Happy Fourth of July!
Just wanted to let our loyal BudgetBlog readers know we're going on a short hiatus next week. With Congress heading out of town for a short summer recess and the upcoming Fourth of July holiday next week, the Fiscal Policy team is heading out of town in order to escape the heat for some well-deserved vacation. This means, though, that the BudgetBlog will be dormant next week.

But don't despair. Craig and I will return in one short week on July 7 to continue to bring you all the news, gossip, information, and analysis on federal fiscal policy you've come to expect.

Hope everyone has a safe and festive Independence Day next week - be careful with those fireworks.

Another report of a questionable use of outsourcing appeared today in CongressDaily, this time it's happening over at the State Department. Seems folks over there have modified an existing contract to Computer Sciences Corporation (FedSpending.org profile) to "collect visa information and fingerprints of Mexicans applying for new border crossing cards." The non-competed contract has raised some eyebrows in Congress and among government watchdogs, particularly the Government Accountability Office (GAO).

A State Department official testified before the House Oversight and Government Reform Government Management Subcommittee that the contract is just a test program and that the department hopes to initiate a formal competition before the end of the year. But it looks as though that "test program" is just an attempt by the State Department to assess the usefulness of the contract cover their behinds. GAO has not had time to assess the new contracted out work and what impact it will have, and surprise, surprise, neither has the State Department. GAO testified at the same hearing that the State Department has "not developed metrics to measure the success and efficiency of the test program."

So, the State Department is going to determine whether this is a good idea or not by...wait, how are they going to figure that out? Most likely, they have already concluded this outsourcing should happen. My bet is that the test program will lead to a contract for a full program, that Computer Sciences Corp. will undoubtably win, regardless of whether this really is a good deal for taxpayers or might compromise privacy or national security. No worries though - those are just minor details that will unfortunately remain unknown. Sigh...

Following up on my blog earlier today about the Webb-McCaskill Wartime Contracting Commission finally starting to get off the ground, I came across a great column by Thomas Frank today in the Wall Street Journal (of all places!) continuing the drumbeat for a contracting commission to finally get to the bottom of the rampant shenanigans that have gone on for far too long in Washington.

Frank, who wrote a cultural analysis of American politics in the book "What's the Matter With Kansas?", briefly explores the original of the privatization movement in the U.S. in his latest edition of his column entitled "The Tilting Yard," and calls on conservatives (of all people) to help turn the tide of waste, fraud, and abuse in federal procurement. Frank concludes:

The days when conservatives railed against red tape and shrieked for efficiency in Washington now seem like a lifetime ago. When they finally got the opportunity to put their theory into practice, conservatives contrived instead one of the most wasteful systems ever seen.

It is time for a new Grace Commission, this one examining the sordid history of privatization in all its details.

Frank's column is worth a read: The Tilting Yard: Conservatives and Their Carnival of Fraud

Craig's post yesterday about some short-sighted decisions at OMB to not provide sufficient resources for contractor oversight at the Army got me thinking about the Webb-McCaskill Commission on Wartime Contracting. There hasn't been a ton of news about that commission since it was enacted into law last fall, but just last week seven of the eight commission members were announced.

Four of the members were selected by Democrats in Congress, one was selected by Republicans in Congress, and two by President Bush. The Project on Government Oversight has a full rundown of the commission members selected so far and ample background information on each of them.

OMB Watch is looking forward to the work of the commission. We hope this badly needed oversight body for the broken federal procurement system will be able to continue to bring to light the significant problems with federal contracting, but also develop policy solutions to prevent future abuses.

A day after we read that OMB denied the Army funds to employ 5 generals that would be in charge of overseeing contracting for the Army, the House Oversight and Government Reform Committee issues a report that finds the Army's $300 million contract with fraudster contractor AEY "can be viewed as a case study in what is wrong with the procurement process."

That OMB sees no imperative for improving military contracting is disturbing. The installation of 5 generals to oversee Army contracting follow a recommendation from the Gansler Commission report -- a study that found failures of Army acquisition systems have significantly contributed to the waste, fraud, and abuse..." The report also notes that "Notwithstanding a seven-fold workload increase and greater complexity of contracting, the Institutional Army is not supporting this key capability" and that there are "almost as many contractor personnel in the Kuwait/Iraq/Afghanistan Theater as there are U.S. military, [yet] the Operational Army does not yet recognize the impact of contracting and contractors in expeditionary operations and on mission success.

The House report and associated hearing, meanwhile, describe in quite some detail how these weaknesses in Army acquisition led to "a grossly inadequate assessment of AEY's qualifications, and poor execution and oversight of the contract" with "[t]he result...that U.S. taxpayers have paid over $66 million to a contractor who provided 'unserviceable' ammunition, much of it apparently of illegal Chinese origin.

