The Department of Homeland Security's Office of Inspector General released a report Wednesday in which Auditor KPMG warned the Department of multiple potential violations of a fiscal law barring agencies from spending money in excess of appropriations.

On top of that, the New York Times reports today that:

KPMG LLP said for the third straight year that it could not provide an opinion on the balance sheet of the $40.3 billion department, the second-largest federal agency, because of its lax financial controls and oversight.

Another item for the long list of expected oversight hearings and investigations on the agenda for the 110th Congress?

Syracuse University's TRAC has finally obtained data from the IRS on auditing trends regarding large corporations. Unsurprisingly, the released data shows that the annual audit rate for large corporations has declined this last year.

IRS audited 35.3 percent of all corporations with assets of $250 million or more, down from 44.1 percent last year. The projected rate of hours of work spent per audit also fell from 978 hours/audit to 958.

These releases, compelled by a court order, complicate the picture of IRS enforcement Commissioner Mark Everson presented in November. He announced then that IRS auditing activities had netted more money this year, claiming that " ... no matter how you look at our results, they show a strong rebound in our enforcement efforts."

Everson was right that the IRS brought in more money. But given that enforcement decreased, TRAC speculates that the IRS isn't responsible for the revenue increase (emph. mine).

Some economists and tax experts believe that other explanations are possible, namely that a massive surge in non-compliance is believed to have swept through corporate America. Although government enforcement activities can be measured, accurately tracking the number individuals or corporations who secretly decide to break the law is extremely difficult. In recent years, however, Commissioner Everson, his immediate predecessor and many others have argued that case-by-case evidence strongly suggests more and more corporations are skirting the law. The bottom line: a real increase in the number of non-compliant taxpayers may explain the increase in enforcement revenues.

In other words, there probably was a much bigger bang for the auditing buck this year. So why do less of it?

OMB Watch has made a public statement on the General Service Adminstration's (GSA) controversial decision to reduce and outsource oversight over government contracts.

To reduce oversight, GSA wants to undercut its accomplished Office of the Inspector General (OIG). The GSA OIG has exposed irresponsible contractors at Abu Ghraib, and did investigations that led to the high-profile conviction of David Safavian, the former GSA chief of staff. So why is GSA trying to have OIG do less investigating? And how is it that manipulating oversight this way is even possible?

For background, see this fact sheet on GSA's plans and blog entries here and here.

The Brookings Institute's Katrina Index, which is still performing the invaluable task of tracking the Gulf Coast recovery, reports today that inadequate public services seem to be slowing down the pace of the recovery in New Orleans. Bad public services have may caused stagnation in the housing market particularly, as former residents have been reluctant to move back to neighborhoods that lack adequate sanitation, electricity, gas and water services.

These interdependent trends may lock in a cycle of slow growth. If no new residents show up, why should the city build better public services? Yet, if public services aren't built, why would anyone want to move back?

Even now, 1+ years after the hurricane hit, letting the market do its thing won't rebuild New Orleans. Breaking this cycle would seem to require more public intervention.

Furthermore, the federal government and local governments have shut down a few key sources of information on the recovery.

Interestingly, as long-term recovery problem solving continues, available data to measure the housing, economic, and social recovery on the ground appears to be slowing. For instance, the Bureau of Labor Statistics has stopped reporting data on the status of evacuees while some local entities have temporarily stopped or slowed reporting on noteworthy data such as home sale prices, public transportation ridership levels, current level of utility customers, and the opening of new restaurants.

On Monday, Paul Krugman wrote a good column ($) on government outsourcing. A key point:

It's now clear that there's a fundamental error in the antigovernment ideology embraced by today's conservative movement. Conservatives look at the virtues of market competition and leap to the conclusion that private ownership, in itself, is some kind of magic elixir. But there's no reason to assume that a private company hired to perform a public service will do better than people employed directly by the government.

In fact, the private company will almost surely do a worse job if its political connections insulate it from accountability -- which has, of course, consistently been the case under Mr. Bush. The inspectors' report on Afghanistan's police conspicuously avoided assessing DynCorp's performance; even as government auditors found fault with Landstar, the company received a plaque from the Department of Transportation honoring its hurricane relief efforts.

And at the last minute, Congress passed a short-term funding fix for the State Children's Health Insurance Programs (SCHIP) that will prevent cuts in services until at least May, according to the Congressional Research Service (Sorry, a link to the CRS report quoted below is unavailable at the moment).

The SCHIP provisions of H.R. 6164 delay shortfalls to the first part of May 2007, according to current CRS projections. Although the provisions redistribute an additional $125 million for projected FY2007 shortfalls, the shortfalls remaining for the rest of the fiscal year are projected at $716 million.

