- Washington Guardian - Tuesday, October 23, 2012

The government’s fiscal watchdogs have identified more than $5.8 billion in problematic stimulus spending, a figure that dwarfs the election-year statistics the Obama administration is using to tout the integrity of the president’s signature economic recovery program, a Washington Guardian review of investigative reports has found.

The problems uncovered in hundreds of federal audits and investigations range from estimated millions in Agriculture Department funds for the rural poor that went to pay for prohibited homes with swimming pools to millions more that went to construction firms that did shoddy weatherization work or were later barred from government contracting because of criminal activities.

The Veterans Affair’s Department’s chief watchdog, for instance, says the agency can’t demonstrate the $50 million it spent to refurbish cemetery monuments or memorials was justified. The Energy Department admits it wasted $7 million unnecessarily on golden parachutes to temporary stimulus workers it hired, then laid off. And the Labor Department inspector general says that agency spent $31 million more for a building than was necessary. None of those amounts are counted in the figures used this fall by the administration on the campaign trail.

The tally calculated by theWashington Guardian so far accounts for about 2.4 percent of the $243.6 billion in President Obama’s $830 billion stimulus program that went to direct spending, such as grants and loans. The figure is expected rise as the inspectors general at the 29 federal agencies that got funding from the American Recovery and Reinvestment Act pursue more than 1,900 open criminal investigations and hundreds more audits.

Officials say they anticipated large problems — far more than what has been portrayed on the campaign trail — because so much money was pushed through the federal spending pipeline in such a short period of time.

“It was a large amount of funds the department was provided with,” said Rickey Hass, the deputy inspector general for audits and inspections at the Energy Department where more than $1 billion has been questioned by auditors and congressional overseers. “Dealing with that was trying to hook a garden hose to a fire hydrant. It was difficult to put that money through the existing infrastructure.”

The audits by the inspectors general contrast with the more rosy assessment offered by the Obama administration. From a debating Vice President Joe Biden to White House surrogates on the campaign trail, officials have been using narrowly cast statistics to convince voters that precious few of their tax dollars were wasted in the effort to revitalize the economy.

One of their favorite figures is $11.1 million, the amount the U.S. Recovery Accountability and Transparency Board says comes from court records of those stimulus recipients already convicted specifically of the crime of fraud through June. It amounts to a micro-fraction of one percent of the money spent so far on stimulus grants and loans. “The Recovery Act has been responsibly implemented with so far low levels of fraud, waste, and abuse,” the White House says on its Web site.

Added Michael Wood, executive director of the Recovery Board, in a blog post in September that highlighted the $11.1 million figure: “For a program with so much money in the pipeline, the fraud numbers are surprisingly low.”

But Wood’s figure was never intended to be the final political seal of integrity for the Recovery Act, officials said. Rather, it is an initial tally of stimulus funds deemed unrecoverable from closed fraud cases and doesn’t include ongoing cases or any of the audits that found waste, abuses or undocumented expenses.

With 1,900 open investigations, the fraud figure is expected to grow. For instance, the Board recently alerted the Veterans Affairs Department that stimulus-related benefits may have been paid to 16,000 people using the Social Security numbers of deceased Americans. In fact, the fraud number recently went up to $11.6 million, a half million dollar jump from the previous month, officials said Wednesday.

More significantly, the figure doesn’t address the variety of other spending problems inspectors general have found with the stimulus, officials acknowledged.

“The Board focuses primarily on fraud. The $11.6 million in fraud is based on convictions and pleas on file in various courts. The number represents a status report and no doubt will go up as additional investigations are completed,” Wood told the Washington Guardian. “But based on what we have seen thus far, we do not believe that the final fraud numbers will be extraordinary.

“The Inspectors General have done a superb job in investigating and auditing the Recovery program. The IGs, in coordination with the Recovery Board, attempted to prioritize work in high risk areas. Many of the IG reports that you have reviewed point to programs where funds could be put to better use or that have potential control problems that the agencies need to address,” he added.

The Washington Guardian calculated the $5.8 billion number by tallying specific dollar figures in stimulus-related audits and investigative reports the IGs have issued in the last two years that involved fraud, waste, abuse, undocumented expenditures flagged for reimbursement, prohibited expenditures, or loans, contracts or grants to firms or individuals that went bankrupt, were convicted of crimes or were barred from federal contracting. Some of the IG figures are based on estimates derived from statistical samples of the programs they monitor.

White House officials declined repeated requests for on-the-record comment. But in private conversations, administration officials acknowledged the numbers they have been using on the campaign trail, while technically accurate, were narrowly cast and did not capture all the spending problems identified by inspectors general. 

“We know there are problems out there, and they will grow before all spending ends, but we picked the numbers that made the best case we could for the election,” said one official directly involved in stimulus issues, who spoke only on condition of anonymity. “On balance, we believe the program was a success and voters understand it saved them from a worse economic downturn.”

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.

Agency by agency, similar problems were found.

In Kentucky, the Transportation Department inspector general estimated that $24 million in stimulus money in 2009 alone was given to companies that were later debarred from future government work because of criminal behavior including “bribery, conspiracy and theft from a government agency.” 

At the Energy Department’s Savannah River nuclear site in South Carolina, taxpayers incurred $7 million of unnecessary expense by paying severance to temporary workers hired under the stimulus, when all that was needed was 60-day layoff notices, the inspector general found

In another unnecessary expense, the Labor Department’s inspector general found the department’s Job Corps entered into an $82 million lease agreement with the YWCA to build a new facility in Los Angeles, when the government could have saved $31 million by constructing the facility itself.

Some stimulus programs were so riddled with problems that investigators couldn’t determine the exact amount of waste. Take, for instance, the Veterans Affairs Department, which awarded $50 million to the National Cemetery Administration to repair monuments and memorials. The IG found in September 2011 that employees there had little documentation to justify expenditures and didn’t have any criteria for judging success or failure.

“There was no record as to why the projects selected were the right ones to choose for funding or would best fulfill ARRA objectives of helping stimulate the U.S. economy,” the inspector general declared, flagging all $50 million as problematic.

Even small misspending adds up when 29 federal agencies are involved. The Washington Guardian found millions of dollars in flagged spending in amounts under $250,000, the smallest being $148 identified by the Agriculture Department IG for an unnecessary penalty for filing late construction paperwork.

Likewise, contractors for a geothermal technologies program billed the government $110,000 for prohibited alcohol, entertainment and excessive travel expenses, including seat upgrades, the Energy IG found.  And when a stimulus recipient overbilled Energy by $20,000 because of a typo, the government still hadn’t gotten its money back four months after its discovery, investigators said.

Taxpayers shouldn’t be surprised by the misspending because the administration believed “the faster, the better” when it came to using stimulus funds to stop an economic downturn, said Michael Munger, political science and economics professor at Duke University. 

“We’d gotten to such a position that the symbolism of spending that money helped stop the panic,” he said.  The thought process was akin to “let’s do something, even if it’s wrong,” he said, paraphrasing a country song.