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White House won't remove loophole allowing foreign contractors to ignore fraud
John Byrne
Published: Thursday March 13, 2008

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The White House has indicated it will not remove a loophole quietly inserted into a budget rule which allows contractors abroad to keep silent if they observe fraud or abuse on US government contracts.

The proposed rule, put forth by the White House Office of Management and Budget last year, exempts all companies who do work overseas from a new regulation requiring US contractors to report waste, fraud or abuse they encounter while doing work for the government.

More than $100 billion in contracts have been awarded for work in Iraq and Afghanistan in the last five years.

"This sends the message that if you're going to do waste, fraud and abuse, don't do it at home, do it abroad," Rep. Peter Welch (D-VT) told the Washington Post in Thursday's papers. "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."

Even the Bush Justice Department opposes the exemption, which was slipped into the proposed rule last November. No one has come forward to admit the insertion.

"The exemption has riled the Justice Department, which opposes limiting the rule to domestic contracts," the Post wrote. "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."

In January, according to the Post, the Justice Department wrote the Office of Management and Budget requesting the exemption be struck. The rule was added in the first place, they said, because of "worries about a drop in voluntary reporting of waste and fraud."

Myriad cases of abuse have been linked to the wars, where policing is often slim, and the incentive to report even slimmer. The rule has received support from US inspectors general.

Twenty-seven criminal investigations of fraud, waste and abuse took place under the Coalition Provisional Authority's watch alone, according to a 2004 report.

The Authority failed to keep track of nearly $1 billion in money spent for reconstruction, the report said. For example, the CPA paid almost $200,000 for police trucks without confirming they'd actually received them. Nor did they have records to "justify the $24.7 million price tag for replacing the Iraqi currency."