“The House Oversight and Reform Subcommittee on Economic and Consumer Policy, asked for a range of information, including copies of all agreements the company has reached with local governments going back to 2013, details on integration of any facial recognition tools and instances where law enforcement has requested video footage from Ring. “
“COMMITTEE ON OVERSIGHT AND REFORM“
“The Subcommittee on Economic and Consumer Policy is writing to request documents and information about Ring’s partnerships with city governments and local police departments, along with the company’s policies governing the data it collects,” Krishnamoorthi wrote. “The Subcommittee is examining traditional constitutional protections against surveilling Americans and the balancing of civil liberties and security interests.”
Ring reportedly works closely with local governments and police departments to promote its surveillance tools and has entered into agreements with cities to provide discounts on Ring products to their residents in exchange for city subsidies. Reports also indicate that Ring has entered into agreements with police departments to provide free Ring products for giveaways to the public.
Ring reportedly tightly controls what cities and law enforcement agencies can say about Ring, requiring any public statement to be approved in advance. In one instance, Ring is reported to have edited a police department’s press release to remove the word “surveillance.”
“The Subcommittee is seeking more information regarding why cities and law enforcement agencies enter into these agreements,” wrote Krishnamoorthi. “The answer appears to be that Ring gives them access to a much wider system of surveillance than they could build themselves, and Ring allows law enforcement access to a network of surveillance cameras on private property without the expense to taxpayers of having to purchase, install, and monitor those cameras.”
The Subcommittee demands Amazon provide information about these partnerships dating back to January 1, 2013.”
“More interagency collaboration, greater engagement with stakeholders and seamless interactions between agencies and the public are some of what’s needed for the federal government to excel in the years ahead.“
“That’s according to the Partnership for Public Service, which published a report on the future of IT, the federal workforce and data modernization efforts.
The report, written in collaboration with EY and published Feb. 5, is the product of months of interviews and workshopping with policy makers, industry experts and agency leaders. Some of the solutions addressed common complaints like siloed IT systems, inefficient competition between agencies and unsatisfactory customer experiences. It encouraged agencies to collaborate internally and with other agencies and to increase engagement with private-sector partners and the general public.
“When IT modernization first took place and we started with the Centers of Excellence, it was really about one agency taking a particular problem, solving that problem, and then sharing it,” Department of Agriculture Chief Information Security Officer Venice Goodwine said in a panel discussion on the report. “There’s no need to spend the money building something that’s already been built. To [build an interconnected government], we need to leverage investments that other agencies have already made.”
Goodwine said the ideal model would be having one Center of Excellence for each shared service that could act as the point of contact across the federal government.
Department of Veterans Affairs’ Deputy Chief Veterans Experience Officer Barbara Morton said that as customers have become accustomed to quick, frictionless service from private companies such as Amazon, federal agencies look slow and inefficient in comparison, leading to frustration. Reorienting services to address customers’ needs would be a key first step to changing the government’s reputation as unreliable and inert.
“In the next five or 10 years, the way we meet demand will be by listening and orienting around customers’ needs, rather than putting the bureaucracy first,” Morton said at the panel. “The expectations for us are being set outside of government. … It is our obligation to be able to catch up and meet those new needs.”
Nancy Potok, the former chief statistician for the Office of Management and Budget, concurred, adding that increasing engagement with external organizations would be one solution.
“Agencies should be encouraged to partner with outside companies and entities that are really good at this,” she said. “It’s true that the public has been now very well trained to expect instant service.”
Focusing on customer experience skills during hiring and in employees’ daily work would also help foster accountability and a service-oriented culture so workers can better meet the new demands being made of their agencies.
“When people get supervisor training, they learn the rules. They learn compliance and how to fill out a performance evaluation. That’s not the skill set we need in today’s world,” Potok said. “We shouldn’t let anyone into a supervisory position until we’re sure that they have collaboration skills, that we’ve worked on their emotional intelligence, that they’re problem solvers, that they’re willing to take some risks.”
Agencies like the VA have taken the extra step of not only encouraging those skills in their workers, but actually writing them into official policy.
“In the department, we have core values and characteristics codified into our regulations such as integrity, commitment, advocacy, respect and excellence,” Morton explained. “We amended the regulations to include customer service principles as part of our core values. We updated our [Senior Executive Service] performance metrics as well, to include customer experience. To drive this culture change, to reorient, we need to consider customer service to also be part of our regulations and our core values.”
“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.“
“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.
How an Agency You’ve Never Heard of Is Leaving the Economy at Risk
A federal watchdog you’ve probably never heard of is supposed to be protecting your financial security. But in key respects it’s been doing a feeble job.Read More
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.
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.
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?
Captured: Financial Regulator At Risk
The revolving door between the Big Four audit firms and their regulator, the Public Company Accounting Oversight Board, spins in many troubling ways.Read the related story
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.
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.
Botched Audits: Big Four Accounting Firms Fail Many Inspections
In the most recent annual inspections of the U.S. arms of the Big Four for which the oversight board has reported results, inspectors found that each firm botched at least 20% of their audits.Read More
“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.
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.
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.
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.
“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.
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.
“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.”
“DoD spending accounted for $61.2 billion of that spending spree, awarding “use-it-or-lose-it” contracts and buying, among other things, $4.6 million worth of crab and lobster and a Wexford leather club chair costing more than $9,300.
The 32-page Open the Books report, https://www.openthebooks.com/assets/1/7/UseItOrLoseIt_Final1.PDF published this month, showed the federal government as a whole spent an astounding $97 billion in September 2018 as the fiscal year was drawing to a close — up 16 percent from the previous fiscal year and 39 percent from fiscal 2015. “
“Focusing on the lobster, though, misses the point on how the Pentagon’s spending habits actually do troops a disservice, according to Mandy Smithberger, director of the Center for Defense Information at the Project on Government Oversight.
“The lobster tail example captures one’s imagination, but that’s not where congressional oversight needs to focus,” Smithberger told Military.com. “As you see spending go up, you see the amount of this use-it-or-lose-it spending going up as well, and that’s really not to the good.”
She said the billions of expenditures demonstrated DoD efforts to “use money to paper over management problems.”
For the Pentagon, the biggest year-end expenditure was professional services and support, accounting for $9.6 billion of spending in September 2018. Then came fixed-wing aircraft, a buy of $8.6 billion. Other top spending items include IT and telecom hardware services and support, $4.7 billion; combat ships and landing vessels, $3.9 billion; and guided missiles, nearly $2 billion.
