The National Journal has been reporting this week that current Congressional Budget Office (CBO) Director Peter Orszag is in line to head up the Office of Management and Budget in the upcoming Obama administration. Orszag formerly served as a senior economic adviser during the Clinton administration and held a post in the economics studies program at the Brookings Institution.

Orszag has been impressive in his two year stint as the head of the CBO, which he began in January, 2007 and I think he would be an excellent choice to run the OMB for Obama. BudgetBlog readers will certainly know that we have high esteem for Dr. Orszag.

Argh! More bad news about the Defense Contract Audit Agency (DCAA), the watchdog at the Department of Defense that is supposed to watch out for waste and fraud within the agency's enormous contracting apparatus.

DCAA was in the news a lot this summer (see here, here, here, and here) after information surfaced showing the DoD spends too little on contract oversight and interferes with current auditors to restrict the length and scope of investigations. It doesn't look like things have improved much since then.

The Associated Press reported yesterday that defense contractors, particularly the Bechtel Group, had "chronic failures" in handing over financial records and other documents to the DCAA needed to perform audits.

The article also cites Raytheon, Northrup Grumman, and KBR as giving the DCAA trouble. In the widely publicized KBR incident over the summer, top officials at the DCAA would not back up auditors who balked at over $1 billion in unsubstantiated payments.

One auditor quoted in the AP article from yesterday hits the nail on the head about why strict oversight by agencies like the DCAA are so important:

The Bechtel episode illustrates how tolerant the agency can be when defense contractors slow the government's access to paper records and databases. There is no way to know how often DCAA withholds payments because it does not keep track. And it has not used its subpoena power in 20 years.

"We have been basically on the trust system for years," said the auditor who attended the May meeting. "It did not work on Wall Street and it is not working for federal contracts," said the two-decade veteran of the agency who spoke on condition of anonymity because DCAA employees are not allowed to publicly discuss their work.

Trust system? Seriously? What ever happened to "trust but verify?"

The USA Today reports today that the IRS sent out $1.6 billion in incorrect tax refunds during the 2006 and 2007 tax filing season. The information was released in a recent report from the Treasury Inspector General for Tax Administration (TIGTA). The TIGTA investigation found that the IRS has low-balled their initial estimate of the fraudulent tax refunds in 2006 and 2007 and that the agency has insufficient resources to adequately detect and stop these refunds from being dispersed.

In addition, the IRS made key decisions not to pursue hundreds of thousands of returns they knew to be fraudulent. This is worse than having insufficient resources (or will) to pursue people and corporations who don't pay all the taxes they owe - it's knowingly sending out federal resources to those who don't deserve the money in the first place. From the TIGTA report:

The CI [Criminal Investigations] Division and Examinations functions agreed to limit the number of fraudulent return referrals to ensure that examination resources were available to address other areas that are also critical to compliance enforcement. Therefore, the CI Division focused on identifying those returns with higher dollar values and higher data-mining scores, which precluded more than 500,000 potentially fraudulent returns from entering the Centers' screening process. Had these returns been included, we estimated that the Centers would have identified an additional potential $742 million in fraudulent refunds.

Obviously, more resources at the IRS would help a great deal - something we've argued repeatedly this year. Yet there are a few quotes in the USA Today article from IRS officials which had me scratching my head. This one in particular:

Many suspicious returns involve small sums and would produce a "relatively low dollar return" if the agency pursued deep investigations of each one, said IRS spokesman Terry Lemons, adding that the result would be a "loss for the nation's taxpayers."

So if I'm reading this right, the IRS is okay with sending out refunds to people who don't deserve it so long as those amounts are small, because trying to prevent that would end up costing more money than it saves? Yet the IRS (and many misguided legislators in Congress) are perfectly happy to continue a private tax collection program to pursue people who owe small amounts of back taxes despite overwhelming evidence that this outsourcing program costs more money than it brings in.

Wonder if that could have anything to do with the fact that the private tax collection program benefits private companies? And that those private companies are based in two locations with powerful leaders in Congress who not only originally drafted the program into law, but continue to support it? Hmmm...

Not sure how many of you are reading The Watcher, our bi-monthly newsletter that has interesting commentary, analysis, and insights into key government accountability issues of the day, but you should sign up for it if you don't currently get it (sign up here). Anyway, earlier this week we ran an article in the most recent issue on the Senate's passage of the FY 2009 Defense Authorization bill, which included a number of long overdue contracting reforms.