Our friends over at the Government Accountability Office released another great report a week or two ago concerning how Medicare providers (hospitals, nursing homes, and doctors) are failing to pay federal taxes to the tune of at least $2 billion a year. Findings from the report:

Our analysis of data provided by CMS and IRS indicates that over 27,000 health care providers (i.e., about 6 percent of all such providers) paid under Medicare during calendar year 2006 had payroll and other agreed-to federal tax debts totaling over $2 billion. The $2 billion in unpaid tax debts only includes those debts reported on a tax return or assessed by IRS through its enforcement programs. This $2 billion figure is understated because some of these Medicare providers owed taxes under separate tax identification numbers (TIN) from the TINs that received the Medicare payments or they did not file their tax returns.

GAO found some pretty crazy stuff in their investigation, including abusive and potentially criminal activity, and found that many individuals associated with their investigation used the proceeds of their tax evasion for personal profit. Again from GAO:

Furthermore, individuals associated with some of these providers at the same time used payroll taxes withheld from employees for personal gain. Some of these individuals accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes.

While the actions of these providers is pretty bad, the failure of the Centers for Medicare and Medicaid (CMS) to take any actions to prevent these abuses might be worse:

CMS has not developed a policy to require contractors (1) to obtain consent for IRS disclosure of federal tax debts and (2) to screen providers for unpaid taxes. Further complicating this issue, absent consent by the taxpayer, which CMS does not require, federal law generally prohibits the disclosure of taxpayer data to CMS or its contractors.

IRS can continuously levy up to 15 percent of each payment made to a federal payee—for example, a Medicare hospital—until that tax debt is paid. However, CMS has not incorporated most of its Medicare payments into the continuous levy program. As a result, for calendar year 2006, the government lost opportunities to potentially collect over $140 million in unpaid taxes.

Health care providers receiving federal resources should be treated no differently than contractors who fail to pay their taxes. Congress recently passed legislation to prevent contractors from using off-shore tax havens to avoid paying federal taxes. They should do the same to make sure all entities who benefit from our common resources pay the taxes they owe.

One-Page Summary of GAO Report
Full Report: Thousands of Medicare Providers Abuse the Federal Tax System

When President Bush signed into law the Heroes Earnings Assistance and Relief Tax Act (HR 6081) on Tuesday, he forced domestic firms employing workers through off-shore shell companies to pay payroll taxes when performing work on federal contracts. The provision in the bill uses language from the Fair Share Act (HR 5602).

Writing on Womenstake, the National Women's Law Center blog, Joan Entmacher notes that Bush signed the bill despite its inclusion of the Fair Share Act language.

Of course, cracking down on abuses by defense contractors wasn't the reason President Bush signed the bill. The new law provides tax assistance for military families -- a cause so popular that the bill passed the House 403 to 0 and the Senate by unanimous consent. So, at least this time, President Bush was willing to set aside his belief that tax cuts should not be financed by raising other revenues.

But, when it comes to closing much larger loopholes exploited by super-wealthy private investment fund managers, President Bush and his allies on Capitol Hill so far are giving no sign that they are willing to relent.

Breaking news from the Government Accountability Office related to the much-hyped $35 billion refueling tanker contract that the Air Force awarded to a Northrop Grumman/EADS partnership earlier this year (see BudgetBlog coverage here, here, and here). In what is being described as a "stunning" decision, the GAO has upheld a protest of the contract award lodged by Boeing. CongressDaily reports:

In a stunning decision, GAO today announced it has sustained a protest filed by Boeing Co. over the Air Force's decision to award a lucrative contract for aerial refueling tankers to a team led by Northrop Grumman and EADS, the European firm behind Airbus. GAO's decision followed a 100-day review of the Air Force's selection process for the $35 billion program. GAO recommends that the Air Force reopen discussions with the contractors, obtain revised proposals and make a new decision. The service was also asked to reimburse Boeing for the cost of the protest.

I guess it is back to the drawing board for the Air Force.

UPDATE:
More information on the GAO decision is available in this article from The Hill: GAO sides with Boeing.

The House Appropriations Financial Services Subcommittee approved, by voice vote, a $22.4 billion bill that would provide funds for the Treasury Department and the District of Columbia. Included in the measure is $11.4 billion for the IRS, a slight increase over the president's request and over $300 million more than the current budget. And while the IRS' enforcement budget allotment matches the president's request -- a respectable 7 percent increase over current levels --, the committee saw fit to raise Bush's $2.15 billion request for taxpayer services funding by $60 million.

