ON GOVERNMENT OVERSIGHT”

“Though it is apparent that we have strayed from our Founders’ vision, we are never far from remedy. It is the right and responsibility of citizens to demand accountability from their government.

Madison helped design a government beholden to the people; it is up to us to use our power. To paraphrase Benjamin Franklin at the closing of the Constitutional Convention: We have a republic, if we can keep it.”


“Over 200 years ago, our Founding Fathers faced a question: How could they build a democracy to withstand the trials of time and survive the pressures that destroyed those that came before?

Ultimately, the reasoned voice of James Madison, the “Father of the Constitution,” prevailed. So how is our republic holding up? Would Madison recognize our elected representatives as the guardians against factional governance that he had imagined? The short answer is no.

Madison advocated for a country led by representatives whose “wisdom may best discern the true interest of their country,” and whose “patriotism and love of justice” would moderate the passions and whims of the public. Elected representatives should be above the influence of “factions” — special interests and rival parties — whose interests are often adverse to the common good.

While elected officials rarely show all-encompassing virtue, Madison would observe that, today, many appear to be controlled by the same outside interests that a representative democracy was intended to weaken. Today, our country is one where lobbyists spend $3.36 billion in a year, where the private sector’s sphere of influence in the public sector increases with every spin of the revolving door, and where major donors are rewarded with multi-billion dollar contracts.

Not only has our government been overrun by special interests but it has also been corrupted by partisan conflict. Madison would surely be appalled that, in the face of a foreign adversary’s unprecedented intervention into our elections, the members of the House of Representatives tasked with examining this interference instead dedicated themselves to partisan squabbles — placing partisanship above protecting our democracy.

Gridlock has expanded to an inability to fulfill some of Congress’s most basic constitutional duties. For example, despite many military engagements, Congress has not declared war — an authority granted solely to Congress — in nearly 80 years. Instead, Congress passes vague Authorizations for Use of Military Force (AUMF) and then looks the other way while the executive branch interprets them as blank checks to wage unofficial wars in perpetuity.

The ability to declare war was not vested in the legislature by accident; the Constitution grants the power “fully and exclusively” to the Congress specifically because the Founders believed that the president would be too inclined toward war.

Madison, who believed that “no nation can preserve its freedom in the midst of continual warfare,” would be incensed to discover that the 2001 AUMF authorizing force against the perpetrators of the September 11 terrorist attacks has been used to justify military operations in 14 countries over 16 years. While some members aren’t pleased about this, Congress hasn’t had the will to act. Madison would undoubtedly condemn this shirking of responsibility.

How has our republic found itself in such ill health? Most obviously, Madison would observe that many of our elected officials have been co-opted by moneyed interests and are rarely held to account for their decisions. Representatives now rely on wealthy individuals, corporations and associations — Madison’s dreaded “factions” — to mount successful campaigns for office. Special interests then use their purchased influence to persuade elected representatives to value the good of the faction above that of the public.

But Madison was convinced that because representatives have to win a majority of citizens’ vote in order to be elected, the electorate would serve as a crucible — filtering out “unworthy candidates” in the election process to reveal the deserving. Instead, the voters have become enablers of the mischief that Madison sought to expel. We have given factions carte blanche to propel chosen candidates into perpetual office in districts drawn specifically to support incumbents.

A deep cynicism now pervades the electorate’s attitude about our political process. Our representatives, in the course of campaigning and governing, are frequently predisposed toward special interests and pander to the measly 54 percent of us who vote in general elections (36 percent in midterms, and 28 percent in primaries). Once elected by a minority of the citizenry, members of Congress then have little political incentive to participate in bipartisan compromise.

Though it is apparent that we have strayed from our Founders’ vision, we are never far from remedy. It is the right and responsibility of citizens to demand accountability from their government. Madison helped design a government beholden to the people; it is up to us to use our power. To paraphrase Benjamin Franklin at the closing of the Constitutional Convention: We have a republic, if we can keep it.”

http://www.pogo.org/blog/2018/03/have-we-kept-madisons-republic.html

Guide to Help Feds Protect Themselves Against Political Misconduct

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IMAGE: THE SCIENTIST.COM 

“GOVERNMENT EXECUTIVE”

“Carefully documenting events as they occur is one of the most important means for holding government officials accountable.

