Mystery Loophole Wouldn't Require Reporting Fraud While Abroad

Rep. Peter Welch (D-Vt.) has called for an investigation.
Rep. Peter Welch (D-Vt.) has called for an investigation. (Alex Wong - Getty Images)
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By Josh White
Washington Post Staff Writer
Thursday, March 13, 2008

When Justice Department lawyers proposed adding a new rule that would require U.S. contractors to report waste, fraud or abuse they encounter while doing work for the government, they intended it to apply to all of the $350 billion in government contracts each year.

But in a twist that has evolved into a Capitol Hill mystery, the proposed rule that the White House's Office of Management and Budget published late last year includes language that would exempt from such reporting all U.S. contractors who do work overseas. There have been more than $100 billion in such contracts in Iraq and Afghanistan over the past five years.

The exemption has riled the Justice Department, which opposes limiting the rule to domestic contracts. And the loophole has led members of Congress to call for an investigation amid concerns that someone inserted the exemption as a favor to the contracting lobby that has major interests because of the ongoing wars.

"This sends the message that if you're going to do waste, fraud and abuse, don't do it at home, do it abroad," said Rep. Peter Welch (D-Vt.), who has asked House oversight leaders to investigate. "This was slipped in at the last minute. . . . It's obviously something you can't justify in any way, and there's no answer to why you'd allow this to occur abroad any more than you'd allow it to occur domestically. There is a question as to how and why the change was made, and we don't know the answer."

Welch, who called for hearings on the matter in a letter to colleagues Friday, said the White House could easily fix the problem by deleting the exemption language, but he said there has been no willingness to do so.

Assistant Attorney General Alice S. Fisher originally requested the new rule last May to "require that contractors establish and maintain internal controls to detect and prevent fraud in their contracts, and that they notify contracting officers without delay whenever they become aware of a contract overpayment or fraud, rather than wait for its discovery by the government." Such controls, which would apply to contracts worth more than $5 million, would affect almost all contracts, regardless of location.

But somewhere along the line the language was changed, and in November the proposed rule was published with the exemption.

The Justice Department wrote the OMB a letter in January asking that the exemption be removed. The rule was requested in the first place because of worries about a drop in voluntary reporting of waste and fraud. Dozens of cases of serious abuse have been linked to the wars. The difficulty of investigating cases abroad has complicated efforts to root out such fraud and waste, and the rule has been supported by inspectors general who are looking into overseas contracting.

Welch is scheduled to meet with Rep. Edolphus Towns (D-N.Y.), chairman of an Oversight and Government Reform subcommittee, today to discuss which witnesses might appear at hearings intended to determine who inserted the exemption. Welch said he is drafting a bill that would close the loophole in the event that the White House does not budge on the language.

The Associated Press, which has written about the loophole over the past two months, reported that the OMB has not finalized the rule.


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