Govt. Fraud Rule Exempts Overseas Work

A much-needed plan to curb government contract fraud that annually costs U.S. taxpayers millions of dollars features a mind-boggling, multibillion-dollar loophole that exempts the companies doing the core of the work.

The Bush Administration’s new rules for well-connected companies that get lucrative government contracts were inspired by rampant fraud that has cost taxpayers more than $14 million in the last few years alone. Incredibly, a major loophole that protects overseas work was quietly slipped into the rules.

An estimated $350 million is spent annually on government contracts and a big chunk of it has gone to firms that do work in Iraq and Afghanistan in the last few years. In fact, since 2003 at least $102 billion have gone to companies doing work for the U.S. government in those countries.

The deals have been rife with fraud, overpayment and corruption and dozens have been charged with accepting kickbacks, bribes and committing other abuses of taxpayer dollars overseas. The investigations led the Justice Department to finally set some rules to force companies to report contract abuse. Failure to comply could make the firms ineligible for future government work.

But the new rules, published in the Federal Reserve, exclude the most problematic and fraud-infested area—overseas work. They specifically exempt “contracts to be performed outside the United States.”

The Justice Department called the exemption a mistake and Assistant Attorney General Alice Fisher acknowledged that the foreign contracts, which support efforts to fight global terrorism, actually need greater contractor vigilance because they are performed overseas where U.S. government resources and remedies are more limited.

Americans should wonder how their government made that huge “mistake” and when it will be corrected.