While our coverage was not incorrect, we certainly omitted some details on many of these reforms that we probably should have included (not a strike out per se, just a swing and a miss). So, to help us out, Rep. Henry Waxman (D-CA), the original sponsor of many of these reforms, has posted a helpful summary of the Clean Contracting Act. This legislation, which was originally introduced in 2006, would:

[E]nhance competition in contracting, limit the use of abuse-prone contracts, start the effort to rebuild the federal acquisition workforce, strengthen important anti-fraud measures, and increase transparency in federal contracting.

These are solid reforms that should have been in place a long time ago, and Waxman and other congressional champions of a more responsible and efficient procurement system should be commended. But the work isn't finished yet. Waxman laments in his statement:

My only regret is that some of the other key reforms passed by the House were not included in the final version of the legislation. I am disappointed that the House and Senate compromise does not include a ban on private interrogators in U.S. military detention facilities or mandate congressional approval for any security pact with Iraq that is negotiated by the President.

Summary of Clean Contracting Act
Waxman's Statement on the Act

Earlier this week, we highlighted two hearings in the House of Representatives that were focusing on issues of waste, fraud, and abuse and federal contracting. Our friends over at the Project on Government Oversight (POGO) have had their A-game this week. They not only testified at one of those hearings, but have provided some excellent previews, commentaries, analysis and reports, and summaries on the hearings this week. All of the POGO materials are worth at least glancing through, if not reading thoroughly.

I also wanted to share POGO's perspective on the passage of the contractor responsibility misconduct database this week as part of the defense authorization bill in the Senate. POGO has championed this proposal from the beginning and long ago created a prototype of the database for the public.

POGO regularly harps on the deficiencies of the proposed database, but it's still a positive accomplishment. The database would only include defense contractors and would be accessible only to Department of Defense procurement officials and Congress. The database may be made available to other government officials at the discretion of the Under Secretary of Defense for Acquisition, Technology, and Logistics, but it's off-limits to the public. It would also include only instances involving the award or performance of contracts, and only those occurring in the most recent 5-year period.

Kudos to POGO for being on top of their game this week.

We'll be shutting down the BudgetBrigade a bit early today to head off to OMB Watch's 25th Anniversary celebration. Yup, that's right. OMBW is 25 years young this year and we're primed and ready for our quarter life crisis! We're taking some time to celebrate tonight with friends and supporters and remember 25 years of fighting for a more transparent and accountable federal government.

While we are looking back over some of our accomplishments of the last quarter century (and honoring the unsung work of some of our public sector colleagues), we are also looking forward to the challenges we'll face over the next 25 years and beyond.

You will be a key part of overcoming those future challenges, just as you've been crucial to our past accomplishments. Your involvement, along with hundreds of thousands of people just like you has helped to make us the success we are today. So thank you for your commitment to the open and accountable ideals that have helped guide OMBW over the past 25 years.

And if you want to help make sure those ideals continue to be realized, consider making a small donation to OMB Watch in honor of our 25th birthday. Your contribution will join with hundreds of others who want to ensure we are able to continue our mission and the important work we do everyday.

The Washington Post has an article this morning that details severe contracting problems at the Department of Homeland Security. The Post describes the agency's efforts to oversee $15 billion in contracts over the last six years as having "failed."

The contracts wound up over-budget, delayed or canceled after millions of dollars had already been spent, according to figures and documents prepared by the House Committee on Homeland Security. A panel of experts is to testify today before the House Subcommittee on Management, Investigations and Oversight on how to fix problems with the DHS acquisitions process.

The experts are expected to discuss a number of high-profile screw-ups at DHS, including the Coast Guard's Deepwater program (ships were built and then scrapped), Boeing's border protection fence, which we've skewered numerous times (over budget, behind schedule, doesn't work), a program to track visitors entry and exit from the U.S. called US VISIT (behind schedule, not being managed well), and some contracts related to Hurricane Katrina (mismanaged, wasted funds).

You can watch the hearing, scheduled for this afternoon at 2:00 pm (EST), on the web by following the link at the bottom of the committee web page.

I should also mention that the full committee hearing held last week on the virtual border fence contract in the House Homeland Security Committee will be finished tomorrow at 10:00 am (EST).

