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Public Statements

Letter To The Honorable Peter R. Orszag, Director, Office Of Management And Budget

Letter

By:
Date:
Location: Washington, DC

Grassley seeks accounting of tax dollars spent for economic stimulus

Senator Chuck Grassley has asked the Director of the White House Office of Management and Budget a series of questions about expenditures under the American Recovery and Reinvestment Act, or the economic stimulus bill, passed nearly a year ago.

"When the government spends so much money and awards grants, loans and contracts in a short period of time like this, the potential for fraud, waste and abuse goes up. Taxpayers deserve to know that every effort is being made to account for these expenditures. The federal bureaucracy needs to answer questions and be transparent about what's happening with the tax dollars it's distributing through this program."

Grassley said recent reports from the inspectors general for the departments of Education and Transportation indicate serious internal accounting deficiencies and raise additional concerns about the ability of the bureaucracy to prevent fraud, waste and abuse in spending.

The text of Grassley's letter to Director Peter Orszag follows here.

January 28, 2010

The Honorable Peter R. Orszag
Director
Office of Management and Budget
Eisenhower Executive Building
1650 Pennsylvania Avenue, NW
Washington, DC 20503

Dear Director Orszag:

As the senior senator from Iowa and Ranking Member of the United States Committee on Finance (Committee), I have a duty to conduct oversight of the executive branch. This duty includes monitoring executive branch activities and conducting oversight to ensure that taxpayer dollars are used appropriately. This duty is more important than ever as federal spending is at unprecedented levels, in part due to the implementation of the American Recovery and Reinvestment Act of 2009 (ARRA).

Congress passed ARRA in an attempt to stimulate economic activity and stave off further loss of American jobs. Nearly a year later, the American people have serious doubts about the effectiveness of ARRA, as a January 25, 2010 CNN Poll showed three out four Americans responded that "much of the stimulus money has been wasted." [1] At a time of economic hardship for so many Americans, accounting for how this money is spent under the ARRA program should be a top priority of the Office of Management and Budget (OMB). At the very least, the American taxpayer deserves a transparent process when it comes to how their money is being spent.

At this time, I am specifically concerned about the process in which executive branch agencies obligate $275 billion dollars of ARRA money through grants, loans, and contracts. In recent months my committee staff has been in contact with executive branch Inspectors General, as well as the Recovery Accountability and Transparency Board (RAT Board). They have done so in an effort to monitor the use of ARRA money and to better understand the Obama Administration's efforts to spend these funds in a way that meets the intent of Congress while also preventing fraud, waste, and abuse of taxpayer dollars.

In light of this ongoing work, I will be conducting intensive oversight now and in the coming months over how these recovery initiatives are being administered. This will include letters of inquiry to many of the departments and agencies receiving ARRA funds and continued interviews and document reviews. As the Director of the office responsible for administering the ARRA program, I write today regarding my initial concerns across the federal government.

* Insufficient Front-End Oversight

In much of the federal government, the marching orders regarding ARRA funds seem to be, "spend now, chase later." When federal and state bureaucrats spend money quickly, perhaps at the cost of it being spent carefully, we have a recipe for massive fraud, waste, and abuse of taxpayer dollars. Across the federal and state governments, audits are already demonstrating the risks of this mentality.

Critical to protecting taxpayer dollars is executive branch "Suspension and Debarment" programs (S&D program). The S&D Program is used to permit the exclusion of entities found to be unethical, dishonest, or otherwise irresponsible from receiving contracts and grants from the federal government. Each S&D Program links their information up to the U.S. General Services Administration (GSA) operated Excluded Party Listing System (EPLS). EPLS is a web-based system, accessed government-wide, that is supposed to provide an up-to-date and central listing of suspended or debarred entities. However, with the government's stimulus efforts it appears that S&D programs have become a casualty of the "spend now, chase later" mentality. For instance, a January 7, 2010 audit by the U.S. Department of Transportation Office of Inspector General (DOT-OIG) reported serious deficiencies in the Suspension and Debarment Program at the Department of Transportation (DOT). [2] At the same time, DOT received $48 billion in stimulus money, and according to the DOT-OIG, the DOT has not devoted sufficient resources to its S&D program; the result is putting billions in taxpayer money at risk of fraud, waste, and abuse.