The subcommittee also zeroed out funding for the IRS' private debt collection. The controversial move will likely raise the ire of supporters of the program, and if history repeats itself, the program will see funding restored if Congress passes a continuing resolution for FY 2009 later this year.

Here's the approps scorecard thus far:

Writing in The New York Times, James Risen brings us an astonishing article on the circumstances surrounding the firing of the Army official in charge of overseeing the KBR contract in Iraq. It's not only galling to read that the chief of the Field Support Contracting Division of the Army Field Support Command Charles M. Smith was sacked because he refused to approve payment for unsubstantiated work by KBR, but it's a sharp reminder of how the current level of Iraq contracting has lead to billions and billions of wasted federal funds.

Army auditors had determined that KBR lacked credible data or records for more than $1 billion in spending, so Mr. Smith refused to sign off on the payments to the company. "They had a gigantic amount of costs they couldn't justify," he said in an interview. "Ultimately, the money that was going to KBR was money being taken away from the troops, and I wasn't going to do that."

But he was suddenly replaced, he said, and his successors — after taking the unusual step of hiring an outside contractor to consider KBR's claims — approved most of the payments he had tried to block.

That's awful. But, the Army's rationale for making sure the cash spigot flows unabated signals even deeper problems with Pentagon procurement.

The investigation of Office of Special Counsel chief Scott Bloch is turning up some rather comical footnotes to the saga.

On many occasions since 2006, Bloch ordered a subordinate to post comments on blogs and in the "comment" sections of online news stories using a pseudonym, current and former OSC employees told CongressDaily.

[...]

"Bloch would suggest posting things in the comments section. ... There'd be a negative article about Scott's involvement on something ... and [the] comment would be something like 'This Bloch guy is doing a good job."

[...]

The former OSC employee, who described the Web posting operation in exchange for anonymity, said such instances might have numbered in "the double digits." Bloch "would be involved in the discussion of what should be said," the employee said.

However, before the bill could be approved under suspension of the rules, Democrats had to strip a few controversial provisions that would have allowed the GAO to administer oaths to agency employees; obtain information on Medicare Part D (the drug benefit) from HHS; and force the FDA to give the GAO information on drug pricing information, even if that information is considered a trade secret.

When the bill was passed out of the House Committee on Oversight and Government Reform, ranking member Tom Davis (R-VA) issued a statement with this revealing bit of logic:

By increasing GAO's investigative powers, I am concerned we will trigger a chilling effect on GAO's relationship with federal agencies — resulting in agencies being less forthcoming in providing information and diminishing GAO's role in improving government operations and promoting best practices in the federal government.

Maybe we should apply this logic to contractor oversight -- restrict investigative authority and contractors will be banging down the Oversight Committee's door in a fevered rush to declare their own misdeeds.

Below are blog and news stories discussing the introduction yesterday of a new transparency bill cosponsored by Sens. Barack Obama (D-IL) and Tom Coburn (R-OK). Given the bill was introduced at the same time as Obama was wrapping up the Democratic nomination for president, the coverage was not bad.

The bill will likely be marked up in Sen. Carper's (D-DE) subcommittee of the Homeland Security and Governmental Affairs Committee sometime in the next few weeks and then hopefully move to the floor before the August recess. Sen. McCain (R-AZ) joined this bill shortly before it was introduced as an original cosponsor, dramatically increasing the chance of it passing this year before election year pressures impose gridlock in Congress. Perhaps Obama and McCain will promote the bill in their potential series of town hall meetings - that would definitely give it a boost in Congress.

The Hill: Rivals Obama and McCain work together behind scenes
Sunlight Foundation: USASpending.gov 2.0
OMB Watch: Obama-Coburn Continue Transparency March
POGO: Obama for...Transparency
Chicago Tribune: Obama, McCain agree on transparency
CongressDaily: Obama, McCain Give Boost To Contract Data Legislation

Updated:
DC Examiner: Another revolutionary leap forward for federal spending transparency
Talking Points Memo: Nugget from Behind the Scenes
ThinkProgress: June 5 Think Fast summary

Update II:
Obama and McCain Agree on Transparency
Federal Times: Obama-McCain bill would post federal contracts online

Sens. Barack Obama (D-IL), Tom Coburn (R-OK), Tom Carper (D-DE), and John McCain (R-AZ) introduced new legislation on June 3 as a follow-up to the 2006 Transparency Act. The bill, the Strengthening Transparency and Accountability in Federal Spending Act (S. 3077), would augment the 2006 law but go further, making important new data more easily accessible to the public and making it easier for citizens to hold our government accountable for the fiscal stewardship of our shared resources.

It should be interesting to see if this new bill will generate the same amount of chaos, confusion, and excitement that the first bill did that Obama and Coburn worked together on. Stay tuned...