I came across another delay in a federal contracting effort to report today. Seems the Department of Defense, and more specifically Secretary Robert Gates, feels it will not have sufficient time to complete the re-competition for the contract to build the next generation of mid-air refueling tankers. Gates announced this morning during testimony before the House Armed Services Committee that DoD has decided to cancel the competition and leave the issue for the incoming administration to figure out.

At first my reaction was this was just another example of the Bush administration pushing off their screw-ups onto someone else. But after thinking about it for a while, I think I'm changing my mind. Gates described the tanker contract issue as "enormously complex and emotional" and given the energy of the election season, trying to move forward on this contract in 2008 would probably only make things worse.

Part of the reason I think this is that self-interested politicians keep sticking their noses into this issue where they don't belong. The latest is House member Rick Larsen (D-WA), who decided he was qualified enough to judge that the postponement was "great news" and a "step in the right direction." Now maybe Larsen has previous experience as a contracting officer, defense analyst, or refueling tanker pilot (these details are not apparent from his website bio). Not surprisingly, Larsen's district is home to Boeing's enormous Everett aircraft assembly plant, the main company in the team who lost the initial competition for the tanker. Gee, I wonder if that is impacting his perspective on this issue?

The last thing we need is for the contracting process to become even more political than it already is. While Larsen is a member of the House Armed Services Committee, contract competitions are the perview of the executive branch, not Congress and Larsen and other politicians should stay out of a process that is already too political. Gates wisely decided that because the keen interest of politicians in this contract in an election year would only make the competition less fair, the right decision is to postpone.

Yesterday I ripped into folks over at the Professional Services Council (a contractor front group) for implying that current contracting woes had nothing to do with the contractors themselves. Then this morning I come across an update on the SBInet program - which is supposed to establish a virtual fence along the southern border of the United States to monitor illegal crossings. The program continues to be behind schedule and over budget. Big surprise.

We blogged back in April about how the program was behind schedule and over budget, citing two other reports from June 2007 and February 2008 that showed the program was not going well. In fact, the Customs and Border Protection office decided to scrap a part of the program being handled by Boeing called Project 28 after $20 million had been spent on a system that didn't work.

The House Homeland Security committee held a hearing yesterday to explore why the virtual border fence has not become a reality. Two representatives from the Government Accountability Office (GAO) testified that the SBInet program is pretty much a disaster. From GAO director of information technology architecture and system issues Randolph Hite's testimony:

Important aspects of SBInet remain ambiguous and in a continued state of flux, making it unclear and uncertain what technology capabilities will be delivered and when, where, and how they will be delivered. For example, the scope and timing of planned SBInet deployments and capabilities have continued to be delayed without becoming more specific.

Ouch. Not a lot of grey area there. GAO's Richard Stana, director of homeland security and justice issues, also testified that time lines for the program had slipped, in some cases by up to three years, and the cost of the pedestrian fence has increased from about $4 million per mile to $7.5 million per mile! Wow! Now that's what I call wasteful spending.

Elizabeth Newell wrote an good summary last week in Government Executive magazine of the state of a handful of reforms to the federal contracting process that have been stalled in the Senate Homeland Security and Government Affairs Committee.

With time running out in this congressional session, a number of sweeping contracting reform bills are languishing on the back burner. Several significant pieces of acquisition legislation are stuck in the Senate Homeland Security and Governmental Affairs Committee, and their authors are attaching provisions to other bills in a last-ditch effort to address federal acquisition issues.

We've seen this strategy pay off already this year, as the article goes on to note. At the end of June, two contracting reforms were enacted as part of the latest war supplemental spending bill, and back in May, another reform passed as part of the HEART Act, a bill to give tax cuts to veterans. I'm hoping it pays off again in September (although Neil Gordon writing over on POGO's blog isn't very optimistic).

One small gripe about the article though. Newell quotes Colleen Preston, the executive vice president for public policy with the Professional Services Council (PSC). The PSC is a trade association that represents the interests of government contractors - counting some of the largest government contractors like Lockheed Martin and Boeing as members. Preston's quotes are, well, predictable.

Preston said to some extent the pileup of contracting legislation is an election-year inevitability. The problems the bills seek to address may be real, she said, the solutions may not be what the government really needs.

"The real problem is the acquisition workforce," she said. "Until the government can address that issue, it's not clear anything will make a difference."

I want to move past the strange assertion that the government doesn't need solutions to real problems in federal contracting and cut straight to the bashing that Preston gives government contracting officers. It's so nice for her to come along and explain to us all that the problem is simply the bureaucrats. Oh, now I get it. Problem solved!