On Friday we posted on a House vote to extend the term of the Special Inspector General for Iraq Reconstruction (SIGIR). Keeping tabs on how the $38 billion pledged by the United States for Iraq Reconstruction is spent is the job of the SIGIR. Released over the weekend, this CBO report delves into the ins-and-outs of Iraq reconstruction finances, and on page 5 the CBO references the work of the SIGIR:

...a recent audit report, Review of Administrative Task Orders for Iraq Reconstruction Contracts, found that relatively high overhead costs-as much as 55 percent of the contract value-were being billed to reconstruction contracts by private contractors. The greater the amount spent on overhead, the less is available for actual reconstruction. The total dollar value of the contracts audited in that report was $1.3 billion. [emphasis mine]

Fifty-five percent!?! Kudos to the House for deciding to keep the SIGIR around a little longer.

GovExec reported that new GSA chief Lurita Doan, who's had it out for the GSA's Inspector General office, got two serious letters from Congress last week.

One of the letters, from Reps. Henry Waxman (D-CA), James Oberstar, (D-MN), and Eleanor Holmes Norton, (D-DC), questioned Doan's plan to hire contractors to conduct "pre-contract award audits" that the Inspector General's office has been doing for quite some time. The letter says the move raises conflict of interest and privacy concerns. Rightly so.

The other letter, from Sens. Barack Obama (D-IL) and Tom Coburn (R-OK), questioned why Doan deemed it necessary to cut the IG's budget request for 2008, despite mounting concerns of waste, fraud and abuse in federal programs. The effective budget cut was apparently unprecedented, as Inspectors General offices are supposed to maintain a large degree of independence within the agency they've been charged to monitor. Otherwise, there's a clear conflict of interest, once again.

Now, it's too easy just to blame Doan for all this mess (she called the IG a "terrorist" in a memo that was leaked to the Washington Post). After all, Doan is only exploiting loopholes in policy that Congress has failed to close- loopholes which allow for the systemic co-option of IG's offices and the systemic outsourcing of contractor oversight to other contractors.

Congress is doing the right thing by questioning GSA here. And it might have been the only thing they could do, since improvements in procurement oversight policy just weren't an option in the last Congress, of course. But this is ultimately a policy issue, and if the next Congress wants to put a stop to these abuses, letters and hearings and what have you will only be the beginning. Let's hope they do some follow-up in January.

In a stroke of good judgment, the House has decided that oversight of $38 billion in Iraq reconstruction funds is, in fact, something that should be conducted beyond next year.

CQ (no link):

The House by voice vote cleared S 4046, to extend the term of a special inspector general for Iraq reconstruction until 10 months after 80 percent of Iraq reconstruction funding has been spent -- a threshold expected to be reached in late 2008. A provision of the fiscal 2007 defense authorization law set Oct. 1, 2007, as the end of the inspector general's term.

Update: $30 billion figure updated to $38 billion to reflect latest CBO report

Back in September, you may recall a series of reports based on an internal investigation of the Interior Department that, essentially, showed that gas and oil companies were getting away with skimping on royalty payments. Interior just wasn't auditing these companies enough to compel the royalties they owed for extracting natural resources from public property.

Now, CBS News reports that not only were they not auditing enough, they didn't actually do the auditing they said they did. Interior misrepresented the number of audits they had been doing all along!

If the report's correct, that's pretty bold stuff. It seems almost a certainty that Democrats will hold hearings on this issue in 2007.

The Iraq Study Group, a bipartisan panel convened to ascertain the Iraq war and recommend courses of action, released its report yesterday. Recommendation 72 of the ISG is that:

Costs for the war in Iraq should be included in the President’s annual budget request, starting in FY 2008: the war is in its fourth year, and the normal budget process should not be circumvented. Funding requests for the war in Iraq should be presented clearly to Congress and the American people. Congress must carry out its constitutional responsibility to review budget requests for the war in Iraq carefully and to conduct oversight.

Almost four years into the conflicts in Iraq and Afghanistan, the president is still making emergency requests for funding. Including the $70 billion "bridge fund" in the FY2007 Defense approps bill, we have spent over $500 billion on the two wars - the vast majority of which is outside the normal budget process. Not only does "emergency" funding circumvent legislated budget caps, but, as the ISG report notes, it results in only a "perfunctory review" of the requested funds.

(via ThinkProgress)

The Washington Post had a truly appalling front page article over the weekend on efforts by the administrator of the General Services Administration to undermine oversight and investigation into contracts by the agency's Inspector General (IG).

WP: GSA Chief Seeks to Cut Budget For Audits

Posted by Adam Hughes, 10:53:06 AM

Friday, December 01, 2006