More than the individual items and services purchased, the biggest problem may be the way the spending happens — and the perverse incentives not to end up with leftover money at the end of the year, because it might negatively impact efforts to obtain funds the following year.
“Congress is a lot of the problem,” Smithberger said. “Appropriators look and see whatever is not spent, they take and use for their pet project.”
As the Pentagon budget request continues to balloon year after year, Smithberger said she’d like to see incentives to save money and a system that would keep planners from worrying about a loss of resources the following year.
“If the department showed that it was able to save tens of billions of dollars, they would have a more credible case for the topline,” she said.
There’s plenty of evidence, Smithberger said, that money alone doesn’t solve or prevent institutional problems. For example, she said, the Navy was making big investments in shipbuilding when two guided-missile destroyers collided with commercial ships in separate deadly incidents within months of each other in 2017. While investigations did cite scarcity of resources, training was found to be a major shortfall contributing to the disasters.
When it comes to defense spending, “it’s a lot of hollow rhetoric and it’s really costly when we decide to only express our support through appropriations and not through real decision-making and responsibility,” she said.”
The Department of Justice announcedsweeping indictments against Chinese hackers and the U.S. intelligence community reported that foreign countries continued to interfere in American elections.
So what comes next? Here are four overarching questions for the cybersecurity community in 2019:
What will the new Pentagon chief do with expanded cyber powers?
In August, the president gave the secretary of Defense the ability to conduct cyberattacks against foreign countries so long as they do not interfere with the national interest of the United States, according to four current and former White House and intelligence officials. But the resignation of Jim Mattis, the Defense secretary, means the next Pentagon chief will have a broad arsenal of cyber authorities.
For the cyber community, Patrick Shanahan, the current acting secretary, is a relative unknown. He has not given significant insight into how he views the role of offensive cyberattacks for the Pentagon, and his scheduled Jan. 1 elevation comes as some in the Trump administration and U.S. Cyber Command have pushed for even more authorities. However, he has spoken at length about the need for the defense industry to bolster its own cyber practices.
The new Pentagon chief may also have to decide when the National Security Agency and U.S. Cyber Command should split.
Both bodies are led by Gen. Paul Nakasone, but that may change. Cyber Command is in the process of gaining its own infrastructure to conduct offensive cyberattacks, and a Pentagon official told Fifth Domain in November that it appeared the split was all but certain to happen in the coming years, although no formal decision as been made.
What comes next in the U.S.-China cyber relationship?
The Department of Justice released a flurry of indictments against Chinese hackers in 2018, accusing Beijing’s cyber sleuths of infiltrating American government agencies and defense contractors.
The most recent round of allegations came Dec. 18, and the legal action could continue in 2019. While announcing the most recent indictments, Deputy Attorney General Rod Rosenstein accused China of breaking an agreement not to use hacked materials for commercial use, although he did not offer evidence.
The hacking allegations come amid a broader trade war between the United States and China. Experts have told Fifth Domain a trade war could increase digital tension between the two nations. If the trade war continues, experts say they see little incentive for China to limit its cyberattacks.
Will America suffer blowback for more offensive cyber operations
“The side effects of the strategy of ‘persistent engagement’ and ‘defend forward’ are still ill-understood,” Max Smeets and Herb Lin, experts at Stanford University wrote for Lawfare. “A United States that is more powerful in cyberspace does not necessarily mean one that is more stable or secure.”
Experts also warn of making any rush judgments about the effectiveness of these offensive cyberattacks. Current and former intelligence officials worry that uncovering and attributing a hack can take more than a year, and, even then, that process is not perfect.
One former official pointed to the leaked documents about Russian targeting of American election infrastructure in 2016 that was sent to the news organization the Intercept. It took months for the intelligence community to understand the full extent of the hack, the official said, an example of how long it takes to detect a cyberattack.
However, all of that means it is reasonable to expect that the merits of the new offensive cyber operations may not be known publicly for years.
Will Congress take action to streamline cybersecurity contracting and research?
Yes, changing the way government does business is ambitious. But experts argue that if the United States wants to keep up with digital innovations from China and other countries it is necessary to change the American government’s relationship with the private sector and academia. The effort to streamline cybersecurity funding and research will fall to the new Congress, in which Democrats will take over the House of Representatives.
But when it comes to the U.S. government’s relationship with the cyber industry, structural barriers to innovation remain.
On average, it takes roughly seven years for an idea to get a contract inside the U.S. government. In that length of time, a product is already two generations old. Former Pentagon officials have used the digital fight against the Islamic State as an example of how long the process takes. It took roughly two years for Cyber Command to receive the proper equipment and training after the order to digitally defeat the Islamic State, officials told Fifth Domain.
In addition, the cybersecurity industry is watching a series of bills in Congress. Sen. Mark Warner, D-Va., has pushed for a streamlined security clearance process, and industry officials told Fifth Domain they expect him to continue the effort in the new year. The bill could make it easier and cheaper to get a security clearance.
And many in the federal cybersecurity community have called for a change in academia’s relationship with cybersecurity.
The universities and research institutions in the United States focusing on quantum computing are “subpar,” George Barnes, deputy director at the NSA said in June.
Experts say that quantum computers will make traditional cybersecurity methods obsolete because of the expansive computing power.
However, new investments in artificial intelligence and a new Solarium Commission, which was created to help contextualize cyber in the broader national and economic security discussion, may provide solutions to these problems.”
“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.
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.”
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.
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.
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 U.S. Congress allows Members to staff their offices with Fellows who are paid by corporations, foundations, universities, non-profits, and other outside private entities.
Fellowship program far too often flies under the conflict of interest radar.
Require disclosure in the House of Representatives
The House Rules committee should introduce language into the Code of Official Conduct that would require Representatives to report when their office employs an individual who is compensated by any source outside of the United States Government. Such a report should include the identity of the source of the compensation and the amount or rate of compensation.
More oversight in the Senate
Senate reporting of Fellows who are paid by corporations, foundations, universities, non-profits, and other outside private entities is falling short. The Senate Ethics Committee needs to increase its oversight over the Congressional Fellows reporting requirements, actively checking with Member offices to make sure they don’t have any Fellows employed for years they don’t report any. The Senate Ethics Committee should also increase training for Member offices on what they are required to report, at the start of each Congress it should hold a series of trainings for all Member offices.