I suppose Preston feels the problem isn't related to contractors? Not at all? Really? Contractors never deliver products that don't work, never go over budget, never intentionally charge the government more than they should, never waste resources, and never fall behind schedule? Contractors never break laws or cheat or try to get every advantage and perk to turn a profit? Please.

I take issue with Newell's failure to mention that PSC is an interest group whose purpose is to promote the use and reliability of federal contractors. Knowing that, it becomes obvious that PSC has no interest in exposing its members to public scrutiny or burdensome reforms; better to blame the government for the failures of private contractors.

I came in this morning to find my inbox (well, it was actually my Google RSS Reader, but saying inbox sounds better) deluged with more stories about contractor malfesence. A quick rundown for our BudgetBlog readers:

The Wall Street Journal reports that MVM Inc., one of the largests security contractors used by the U.S. intelligence community, has lost a huge CIA contract - worth up to $1 billion over five years. Apparently they were not providing enough armed security guards, which is strange because that was, you know, what they were contracted to do.

Robert O'Harrow Jr. writing at Government Inc. shares some fascinating facts about the use of contractors in the U.S. intelligence community, including the fact we are paying over $3 billion more each year on average for private contractors to carry out intelligence work than if we just hired more government workers. Shocker! (O'Harrow also highlighted a new Government Accountability Office report on August 15 that detailed the 400 percent (yes, I said 400 percent) markup on a contract to provide the next generation of radios for the Defense Department.)

And the darling of the contracting community KBR Inc., was back in the news today in the Washington Post, again not for a good reason. A Washington law firm has filled suit in a federal court in California alleging that KBR and one of its Jordanian subcontractors were trafficing Nepali workers. From the Post article:

Agnieszka Fryszman, a partner at Cohen, Milstein, Hausfeld & Toll, said 13 Nepali men, between the ages of 18 and 27, were recruited in Nepal to work as kitchen staff in hotels and restaurants in Amman, Jordan. But once the men arrived in Jordan, their passports were seized and they were told they were being sent to a military facility in Iraq, Fryszman said.

As the men were driven in cars to Iraq, they were stopped by insurgents. Twelve were kidnapped and later executed, Fryszman said. The thirteenth man survived and worked in a warehouse in Iraq for 15 months before returning to Nepal.

My favorite part of that article is right at the end when a KBR spokeswoman says, "The company in no way condones or tolerates unethical or illegal behavior." Sure. And I've got a bridge to sell you.

Update:
The folks over at TPMMuckraker dove into the specifics of the lawsuit brought against KBR today and have posted more details.

Last week I wrote on the BudgetBlog about a new Taxpayers for Common Sense (TCS) analysis detailing the status of earmark in the FY 2009 House and Senate appropriations bills to date. I wrote at the end of the post that cutting earmarks does not save "any" money, which as it turns out, isn't exactly true.

Steve Ellis from TCS wrote a helpful email I'm republishing here with his permission. Steve helps to clarify where/when savings are possible from cuts in earmarks.

Hey Adam,

Hope you are well. Thanks for the plug of our interim earmark report on your blog. Not to be too niggling, but I wanted to make a friendly suggestion - your kicker comment about cutting earmarks doesn't save "any" money is not accurate. The FactCheck story you link to says it would save "little." Of course that depends on how you define little.

Our analysis found $18.3 billion congressional earmarks last year, and as we and others have indicated, in many cases these are just divvying up a spending pie that already exists. But not always. Large and small amounts of money are added to earmark pots and if the earmarks were eliminated that funding would go away. Particularly in defense you can see plus ups across [Research Development Test & Evaluation] — and that bill contained $7.9 billion worth of congressional earmarks last year.

And none of this gets to the indirect cost — money going to wasteful projects, less money going to worthy or critical projects, delaying completion and increasing costs, etc. And that doesn't touch the corruption aspects, opportunity costs, failed oversight, bad products (the most clear-cut example of bad products is the Rep. Wu (D-OR) earmark that got synthetic shirts for Marines that melted to their bodies in the heat when their armored vehicle was attacked).

Anyway, I just wanted to highlight that cutting earmarks can save money, it just isn't as simple as 1 to 1, but it's not 1 to 0 either.