Similarly, the Louisville Courier-Journal reported that parties linked to a prominent Lexington, KY contractor on trial for bribery, conspiracy, and obstruction of justice were awarded a $24 million ARRA contract to work on federally funded roads from the Federal Highway Administration (FHWA). [3] Parties linked to this prominent contractor were able to access ARRA money due to a 10-month decision making process made by S&D Program Operating Administrations' at FHWA on whether or not these parties should be suspended from receiving federally funded contracts.

Director Orszag, an efficient and proactive S&D Program, combined with EPLS, is vital to safeguarding taxpayer money. Whether the DOT's programs are an anomaly or a symptom of a government-wide problem remains to be seen. Though in light of unprecedented federal spending across our government, proactively preventing taxpayer dollars from winding up in the hands of crooks ought to be a top priority of both OMB and individual agencies.

* Accounting of ARRA Funds

To date, it is not clear that there is agreement within the federal government and among the agencies regarding how much ARRA money has actually been obligated or even spent. The chart set forth below illustrates the varying amounts of ARRA money obligated to each executive agency. As you can see, there are vast discrepancies between the amounts reported by the RAT Board and the executive agencies own website. (click here for chart with breakdown of agency ARRA funds)

While I understand that some argue that it is difficult to keep an accounting of such vast amounts of the taxpayers' money, these discrepancies do not inspire confidence in the federal government's ability to monitor where this money is going and whether it is being lost to fraud, waste, or abuse. Despite their being compiled within a period of two weeks, as you can see these numbers vary widely. For instance, the Department of Labor's total available funds differ by $360 million, depending on whether one consults the government's website or its ARRA watchdog. The website for the Department of Interior lists $3 billion in ARRA funds, while federal totals elsewhere are a third of that. While my staff continues its efforts to get a clear understanding of why these discrepancies exist, I am troubled by the inadequate explanations provided to date.

* Sub-recipients and States Ability to Track Expenditures Appears Limited

I am equally concerned with the ability of federal and state agencies to track sub-recipients of ARRA funds. I recently reviewed an audit issued by the U.S. Department of Education Office of Inspector General. [4] This audit was performed prior to the New York State Department of Education receiving $1.7 billion dollars of taxpayer money. Interestingly, the audit found that the state of New York suffered from serious internal deficiencies that would make tracking ARRA money much more difficult. Further, the audit report made it clear that sub-recipients of ARRA funds are subject to little oversight. A news report by the Albany, NY newspaper Times Union, sums it up well, "Cash in, and then what?" [5]

With so much ARRA funding already flowing through state governments to sub-recipients, it is critical that the sub-recipients use the money in a way that is both transparent and accountable. Based upon Department of Education's Inspector General's audit, it also appears that New York was unable to account for federal funds prior to receiving ARRA money so one wonders--why American taxpayers should have any faith at all in the Administration's ability to ensure accountability of billions more of taxpayer dollars.

* Accounting for Jobs "Saved" or "Created"

In addition, there is much public confusion over the number of jobs ARRA funds have helped to "save" or "create." As the economic stimulus package was being debated in Congress last year, the White House claimed it would create 3.3 million net jobs by this year. In the time since, the American workforce has shed another 3.5 million jobs, 3.1 million more than the White House estimated would be lost without the stimulus, creating a deficit of 6.8 million jobs between where the American workforce is today and where the White House estimated we would be with this unprecedented spending.

Despite this hard reality, the White House continues to defend its economic stimulus program, though in varying terms. White House adviser Valerie Jarrett recently said that the $787 billion program merely "saved thousands and thousands of jobs," while David Axelrod claimed the program "created more than -- or saved more than 2 million jobs," and White House spokesman Robert Gibbs claimed the program "saved or created 1.5 million jobs." Adding to this confusion, your office issued a memorandum last month changing how these totals would be calculated, allowing any job that is fully funded by ARRA funds to be counted, regardless of whether it was in fact "saved" or "created" by the program.