Both Chambers should require electronic filing of these disclosures, in a publically accessible format
The Senate, and House as it begins to require reporting on Fellows, should transition to an electronic filing system that can be accessed by the public. This will allow for more uniform participation by Member offices and more public oversight over the Congressional Fellowship programs.
In January 2001, Peter Winokur began working as a Fellow in Senator Harry Reid’s (D-NV) office. He would ultimately spend almost four years there, specializing in energy policy and eventually becoming the Senator’s Energy & Transportation Advisor. He wrote legislation, offered advice, wrote memos for the Senator, met with lobbyists and public interest groups, and attended meetings on press and policy strategy, according to reports on his work. He was, for all intents and purposes, a Senate staffer. There was one major distinction: his $120,000-per-year salary was paid by the IEEE-USA, an industry group that is an “organizational unit” of the Institute of Electrical and Electronics Engineers and whose stated goal is to “recommend policies and implement programs specifically intended to serve and benefit the members.”
Many of Winokur’s long hours in the Senate were spent working on the Energy Policy Act of 2002. It was a big bill, combining policy on energy efficiency, alternative energy sources, energy production, and even some amendments to state programs. “My basic workday is from 8:00 AM to 6:30 PM. Throw in 2 hours on the Metro where I read as much as I can, and it’s a 7:00 AM to 7:30 PM day. Then I get home to read my Sandia and IEEE e-mail,” he wrote on his time in the Senate.
Winokur felt he would fit in well at Senator Reid’s office because Reid was the Ranking Member of the Environment and Public Works Committee and the Energy and Water Appropriations Subcommittee. Winokur stated, “The Senator is committed to making renewable energy technologies a priority. And so am I.” And so is IEEE-USA. Their policy position statements on Energy and Environment from the time are not so different from some of the text of the Energy Policy Act of 2002 introduced in the Senate. Winokur’s Energy Department bio states, “As Energy and Transportation Advisor, crafted energy policy that included tax legislation for renewable energy, resulting in billions in economic development and the creation of tens of thousands of jobs.” This work for the Senate while being paid by industry gives the appearance of—and the incentive structure for—a conflict of interest.
Winokur had the kind of access most industry professionals can only dream about. He found that “people have a tendency to return phone calls from a Senate office, whether it’s the Attorney General of a state, the chief counsel of the FCC, or the COO of a California utility,” Winokur wrote in his report.
Regardless of whether there was an identifiable legislative outcome from Winokur’s position (the Energy Policy Act of 2002 never made it out of conference to become a law), it’s fairly easy to see how beneficial it could be for IEEE-USA, or any industry, to have someone on their payroll in a Congressional office, with the ear of a powerful Senator, every day. And the fellowship proved beneficial to Winokur as well. The Project On Government Oversight’s (POGO) review of this and hundreds of other similar fellowships found that most fellowship positions last only a year, and most fellows earned far less than permanent staffers. But Winokur was there for almost four, making $120,000 a year–which was close to the maximum amountSenate staff could be paid at the time.
This kind of arrangement, with fellows working in Congress but paid by an outside source, is legal, and more common than one might think. But are the Members of Congress and their staffs actually following the rules that are supposed to keep a check on conflicts of interest? And how often do fellowship programs end up furthering industry goals over Congressional priorities?
Fellowships Bring Congress and Industry Closer Together
The Fellows are required to abide by all the laws, rules, and standards governing permanent Congressional staff members. Indeed, they are often indistinguishable from permanent staff members. They work on writing legislation and Floor speeches, and represent the Member in meetings with other offices and constituents.
There are additional rules governing fellows. Congressional offices must make sure that fellows have no conflicts of interest and that the arrangement gives no undue advantage to special interest groups. “The participant may not work on issues related to the interest of the individual company or industry providing such funding. Conflicts of interest and the appearance of conflicts between the participant’s duties to the Senate and his or her responsibilities to the private sponsor must be avoided,” the Senate Ethics Manual states. It is the duty of the Senator to monitor the activities of the fellow to ensure that no potential conflict of interest arises during the course of their work. A similar statement can be found in the House Ethics Manual: “an intern or fellow should not be assigned duties that will result in any direct or indirect benefit to the sponsoring organization or anyone else with which the individual is affiliated (including the employer or fellow), other than broadening the individual’s knowledge.”
On the Senate side, the supervisor of the fellow is required by a Senate rule to report to the Ethics Committee “the identity of the source of the compensation received by such individual and the amount or rate of compensation paid by such source.” The House does not have a similar rule and does not require fellows or their supervisors to disclose their compensation details.
This program is often used for the educational benefit of these fellows and is generally intended to be a temporary placement before the fellows return to their organization. On the House side, “A Member or House office may accept the temporary services of an intern participating in a program … which is primarily of educational benefit to the participant. … Similarly, a Member or House office may accept the temporary services of a fellow participating in a mid-career education program … while the individual receives compensation from his or her employer,” the Ethics Manual states. Many of the organizations sponsoring these fellowships tout how valuable it is for their participants to learn about Congress and the legislative process while Congress benefits from knowledgeable experts. “The objective of the David A. Winston Health Policy Fellowship is to provide a unique opportunity to learn about the political system through direct exposure to public and private sector roles in health policy development,” one brochure states.
Congressional Fellows are in significant demand. They come to an office looking like a year’s worth of free work from some very competent people.
“Approximately 50% of Fellows begin or return to careers in academia following the Fellowship, with strengthened credentials in policy-relevant research and an ability to teach students about the complex issues involved in bridging science and policy,” the Society for Research in Child Development writes about their fellowship. For Congressional Members, it’s understandable why they would look for outside support. “While federal spending and the executive branch have ballooned, Congress has downsized its research and analytical support staff by about one-third over the past 40 years,” former Congressional Research Service analyst Kevin Kosar wrote for National Affairs. Another study by the Sunlight Foundation pointed to low pay and turnover as undermining Congress’s ability to attract and retain talented staff.
Or as one fellow put it, “Congressional Fellows are in significant demand. They come to an office looking like a year’s worth of free work from some very competent people.” These fellowships, funded by outside entities, offer the opportunity for access to experts these offices might not otherwise be able to afford.
Of course the intended purpose of these fellowship programs makes good sense and can be beneficial to all parties, but using these experts could pose a problem.
POGO reviewed 2,014 publicly available reports on Senate fellows and found several examples of the appearance of a conflict of interest, and that Senators did not consistently disclose fellows whose salary was paid by a third party. The House does not maintain records on Congressional Fellows at all.