I'm still not convinced that the actual savings Steve is talking about is more than a couple of billion a year, which in a $3 trillion budget is really nothing to get too excited about (I know, a billion here, a billion there, and pretty soon we're talking about real money). But Steve makes a great point about the indirect costs. Not only is there a monetary opportunity cost to an inefficient system that funds the wrong projects and services, but it also undermines the trust the public has in our government to provide for the common good.

The Federal Diary column in the Washington Post this week asked each of the presidential candidates a series of questions related to the federal workforce. Both columns are worth a quick read if you want to learn more about the candidates (see McCain and Obama), but I wanted to highlight one question in particular. Joe Davidson asked each candidate, "Federal labor leaders complain that outside contractors perform jobs that should be done by government employees. Do you favor any suspension of contracting out activities? Do you favor legislation that would prohibit the IRS from using appropriated funds to hire private tax collectors?" Below are their responses.

McCain:

If programs have a good record, and serve a vital national purpose that the private sector can't, they will receive continued funding. But I will not subordinate my commitment to the American people to ensure their tax dollars are spent wisely to the demands of labor leaders looking to swell the ranks of federal government unions.

I will make every aspect of government purchases and performance transparent. Information on every step of contracts and grants will be posted on the Internet in plain and simple English. We're not going to hide anything behind accounting tricks and bureaucratic doubletalk. Nor will I allow other procurement tricks that divert funds from national priorities. I will expand the use of fixed-price contracts to enforce discipline in the procurement process and ensure that clearly defined requirements are fulfilled, realistic schedules are kept, and costs don't exceed the promised price.

Too often, contractors underbid to 'buy into' a market with little expectation of delivering on schedule and within budget. At the same time, the government's cost estimates are often unrealistic. Fixed-price contracts based on realistic cost estimates with clear, consistent requirements will ensure that the contractor pays for cost overruns, not the taxpayers. We must also limit sole-source contracting and make cost discipline a priority using market competition to keep costs down and innovation up.

Obama:

Sen. Obama is concerned by the rising number of government contractors that are often unaccountable and frequently less efficient than government workers. As president, Obama will restore effective oversight of the government-contracting process and reduce our nation's increasing dependence on private contractors in sensitive or inherently governmental functions. Obama will eliminate the Bush administration's ideological bias towards outsourcing of government services and abandon initiatives, like the inefficient use of private bill collectors to collect federal taxes, that are a demonstrated waste of taxpayer money.

OMB Watch is a 501(c)(3) and does not participate in activities that support or oppose candidates for public office. This information is presented solely for informational purposes.

Taxpayer for Common Sense, the scrappy nonprofit that is fast becoming the go-to resource for all things earmarks, released a new analysis earlier this week showing that earmark levels have dropped slightly in the FY 2009 appropriations bills compared to last year. From the TCS report:

During this election year, lawmakers are showing slight restraint in writing the earmarks in the FY 2009 spending bills, according to an analysis by Taxpayers for Common Sense (TCS) (click here for the new database). The House has increased the number and value of earmarks at about the same rate. The Senate has cut earmarks by 16% in the spending bills in terms of total dollars. The analysis is based on all the bills that have passed full committee and are awaiting action in both chambers.

The appropriations bills are not complete yet (far from it) and TCS warns that lots could change. In fact, they state the FY 2009 spending bills may end up with more earmarks because of how the bills are likely to be enacted:

The slight progress made on reducing the total costs of earmarks will be eliminated the longer we wait to pass the 2009 spending bills. The most likely scenario is a major omnibus spending bill during the first days of the 111th Congress. So any earmark reductions we are seeing in August are likely to be negated by an avalanche of earmarks that always accompanies major omnibus spending bills.

At least legislators running for re-election can say with a straight face they are trying to reduce earmarks. I suppose that's better than them claiming that cutting earmarks saves any money. It doesn't

The OMB Watch Fiscal Policy Program is looking for an intern for the fall of 2008. Yup, that's right. This is your chance to get in on the ground floor at one of the most dynamic nonprofit watchdog groups in Washington, DC. We're looking for energetic undergraduate or graduate students who have excellent writing, critical thinking, and communications skills, and who are dedicated to public policy and government accountability (see current intern Josh at right for example).

The internship is unpaid, but you'll have the chance to gain first hand experiences and take on significant responsibilities related to a number of different aspects of policy analysis in DC. Plus, you'll get a chance to write for the BudgetBlog - what could be better?

Interested? Learn more about the position and how to apply.