Contractor Supporting Insurgents in Afghanistan Granted Access to Coalition Facilities

    In a November 8 letter to Secretary of Defense Chuck Hagel, the Special Inspector General for Afghanistan Reconstruction (SIGAR) warned that a contractor that had been identified with the insurgency had been granted access to a Coalition facility last November, and that the threat of further access by such contractors remains.  SIGAR uncovered the information while conducting an investigation of the structural defects at the Parwan Justice Center, a new courthouse being jointly constructed by the State and Defense Departments.  The letter reads in part:

Evidence obtained by SIGAR indicates that a contractor identified by the CENTCOM Commander as supporting the insurgency in Afghanistan gained access to a Coalition-controlled facility. This security lapse seems to have been caused by gaps in how contractor information is shared by U.S. government agencies supporting the reconstruction effort. Unless immediate action is taken to correct this matter, this contractor and other supporters of the insurgency could continue to gain access to U.S.- and Coalition-controlled facilities in Afghanistan...

Evidence obtained by SIGAR indicates that for two days in November 2012, employees of ZMTL were given access to the Parwan Justice Center complex.2 However, these individuals should not have had access to a Coalition-controlled facility, because the U.S. government determined as early as April 2012, that the Zurmat Group poses a threat to U.S. and Coalition forces.  

Specifically, on April 27, 2012, the Department of Commerce added the Zurmat Group and ZMTL to its Entity List3 because of their involvement in “networks that provide components used to make improvised explosive devices (IEDs) used against U.S. and coalition troops in Afghanistan.”

     To date, the U.S. Army has rejected all 43 of SIGAR's requests that insurgent-supporting contractors, including Zurmat, be subjected to debarment from future work on coalition projects.  The Army has rejected these requests on concerns that debarment would "violate their due process rights under the U.S. Constitution."  SIGAR believes this is a "flawed approach", and that "until action is taken on all 43 insurgency-related cases SIGAR has referred to the Army for debarment, the safety of our troops could still be at risk and U.S. government funds could be diverted to supporters of the insurgency."


Note: A version of this article appeared first at The Weekly Standard.

Audit Finds Maryland Overcharged Federal Government in 95% of Cases in Waiver Program

    A Social Security program administered by the Centers for Medicare & Medicaid Services (CMS) allows states to apply for waivers for longterm care of individuals with developmental disabilities in home and community settings instead of institutions.  For the three years ending June 2012, the State of Maryland claimed $648.6 million from the federal government under its Community Pathways waiver program.
    An audit by the Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) found that errors in paperwork filed by the state resulted in overcharges to the federal government in excess of $20 million.  But even more startling than the dollar amount is the 95% error rate uncovered by the audit.  The OIG explains in the Findings section of the report [emphasis added]:

The State agency did not comply with Federal and State requirements when it claimed costs for residential habilitation services under the waiver.  Of the 100 claim lines that we sampled, 5 complied with Federal and State requirements; however, 95 did not.  The 95 claim lines had 135 errors:  

• For 81 claim lines, the State agency included unallowable costs for room and board.    
• For 54 claim lines, the State agency reduced provider payments to reflect amounts in excess of room and board that providers had collected from beneficiaries but did not reduce claims for Federal reimbursement accordingly.   

Forty claim lines included both errors.We estimate that, as a result of these errors, the State agency claimed at least $20,627,705 (Federal share) in unallowable costs.
The State agency claimed these unallowable costs because it lacked internal controls to ensure that unallowable costs were not included in claims for provider per diem payments.  

    In response, the State of Maryland agreed with the finding of the audit, including the recommendation to reimburse the federal government for the $20 million overcharge.  The state agency responsible also noted steps being taken to prevent a reoccurrence of the errors.
    As the Affordable Care Act begins to take full effect in 2014, Maryland is one of the states participating in the Medicaid expansion that is part of the law.  State agencies will have an expanding workload as the Medicaid expansion kicks in, increasing the need for safeguards to be sure that the states are in compliance with reimbursement guidelines.

Inspector General Finds 5% Compliance Rate With Regulations on Certain IRS Contracts

    The Internal Revenue Service has come under heavy criticism of both Republicans and Democrats in recent days after a Treasury Inspector General's report detailing "inappropriate criteria" used to identify certain applications of mainly conservative organizations for special review resulting in long delays in processing and invasive inquiries.  The acting commissioner of the IRS himself admitted to "horrible customer service" and "foolish mistakes."  While the harshest criticism came from the GOP, even Democratic members of Congress found the IRS practices completely unacceptable.  But another report issued by the Treasury Inspector General just two weeks earlier found that the vetting process for tax-exempt organizations was not the only flawed aspect of the agency's practices.
    The report was issued on April 30, 2013, and was titled "Cost-Reimbursement Contracts  
Did Not Fully Comply With Federal Acquisition Regulation [FAR] Revisions."  The findings make the title seem like an understatement:

The IRS did not comply with the majority of  the new FAR requirements for 46 of the 49 cost-reimbursement contracts entered into between March 17, 2011, and June 30, 2012, totaling nearly $47 million. 

    None of the three contracts that complied with some of the Acquisition Planning Requirements were in full compliance.  With a list of 10 criteria and 49 contracts, there are a possible 490 pass/fail marks.  As the chart below shows, there were only 13 passing marks out of 490 for a compliance rate under 3%.

    When the two other areas audited are also included (Contracting Officer Responsibilities and Adequacy of Contractor Accounting System Requirements, see Figure 2 and Figure 3 in report,) there were 46 passing marks out of 882 for a compliance rate of about 5%.

    The Background section of the report explains what cost-reimbursements contracts are and why they require special handling [emphasis added]:

Certain contract types, such as cost-reimbursement contracts, pose risks of inefficiency and waste to the Federal Government because they provide no direct incentive for contractors to control costs.  Under cost-reimbursement contracts, contractors are paid based on the incurrence of allowable costs, as opposed to the delivery of a completed product or service.  

    The IG report found that although Congress had passed legislation in 2008 to address high-risk contract awards, the IRS did not follow the act or the related Federal Acquisition Regulations (FAR.)  In fact, the IRS simply ignored the new regulations:

The IRS did not issue internal procurement policy guidance to implement the FAR revisions that were required by the Act.  Although the revised FAR became effective on March 17, 2011, the IRS has not issued any procurement policies and procedures to implement recent FAR changes for cost-reimbursement contracts.  Instead, the IRS has used the prior FAR and its existing internal procurement policies and procedures[.] [B]ecause no guidance had been provided, the COs who we interviewed were not aware of revisions to the FAR required by the Act as they related to documentation requirements in the contract file.  One CO stated there was no communication from the Office of Procurement regarding any FAR revisions on the subject of cost-reimbursement contract documentation requirements.  

     The IRS concurred with the findings in the report and has begun to develop and circulate procedures to address the shortcomings.  But along with testimony from IRS administrators this week blaming at least some of the problems at the IRS on overwork and understaffing, this report adds legitimacy to the concern about adding the requirements of enforcing the Affordable Care Act (ACA) beginning in 2014.  The agency will likely still be getting its house in order for its current responsibilities while taking on the additional ACA workload.  The Inspector General seems likely to have his work cut out for him for years to come.


Note: This article first appeared at The Weekly Standard.