On the Senate side, fellows and their supervisors are required to file reports detailing when they began their fellowship, how much money they’re making, what entity is paying their salary, and how many hours they’ve worked. Senate rules mandate that new fellows file their “Agreement to Comply with the Senate Code of Official Conduct,” known as form 41.4, at the beginning of their fellowship, at the end of each calendar quarter, and at the end of the fellowship. The fellow’s supervisor must file a “Report on Individuals Who Perform Senate Services,” known as form 41.6, which is often signed by the Senator. While these forms are available to the public, they are not electronically available and anyone interested in seeing them must visit the Senate Office of Public Records during business hours.
While these forms offer fascinating insight into which industries and Senators are utilizing the fellowship program, they also demonstrate how much we don’t know. POGO examined all of the 2,014 publicly available forms on file at the Senate Office of Public Records as of April 22, 2016, to determine the extent of compliance with the law. In our review, we found that approximately 27 percent were missing data on the source of the fellow’s compensation, and approximately 24 percent were missing data on how much the fellow was being paid. We also discovered instances where Senators employed fellows but failed to file the appropriate forms.
On the House side, there was no disclosure at all and no records to be reviewed. According to the House Ethics Manual, the fellows are required to comply with the Code of Official Conduct, but there are no rules requiring reporting and no forms collected by the House Office of the Clerk. The ethics manual also states: “[W]hile internship and fellowship programs are often sponsored by educational institutions, other public or private organizations may act as sponsors, provided the arrangement does not give undue advantage to special interests.” How the House ensures compliance with this requirement is a mystery.
The Appearance of a Conflict of Interest
The rules governing the Senate program are fairly simple: Both the Senator and the Fellow must avoid all conflicts of interest, including the appearance of a conflict. But in POGO’s review, we were able to find several examples of Fellows working on projects that were directly related to the industry paying their salaries. Below are just a few of those examples.
Department of Energy’s National Laboratories
The Department of Energy is responsible for a network of 17 National Laboratories conducting all kinds of scientific research. Three of these labs, Sandia National Laboratories, Lawrence Livermore National Laboratory, and the Los Alamos National Laboratory, have multi-billion dollar budgets and focus on ensuring the US nuclear stockpile is safe, secure, and reliable. The DOE’s National Nuclear Security Administration manages the labs by hiring contractors to run them—contractors who have a large financial stake in ensuring their work continues and have long worked to influence Congress in any way possible. In recent years they have focused on gaining support for a $1 trillion nuclear modernization effort. “A White House official … described the labs to me as being among ‘the biggest rogue elements in the U.S. government,’” former Energy Department senior policy advisorRobert Alvarez wrote.
Stephanie Teich-McGoldrick was a 2015-2016 Congressional Fellow from Sandia National Laboratories, working on the Senate Committee on Energy and Natural Resources. Sandia is one of the largest national labs in the United States and works mainly to ensure the safety and reliability of U.S. nuclear weapons. Sandia Corporation, a subsidiary of Lockheed Martin, manages and operates the lab with an annual budget of $2.9 billion. The Energy and Natural Resources Committee has authorizing jurisdiction over the Department of Energy Labs, which means it has jurisdiction for any policy changes impacting the labs. According to the Congressional record, Teich-McGoldrick worked on legislation directly affecting the labs while receiving a salary of $124,000 paid by Sandia. In April 2016, Senator Maria Cantwell (D-WA) thanked Teich-McGoldrick by name for her work on the Energy Policy Modernization Act of 2016. This bill, which was re-named the North American Energy Security and Infrastructure Act of 2016, passed both the House and the Senate, and includes several references to work done by the national labs. Though neither the House nor Senate versions of the bill mention Sandia National Lab specifically, it’s clear the legislation would affect its work. Indeed, both versions include language on modernizing and increasing the security of the U.S. power grid, an area in which Sandia describes itself as playing “a key role.” It’s impossible for the public to know if Teich-McGoldrick worked on parts of the legislation that would have affected the labs—it is a huge bill and she may well have steered clear of anything to do with Sandia’s work. But there’s no doubt that her position gives the appearance of a conflict of interest.
Fellows in the House are not required to disclose their information.
Teich-McGoldrick is only one of many Sandia-sponsored Congressional Fellows. In 2009 another former Sandia Congressional Fellow named Matthew Allen wrote a report on his time in the House Committee on Homeland Security called Working at Congress: A Sandian’s Experience in which he details what Fellows do. The report also serves to demonstrate how valuable the experience can be, not just for the Fellow but for Sandia as well. One of the reasons Sandia sends people to Congress, Allen wrote, was “the benefit the lab receives in having an employee that can translate the political landscape into opportunities for the lab.” There is, of course, no public record of Allen’s time on the Hill, as Fellows in the House are not required to disclose their information.
Sandia Lab has placed two dozen Fellows over the last 25 years. According to Sandia Lab spokesman Jim Danneskiold, the Lab only sponsors fellows at the request of congressional committees or members of Congress. “Fellows provide unbiased technical assistance, but they never work on specific programs or issues that affect the labs and follow strict requirements that prevent conflicts of interest. Sandia does not seek out Congressional Fellow positions, and only responds when requested,” he told POGO. The other two labs, Livermore National Lab and Los Alamos National Lab, are also no strangers to the Congressional Fellowship program. For example, Kory Sylvester was a 2007-2008 Fellow for Pete Domenici (R-NM) then-Ranking Member on the Senate Appropriations Energy and Water Development Subcommittee. Sylvester’s Fellowship was sponsored by Los Alamos National Security, the managing and operating contractor of the lab and a consortium of big-name contractors including Bechtel, Babcock & Wilcox Technical Services, and URS Energy and Construction. Senator Domenici was known as “Saint Pete” by the nuclear labs for all the money he brought to them. At that time the Los Alamos Lab’s annual budget was $2.7 billion. While Sylvester was working on the committee that decides and appropriates funds for the lab, he was paid $127,000 by the contractor running it. According to Iowa State University’s College of Engineering, Sylvester also completed another Congressional Fellowship at the House Committee on Homeland Security.
A Congressional Fellow sponsored by Lawrence Livermore National Laboratory shows how even when the Fellowship forms are filled out, they may not tell the whole story. Robert Perret was a 1996-1999 Fellow in Senator Harry Reid’s (D-NV) office. Perret’s paperwork indicates his salary was paid by the University of California Regents, a governing board for the University of California network. However, in a September 2000 statement, Senator Reid thanks Perret for his “exceptional work,” stating he actually came from Lawrence Livermore National Laboratory. Livermore lab was managed by the University of California at the time and the address on Perret’s forms is a post office box from Livermore, CA.
