Obama administration figures on stimulus misspending vastly understate problems

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Earl Devaney, the former Chairman of the Recovery Board, attributes the relatively low level of fraud so far in the Recovery program to three factors: the IGs’ decision to change their approach from detecting fraud to trying to prevent it, particularly using technology to stop suspicious payments; the IGs’ efforts to educate procurement officials about the telltale signs of fraud; and the fact that criminals were scared away by the unprecedented transparency the Board achieved by releasing spending data in real time to the public.

As for the gap between $11.1 million and $5.8 billion, Devaney said: “Like most things in life, the answer probably lies in the middle but, there’s no doubt, given the $840 billion on the table there is a remarkable story here about how the Board and the IGs kept the bad guys away from getting their hands on this money.”

Biden, who has played a key role in overseeing the stimulus since it was passed by Congress in early 2009, threw out another favorite administration figure during the vice presidential debate last month. When Republican running mate Paul Ryan used hyperbole to accuse the administration of $90 billion worth of cronyism and wasteful spending in its stimulus efforts to encourage clean energy, the vice president had a quick statistical retort.

“That program — again, investigated — what the Congress said was, it was a model: less than four-tenths of one percent waste or fraud in the program,” Biden declared.

The vice president appeared to be referring to congressional testimony in July in which Energy Department officials estimated about three percent of clean energy loan guarantees had gone to failed companies, but less than one percent of the funds was expected to be written off.

But that figure hardly captures the extent of problems that Hass and his boss, Energy Department Inspector General Gregory Friedman, have uncovered. The agency’s audits flagged or questioned $225 million in stimulus-related grants and contracts in the last two years alone. And that’s on top of another $830 million in clean energy loans and grants that have gone to companies that went bankrupt, more than half of which the administration does not believe it will recover.

One of the programs repeatedly flagged by Energy’s watchdog investigators was the department’s $5 billion weatherization effort, designed to pay for Americans to upgrade the heating and energy efficiency of their homes. In numerous reviews, the inspector general reported that contractors in large percentages of the homes performed inappropriate or shoddy work that needed to be redone or failed to meet federal standards.

Likewise, a recent audit of an Energy program that provided clean energy funds to cities flagged nearly $7 million in undocumented or unauthorized expenditures during the first half of the program, concluding the department failed to address “significant risks” that if left unresolved with the remaining spending could “ultimately affect the credibility” of the entire effort.

Far and away the single largest amount of flagged spending involved an Agriculture Department loan program to stabilize single-family housing in rural areas. Using a sample of 100 of the 81,000 loans, investigators estimated that $4.16 billion - or roughly 37 percent of all aid - was given to ineligible families who either already owned a home, could not repay the loans, had incomes higher than the program was intended for, or had incomes high enough to afford loans from non-government sources.

“Recovery Act funds were used with little oversight and were approved for ineligible purposes,” the inspector general reported.  Federal workers only partially investigated loan recipients’ financial situations, missing indicators that families could either not repay the loan or were making enough that they didn’t need government assistance, the IG said.  An estimated $230 million went to buy or pay mortgages for homes with above-ground pools, violating the agency’s policy that “without exception, no swimming pools are permitted for loans obligated using Recovery Act funds,” the IG noted.

The Agriculture Department did not return calls seeking comment.

The inspectors general — independent watchdogs inside federal agencies charged with rooting out waste, fraud and abuse — said some misspending could have been worse if it were not for aggressive prevention.

For example, federal prosecutors announced in September a guilty plea by a California contractor who used bogus surety bonds to fraudulently win $3.5 million in stimulus work installing smart water meters. Because of quick action by the Environmental Protection Agency IG, the contracts were stopped after only about $60,000 of the funds were spent.

When the EPA inspector general’s office in 2011 evaluated that agency’s first two years of stimulus spending, it made some sweeping conclusions. “After obligating over $7 billion in Recovery Act funds, EPA is unable, both on a programmatic and national basis, to assess the overall impact of those funds on economically disadvantaged communities or those most impacted by the recession,” it declared in April 2011.

Even more stark was the agency’s estimate of how much money was spent on projects that failed to get the taxpayer the best deal. “EPA had awarded $109 million in Recovery Act funds to contractors with cost control and performance issues,” a blunt March 2011 report said.

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