Any federal employee who suspects wrongdoing, or even feels uncomfortable in the workplace, can help ensure corrective action. A detailed, authentic record is an essential tool in the whistleblower toolbox.”


“Federal scientists should write down all instances of agency personnel interfering with their work, a group of government watchdog and employee advocate groups warned this week. It will help them protect both themselves and their work.

Documenting potential abuses is particularly important “in a hostile environment for science,” the groups said, and will enable employees to protect their own careers and “uphold scientific integrity.” The groups issued a guide to federal scientists to prevent political misconduct titled “How Federal Scientists Can Protect Science for the Public Good,” in which they emphasized the importance of recording notes.

One key recommendation in the report is for federal employees to take contemporaneous notes, be it in meetings, on calls or as part of policy research or proposals. Those notes should be as detailed as possible, the groups said, and be dated and backed up to personal devices as long as the information is not classified.

» Get the best federal news and ideas delivered right to your inbox. Sign up here.

The groups issued the guide after hearing from their members and in the media about the Trump administration tightening restrictions on the federal scientific community. Agencies have reportedly instructed employees not to use certain words, disbanded scientific advisory commissions and reassigned employees who speak out about issues the administration is no longer prioritizing.

“We’ve been hearing a lot of stories about people being told not to take notes, not to use certain words, not to have a paper trail,” said Andrew Rosenberg, a former regional director for the National Oceanic and Atmospheric Administration and current director of the Center for Science and Democracy at the Union of Concerned Scientists, which helped write the guide. Keeping records of what was discussed and when it was discussed is particularly important, Rosenberg said, when there is a “concerted effort” to undermine scientists across government. Last week, according to Mother Jones, a scientist at the U.S. Geological Survey resigned because he said Interior Secretary Ryan Zinke was given access to economically sensitive data before it was released to the public, a violation of the scientist’s understanding of USGS policy.

“We are not suggesting that people subvert the process, Rosenberg said, “but simply that they keep a clearer record.”

Doing so, he said, will help feds rebut claims that they provided bad advice or did not present certain relevant information involved in a policy decision. If political leaders are involved in a “manipulation of the science,” Rosenberg added, contemporaneous note taking would help expose it. He explained that scientists in government are at risk of being scapegoated—“it’s not exactly unheard of,” he said—and detailed records would help protect both themselves and their research.

“Carefully documenting events as they occur is one of the most important means for holding government officials accountable,” said Louis Clark, executive director and CEO of the Government Accountability Project, a group that advocates for whistleblowers and another author on the guide. “Any federal employee who suspects wrongdoing, or even feels uncomfortable in the workplace, can help ensure corrective action. A detailed, authentic record is an essential tool in the whistleblower toolbox.”

To help create a paper trail, Rosenberg said employees can send meeting notes to colleagues or to supervisors to describe their takeaways, provided the supervisor did not specifically instruct them not to take notes. The guide advised employees to separate personal notes from agency records if they have any concerns about them becoming public or their managers seeing them. If an issue becomes problematic enough for an employee to share it with a scientific integrity office, a union, a journalist or another outside organization, notes can help demonstrate whether agency decisions were “arbitrary, capricious, politically driven or inadequately informed by the science.”

“Government scientists need to understand that they are protected by the same laws as other federal employees and can blow the whistle on censorship of science that creates a specific and substantial risk to health and safety,” said Danielle Brian, the executive director of the Project on Government Oversight, which also helped write the recommendations.

Rosenberg noted that concerns about the Trump administration crackdown on the scientific community is not isolated to any one agency.

“It goes across government to all the places where experts or scientists work, which is pretty much everywhere,” he said. “We’re hearing concerns.”

http://www.govexec.com/management/2018/02/watchdog-groups-create-guide-help-feds-protect-themselves-against-political-misconduct/146180/