It’s not just the National Nuclear Security Administration laboratories that take advantage of this program. POGO found the managing contractor of the Oak Ridge National Laboratory, UT-Battelle, has sponsored at least six Congressional Fellows. Since 2006 they have had at least one Fellow in Senator Alexander’s (R-TN) office every year, some Fellowships lasting longer than a year. This is an advantageous move for the company since in 2011 Senator Alexander became Ranking Member of the Senate Appropriations Energy and Water Development Subcommittee, which decides how much money will go to Oak Ridge National Lab every year. In 2015 he became the Chairman.
These committees decide a lot more than just annual funding. In 2014, Congress passed a bipartisan law called the Federal Information Technology Acquisition Reform Act (FITARA). Lawmakers were concerned when industry experts found that approximately $20 billion is misused or wasted on duplicative information technology (IT) projects every year. FITARA was meant to increase transparency on how IT funds are spent across the federal government. But the Energy Department laboratories didn’t like this added oversight and accountability, and in 2015 they launched a campaign to secure an exemption from its requirements.
It was Senator Alexander who led the charge in getting the labs the exemption they so desperately wanted. Despite the fact that IT experts across the government as well as the Government Accountability Office were strongly against the exemption, it was included in the appropriations bill crafted by the Energy and Water Development Subcommittee. John Rivard was the UT-Battelle Fellow in Senator Alexander’s office at the time, with an annual salary of $168,000. According to Rivard’s LinkedIn profile, which indicates he’s still working in Senator Alexander’s office, he “co-writes legislation, speeches, and op-eds regarding science, energy, competitiveness, and space policy.” Rivard’s place in Senator Alexander’s office and his stated activities give the appearance of a real conflict of interest, and a potential violation of Senate ethics rules.
IEEE-USA also has a long history of placing Fellows in Congressional offices (as well as in executive branch offices). The organization has been placing Fellows in Congressional offices since 1974 and keeps a publicly available record of fellowship alumni.
If a Fellow is working on legislation that will directly fund their industry or the company that’s paying their salary, there’s a clear conflict of interest.
One recent IEEE-USA Fellow demonstrates exactly how these Fellows can use their positions to influence policy to be beneficial toward their industry. Robert Bartolo was a 2014-2015 IEEE-USA Fellow in Senator Robert Casey’s (D-PA) office. When Bartolo became a Fellow in September 2014, he had already earned his Ph.D. and worked at the University of Maryland and the Naval Research Laboratory for several years. “One motivation for applying for the Fellowship was out of a concern for the serious implications of climate change and the current lack of a workable and effective plan to actually minimize carbon emissions in the years ahead. This was a policy topic I definitely wanted to work on,” Bartolo wrote in a report about his placement in Senator Casey’s office.
Bartolo got his wish and was able to work on several energy and environment policies, some of which were directly in line with IEEE-USA’s policy goals. In Bartolo’s report, he describes several projects he was personally involved in. During Bartolo’s Fellowship, Senator Casey introduced legislation to promote the development of clean energy fueling infrastructure called the Clean Vehicles Corridors Act (CVC Act). The bill established clean vehicle areas along interstate highways where the infrastructure necessary to refuel clean vehicles, including electric charging and biofuels, would be made available. In his final report to IEEE-USA, Bartolo said he worked with the Environment and Public Works Committee to incorporate aspects of the CVC Act into the Drive Act, a highway reauthorization bill, but the Drive Act didn’t make it out of Committee during Bartolo’s time in Congress. Bartolo stated, “I expended some effort to try and introduce aspects of the CVC Act that would be germane to [the Energy and Natural Resources Committee]. For instance encouraging the Department of Energy (DOE) to provide grants on a cost sharing basis for clean fueling infrastructure.”
This work was directly in line with IEEE-USA’s publicly stated policy goals for this time period. IEEE-USA’s 2014 National Energy Policy Recommendations includes a section on “Transforming Transportation by Diversifying Energy Sources.” These recommendations are remarkably similar to the legislation developed and introduced by Senator Casey. For example, IEEE-USA recommends, “Promoting the development of battery charging infrastructure, and its development by cities, states, and businesses, and along the interstate highway system with the support of the federal government.” IEEE-USA further recommends the development of alternative transportation fuels including, “promoting the use of biofuels.”
Indeed, Bartolo makes no effort to hide that he directly worked on issues related to the interests of IEEE-USA. On his LinkedIn profile, Bartolo lists the issue areas he worked on during his Congressional Fellowship, including Energy and Climate Policy, Renewable Energy Tax Policy, Zero Emission Vehicles, and Energy Efficiency, all of which coincide with information and recommendations in IEEE-USA’s 2014 National Energy Policy Recommendations.
Senator Casey’s office maintains that potential conflicts of interest are strictly monitored. “The vast majority of our office’s congressional fellows were detailed from other government agencies, and any fellow detailed from an organization outside of government was prohibited from working on any issue that could conflict with the organization,” the Senator’s Communications Director, John Rizzo, told POGO.
But Bartolo’s Fellowship seemed to violate Senate rules that require Congressional Fellows to avoid even the appearance of a conflict of interest. It also raises questions about whether Bartolo’s Fellowship was primarily for his educational benefit.
To make matters worse, there is no official record of Bartolo’s time in the Senator’s office, as they never filed the required forms with the Senate Office of Public Records. Senator Casey did file forms for three other Fellows in 2008 and 2009, indicating that at that time his office is familiar with the rule requiring the filing. Yet the only record of Bartolo’s time in the Senator’s office are his reports on the IEEE-USA alumni list and his own LinkedIn page, which circumvents the transparency and accountability purposes of the rule.
These examples are just a small handful of those that clearly demonstrate a failure to comply with the conflict of interest terms of the rule. Some might ask why this is important. After all, why have a Fellow with a wealth of knowledge if they can’t work on developing policy for that field? But conflicts of interest tend to result in policy that benefits powerful special interests at the expense of taxpayers’ interests. That is why the Senate ethics manual requires each Fellowship to be “analyzed on a case-by-case” basis. If a Fellow is working on legislation that will directly fund their industry or the company that’s paying their salary, there’s a clear conflict of interest.
That’s not to say that Congressional offices shouldn’t have Fellows or that the program should be abolished. It’s a valuable resource for both Members of Congress and industry professionals who want to understand the legislative process better. But more scrutiny of potential conflicts of interests is necessary.
It’s important to note that the public only knows about these conflicts because in most cases the Senators and their Fellows followed the rules and filed their agreement and reporting forms as required. They made an effort to be transparent. POGO’s review of this Fellowship program found evidence to suggest that lack of standardized reporting, or in some cases of reporting at all, is a widespread problem.
A Lack of Compliance
The Senate rule was created to provide important transparency of how this Fellowship program is used both by industry and by the Senators themselves. Lack of compliance with the rule significantly undermines its intent. Despite the fact that the reporting forms are required to be filed every quarter, POGO found Fellows or their sponsors frequently failed to comply. As a result it is difficult to know just how many Senate offices are using this program without disclosure. The total lack of disclosure on the House side makes it impossible to know how those Fellowships are being used.
“We’re concerned about both real and perceived conflicts of interest. We think that’s really important…because it impacts the integrity of the fellowship programs.”
One way of getting an idea of how many Fellows have flown under the radar is to analyze the publicly available Fellowship alumni records posted by some sponsoring organizations. These alumni records provide an excellent glimpse into how many Senators have had Fellows but never had them file forms with the Senate Office of Public Records. As noted above, IEEE-USA has a publicly available list of their 87 Congressional Fellowship alumni dating back to 1974. A little under 50 percent of the listed Fellows were in Senate offices, and of those, 76 percent did not file any documentation with the Senate Office of Public Records.
POGO conducted a similar analysis of the Brookings Institution’s Legis Congressional Fellowship, which provides government and corporate applicants the opportunity to work in Congress. But they’re not required to disclose to the public which government or corporate entity they come from. This Fellowship is intended to provide a comprehensive understanding of how Congress works and to help Fellows create a network of contacts on the Hill. One past Legis Fellow states, “I’m not a lawyer, but I fit in very well. I wrote legislation. I wrote speeches. I wrote floor statements. I analyzed bills. Legis makes us better at what we do.” While Brookings does not have a publicly available list of Fellowship alumni, there is an abbreviated list of some of the Congressional and Committee offices where the Institution has successfully placed Fellows in the past. Of the 17 Senators listed, 7 did not have any kind of records for any Fellows filed with the Senate Office of Public Records.
In addition to a total lack of filing, there are several examples of Senators with gaps in their record keeping or no records before a certain date. For example, Senator Ron Wyden’s (D-OR) office filed 82 forms from 1997 until 2000. But between 2001 and 2011 there’s a gap without records for a single Fellow. Through Fellowship alumni lists, like those kept by the American Psychological Association (APA), it’s clear that Senator Wyden’s office was familiar with rule at one time and did have Fellows during this period, despite the lack of records. Kenneth Lutz was an IEEE-USA Fellow in Senator Wyden’s office in 2009. Although there are no records for Lutz’s time there, he stated in a report about his time as a Fellow in Wyden’s office: “Senator Wyden’s office has had many Fellows, and the staff knows how to ease Fellows into legislative work. I was given quite a lot of responsibility by the legislative staff member with whom I worked.”
Similarly, some Senators do not have records for older dates, perhaps indicating they weren’t aware of the requirement at the time. One example of this may be Amanda Clinton, the 2014-2015 APA’s Congressional Fellow in Senator Chris Murphy’s (D-CT) office. While forms were never filed for Clinton’s Fellowship, it appears Murphy filed for other Fellows beginning in early 2016.
There is also a clear lack of standardization in how the forms are filled out. For example, The American Association for the Advancement of Science (AAAS) facilitates Fellowships from a number of different Fellowship sponsors including the American Chemical Society, APA, IEEE-USA, and the AAAS themselves. These organizations are responsible for recruiting, choosing, and sponsoring their fellows while AAAS helps them find placements in Congressional offices. Cynthia Robinson, Director of the AAAS Science & Technology Policy Fellowships, told POGO that potential conflicts of interest are taken very seriously. “They have to be free agents and the sponsoring organizations can’t take any role in dictating what they do throughout the year,” Robinson said. “We’re concerned about both real and perceived conflicts of interest. We think that’s really important…because it impacts the integrity of the fellowship programs.”
But it’s up to the fellows and their supervisors to decide how they disclosure their sponsors on the Senate disclosure forms. Some Fellows cite the AAAS as the source of compensation, while others cite the underlying sponsoring organization. For example, John Cederquist was an IEEE-USA Fellow in Senator Jon Tester’s (D-MT) office from 2010-2011. On his forms he listed AAAS as the source of compensation though the Fellowship was technically sponsored by IEEE-USA. And, as we mentioned above, Senator Reid’s Fellow Robert Perret listed the University of California Regents instead of the Lawrence Livermore National Laboratory as his sponsor. While these simple misrepresentations may not seem relevant, they serve to make analysis of the records more difficult and can undercut the transparency intent of the rule.
A lack of strict compliance with the Senate rule abounds and would appear to indicate a lack of education about what, exactly, is required. For instance, former Senator Herb Kohl (D-WI) filed records for four Fellows from 1989 to 2012. Yet the source of compensation for each is listed as Senator Kohl, indicating either that all the forms spanning 20 years were filled out incorrectly or Senator Kohl was asking all Fellows to fill out disclosure forms, even if they weren’t being paid by a third party. It appears that at least two of the employees listed as Fellows, Arlene Branca and Theodore Bronstein, were full-time staff and would not have been required to fill out the forms.
Senator Michael Bennet’s (D-CO) Fellowship records show a similar pattern. According to records from the Senate Office of Public Records, Jonathan Davidson was a Fellow in the Senator’s office from 2011-2016, though his source of compensation is listed as “Michael Bennet.” A press release from Bennet’s office states Davidson was named Senator Bennet’s Chief of Staff in January 2011, which indicates there was no need for him to file these disclosure forms at all.
Senator Bennet’s records also feature several Fellows with listed compensation as executive branch government offices, including the Department of Defense, Department of Energy, and the State Department. Fellows from the executive branch, or detailees, are not required to file out the same form as the Congressional Fellows. While they are required to file an agreement to comply with the Senate Code of Official Conduct, the form is called a 41.3 and is not available for public viewing. Detailees are also prohibited from working on projects that may be considered a conflict of interest. Over 60 of the 2,014 records reviewed by POGO—forms 41.4 and 41.6—list executive branch offices as the source of compensation.
These kinds of gaps, misfilings, and inconsistencies seem to be the result of a lack of education about exactly what this rule requires. Although the Senate Ethics Committee requires all new Senate personnel to complete a training program on the Code of Official Conduct, neither this rule nor its requirements are directly mentioned in the training documents. Though the Senate Ethics staff told POGO that Senators and their staff would be familiar with the requirement as it would be covered in training on the Ethics Manual, it appears that a more direct inclusion of the rule and its requirements should be adopted to increase compliance. It’s important to consider the fact that while some Members will provide more than enough information to be safe, as is the case with Senators Kohl and Bennet, it seems just as likely that the opposite will happen.
This Fellowship program can be a valuable resource for both Congress and non-government professionals across disciplines. But too often the program is misused. Fellows remain in offices for years, their salaries are often much higher than the typical staffer, and far too often they’re in a position to affect legislative changes that can directly benefit the industry paying their salary. The kind of access this Fellowship program provides is invaluable for these industries. It is yet another way that corporations, foundations, and other outside entities affect the legislative process.”
The FY 2016 Defense Authorization Bill (Sect. 851-857) will continue to expand the buying of military-only items, limit DoD’s access to contractor pricing information, restrict conversions when an item no longer has a commercial market, and essentially lock the government into previous commercial determinations and prices.
Quietly and without fanfare, The Department of Defense (DoD) has terminated a proposed rule that would have prevented the waste of billions of taxpayer dollars on so-called “commercial” items. These are items that are supposedly sold in the consumer marketplace. The rule was proposed in August, but was fiercely opposed by defense contractors, their lawyers, and some members of Congress.
To understand the issue, it’s important to note that the government often buys “commercial” goods and services that are not actually sold in the commercial market. Even worse, these purchases are often made without competition and without any government review of the cost information that supports the final price the contractors are proposing. Audits by the DoD Inspector General have uncovered innumerableinstances of misspending by DoD such as millions of dollars wasted onspare parts and improper efforts by the Air Force to purchase refueling tankers and C-130J cargo planes(and their parts too) as “commercial” items.
Even the Air Force admitted that, once Senator John McCain (R-AZ) forced it to restructure the C-130J contract so that it was no longer a commercial item, the government saved $168 million.
DoD’s efforts to redefine what is a commercial item isn’t new. In 2012, DoD asked for acommercial item definition change, but Congress didn’t go for it. Giving credit where it’s due, the Pentagon did the right thing and issued the proposed rule earlier this year. The Project On Government Oversight (POGO) submitted a public commentsupporting the proposal.
That rule would have standardized commercial-item buying and enabled the DoD to obtain cost or pricing data that would ensure taxpayers don’t get ripped off. POGO supported the inclusion of the term “market-based pricing” and requiring contracting officers to “obtain adequate commercial marketplace sales data.” That reform would have especially protected the government in cases of non-competitive awards in which the contractor refuses to turn over any cost or pricing data.
Also, the rule would have defined a commercial market as one in which 50 percent or more of the sales by volume are nongovernmental. This would have helped avoid buying items that are designated as commercial, but for which there are no genuine commercial market prices.
This is a recipe for disaster. Just ask yourself: Are you willing to buy items at potentially outdated prices (like, say, a 40-inch HD TV for $2,000 or an 8 GB iPhone for $299) because that’s what others paid in the past? That doesn’t sound like market-based pricing and DoD and taxpayers will be at risk for a long time to come if a government official recently paid too much for an item.
Certainly, Congress isn’t helping the situation, and that leaves DoD in a difficult spot. If “commercial” buying goes down this path, taxpayers will just have to accept more bad deals with defense contractors—deals for military-use only items that have excessive costs because there is no competition and no valid cost or pricing information for which to make a valid price determination.”
“The report tells the story of how, in the months after the Sept. 11, 2001, terrorist attacks, the C.I.A. began capturing people and interrogating them in secret prisons beyond the reach of the American judicial and military legal systems.
Justice Department has prohibited officials from the government agencies that possess it from even opening the report, effectively keeping the people in charge of America’s counter terrorism future from reading about its past.
A Senate security officer stepped out of the December chill last year and delivered envelopes marked “Top Secret” to the Pentagon, the C.I.A., the State Department and the Justice Department. Inside each packet was a disc containing a 6,700-page classified report on the C.I.A.’s secret prison program and a letter from Senator Dianne Feinstein, urging officials to read the report to ensure that the lessons were not lost to time.
Today, those discs sit untouched in vaults across Washington, still in their original envelopes. The F.B.I. has not retrieved a copy held for it in the Justice Department’s safe. State Department officials, who locked up their copy and marked it “Congressional Record — Do Not Open, Do Not Access” as soon as it arrived, have not read it either.
Nearly a year after the Senate released a declassified 500-page summary of the report, the fate of the entire document remains in limbo, the subject of battles in the courts and in Congress. Until those disputes are resolved, the Justice Department has prohibited officials from the government agencies that possess it from even opening the report, effectively keeping the people in charge of America’s counterterrorism future from reading about its past. There is also the possibility that the documents could remain locked in a Senate vault for good.
Although Ms. Feinstein is eager to see the document circulated, the Senate is now under Republican control. Her successor as head of the Intelligence Committee, Senator Richard M. Burr of North Carolina, has demanded that the Obama administration return every copy of the report. Mr. Burr has declared the report to be nothing more than “a footnote in history.”
It was always clear that the full report would remain shielded from public view for years, if not decades. But Mr. Burr’s demand, which means that even officials with top security clearances might never read it, has reminded some officials of the final scene of “Raiders of the Lost Ark,” when the Ark of the Covenant is put into a wooden crate alongside thousands of others in a government warehouse of secrets.
The report tells the story of how, in the months after the Sept. 11, 2001, terrorist attacks, the C.I.A. began capturing people and interrogating them in secret prisons beyond the reach of the American judicial and military legal systems. The report’s central conclusion is that the spy agency’s interrogation methods — including waterboarding, sleep deprivation and other kinds of torture — were far more brutal and far less effective than the C.I.A. acknowledged to policy makers, Congress and the public.
For now, it is the most comprehensive chronicle of one of the most controversial counterterrorism programs after the Sept. 11 attacks.
The American Civil Liberties Union has sued the C.I.A. for access to the document, and at this point the case hinges on who owns it. Senate documents are exempt from public records laws, but executive branch records are not. In May, a federal judge ruled that even though Ms. Feinstein distributed the report to the executive branch, the document still belongs to Congress. That decision is under appeal, with court papers due this month.
Justice Department officials defend their stance, saying that handling the document at all could influence the outcome of the lawsuit. They said that a State Department official who opened the report, read it and summarized it could lead a judge to determine that the document was an executive branch record, altering the lawsuit’s outcome. The Justice Department has also promised not to return the records to Mr. Burr until a judge settles the matter.
“It’s quite bizarre, and I cannot think of a precedent,” said Steven Aftergood, the director of the Project on Government Secrecy at the Federation of American Scientists. He said there are any number of classified Senate documents that are shared with intelligence agencies and remain as congressional records, even if they are read by members of the executive branch.
The findings of the report on the secret prisons remain the subject of fierce debate. A group of former senior C.I.A. officers published a book in September challenging its conclusions and methodology, and Senate Republicans have derided the investigation as shoddy and partisan.
John O. Brennan, the C.I.A. director, said at a conference last month that the report contained “many, many mischaracterizations” of the spy agency’s work in the years after the Sept. 11 attacks. He said that while it focused on “some of the real shortcomings” of the detention program, “it did not take into account the tremendous sacrifice and service of some C.I.A. officers in keeping this country safe.”
The full report is not expected to offer evidence of previously undisclosed interrogation techniques, but the interrogation sessions are said to be described in great detail. The report explains the origins of the program and names the officials involved. The full report also offers details on the role of each agency in the secret prison program.
The Justice Department, which played a central role in approving the interrogation methods, has even prohibited its own officials from reading the full report.
“The Department of Justice was among those parts of the executive branch that were misled about the program, and D.O.J. officials’ understanding of this history is critical to its institutional role going forward,” Ms. Feinstein wrote to the Justice Department last week in a letter she signed with Senator Patrick J. Leahy of Vermont, the top Democrat on the Judiciary Committee.
In court, Justice Department lawyers have agreed with Mr. Burr’s contention that the document belongs to Congress. As evidence, they point to an agreement between the C.I.A. and the Senate as the Intelligence Committee began its lengthy investigation. The Senate was under Democratic control at the time.
The agreement says that any “documents, draft and final recommendations, reports or other materials” generated during the investigation are congressional documents. “As such these records are not C.I.A. records under the Freedom of Information Act,” the agreement says.
The A.C.L.U. argues that agreement was void once Ms. Feinstein sent the report to the government agencies. Because she clearly intended the executive branch to use the report, the A.C.L.U. contends, the committee gave up control of the document.
If Mr. Burr were to succeed in getting copies of the report returned to the Intelligence Committee, Mr. Aftergood said, he could slowly make it irrelevant.
“The longer that it’s buried, the less relevant it becomes,” he said.”
“Preventing federal agencies from using fees as a weapon against public access to government information.
A three-judge panel of the U.S. Court of Appeals for the D.C. Circuit unanimously protected the Freedom of Information Act’s (FOIA) public interest fee waiver and news media fee classification.
Cause of Action, an advocacy group promoting transparency and accountability,submitted a FOIA request to the Federal Trade Commission about changes to “product-endorsement guides” and “documents concerning the FTC’s history of granting public-interest fee waivers.” The FTC categorized Cause of Action as commercial and refused to grant its request for a public interest fee waiver or, in the alternative, to be classified as a member of the media. Cause of Action then filed a lawsuit.
The district court agreed with the FTC’s FOIA policy, and Cause of Action appealed the district court ruling. The U.S. Court of Appeals for the D.C. Circuit overturned the district court decision and remanded the case to the trial court with new criteria for interpreting FOIA.
Cause of Action primarily wanted to receive a public interest fee waiver, which would waive all fees associated with its FOIA requests. The district court found Cause of Action needed to reach a “wide audience” to receive a public interest waiver, but the appellate court disagreed. In fact, according to the appellate court, “there is nothing in the statute that specifies the number of outlets a requester” needs to reach “to contribute significantly to the public understanding.”
The D.C. Circuit Court also cited a Second Circuit ruling that stated organizations only need to reach “a reasonably broad audience of persons interested in the subject” to be in the public interest. The type and number of outlets the requested information would reach are irrelevant.
The appellate court also found that the FTC was wrong to deny Cause of Action a public interest waiver concerning the FTC’s policy regarding FOIA waivers. The FTC argued that because Cause of Action would be the “primary beneficiary,” it could not be in the public interest category. However, the court ruled that FOIA requests only need to “enlighten more than just the individual requester.” It also ruled that the request was not for commercial gain because it did not increase Cause of Action’s “commerce, trade, or profit.”
If its request did not meet the requirements for a public interest waiver, Cause of Action had asked to be classified as a member of the news media. Unlike the public interest category, agencies may charge organizations categorized as news media duplication costs for documents over 100 pages. The appellate court defined “news media” as a “person or entity” who “gathers information” to create “a distinct work” for distribution to an audience. It also said entities who only partner with media to disseminate information are also news media.
The appellate court ruled that the media category focuses “on the nature of therequester, not its request.” Once an organization is categorized as news media, it should continue to be classified as such regardless of the content of its FOIA requests.
Additionally, organizations only need to show a “firm plan” to make information available to the public. They do not need to actively disseminate this information.
The FOIA protections reaffirmed by the appellate court came soon after an important case involving the Transactional Records Access Clearinghouse (TRAC), whichsubmitted a FOIA request for three Immigration and Customs Enforcement (ICE) databases and “broader electronic data maintained by U.S. Customs and Border Protection.”
In its ruling on TRAC, the U.S. District Court of D.C. stated that if organizations establish that they “intend and have the ability to disseminate new research to the public,” than they are news media. This ruling also supports the decision in Cause of Action v. FTCestablishing that a news media organization can remain classified as such in perpetuity unless it changes “its research activities in the future.”
The Project On Government Oversight frequently advocates reforming FOIA’s fee waivers. In a 2011 public comment on FOIA, POGO, along with Public Citizen, criticized the chilling effect fees have upon requesters, and in 2014 POGO asked Congress to reform FOIA fees by supporting the FOIA Improvement Act.
Ultimately, the court decisions in favor of Cause of Action and TRAC will make it easier for traditional and non-traditional media and public interest organizations, like POGO, to receive FOIA fee waivers. As a result, more information will be disseminated to the public, increasing government transparency and accountability.”