* Conflicts of Interest

Finally, in recent years I have investigated a number of university researchers, universities, non-profits, and government agencies for a lack of disclosure of conflicts of interest involving federal funds. For instance, my investigations have uncovered systemic failures to comply with regulations requiring the disclosure of conflicts of interest by those receiving federal funds from the National Institutes of Health (NIH, the National Science Foundation (NSF), and other entities.

Under the ARRA program, NIH will dole out a total of $8.2 billion in taxpayer funds, and NSF will be handing out $2.4 billion dollars. Given my past investigations, one can expect conflicts of interests in the research community to continue and these billions of taxpayer dollars must be safeguarded against their influence. In that regard I am interested in understanding what process the Administration is using to ensure that it has knowledge of who is and who is not conflicted and to what extent prior to the release of ARRA money. Please note also that my concerns over conflicts of interest do not end just in the sciences. Every government agency that is awarding contracts, grants or loans should make it a priority to have any conflicts disclosed before any ARRA money is obligated.

In light of these concerns I request that OMB respond to the following questions, responding by first repeating the enumerated question followed by the corresponding answer.

1) Through conversations with federal officials with direct involvement in the ARRA program, my staff has been told that recipients of ARRA funds do not have to report their use of the money until it is spent. If this is the case, by what mechanisms does the federal government oversee the money after it is disbursed but before it is officially spent?

2) Please describe what rules or guidance exists regarding interest earned on ARRA funds by state governments and private entities after they are disbursed but before they are spent.

3) In what ways does the executive branch penalize recipients who do not report on their use of ARRA funds? Are these penalties mandatory or permissive?

4) Is OMB aware of other situations similar to the one mentioned in the DOT-OIG report? If so, how many and what has been done to recover funds granted, loaned, or otherwise given to entities on the S&D list? Please explain in detail.

5) What safeguards are in place to ensure that tax cheats and/or criminals do not receive ARRA money? Please explain in detail.

6) Please answer the following questions regarding S&D Programs:
a. Please provide the Committee with a copy of OMB's policies regarding S&D Program.
b. Who is charged with monitoring the S&D Program at OMB?
c. What has the federal government done to ensure that EPLS is accurate? Please provide my staff a briefing on EPLS.
d. Please provide a current list of all suspended and debarred parties across the federal government.

7) What systems are in place to detect or deter conflicts of interest among executive branch officials charged with awarding ARRA grants, loans, and contracts?

8) Please explain the discrepancies in the total ARRA accounting described above.

9) Please provide a chart detailing the amount of ARRA money appropriated to each executive branch agency. This chart should include the total amount of ARRA money obligated and the total amount currently been spent by each executive branch agency.

10) What systems do OMB and the federal agencies at large have to ensure that sub-recipients of ARRA funds will be monitored to prevent fraud, waste, and abuse? Please describe in detail.

11) Does OMB believe the states have adequate ability to protect ARRA money from fraud, waste, and abuse? Please identify any work that has taken place to ensure accountability at the state level, as well as any concerns your office has on this matter.

12) Regarding the recent change in accounting for jobs saved or created, please explain what led to the change and whether the Administration plans to refer to these new jobs as "funded," rather than "saved" or "created."

13) According to OMB, how many jobs have been saved within the federal government due to the ARRA program? Please explain in detail.

14) According to OMB, how many jobs have been saved within the private sector due to the ARRA program? Please explain in detail.

15) According to OMB, how many jobs have been created within the federal government due to the ARRA program? Please explain in detail.

16) According to OMB, how many jobs have been created within the private sector due to the ARRA program? Please explain in detail.

Thank you in advance for you cooperation in this matter. I know you share my vigilance to protect taxpayer dollars, and look forward to your continued assistance in these efforts. As I conduct oversight of the individual agencies and departments in the coming months, your answers regarding cross-agency concerns will be very helpful.

Please provide the requested information by February 2, 2010.

Sincerely,

Charles E. Grassley
Ranking Member

[1] The Stimulus Project, CNN Poll, 3 of 4 Americans say much of stimulus money wasted, cnn.com, January 25, 2010.
[2] U.S. Department of Transportation Office of Inspector General. DOT's Suspension and Debarment Program Does not Safeguard against Awards to Improper Parties: Report Number: ZA-2010-034. January 7, 2010.
[3] Tom Loftus, U.S. audit criticizes payments to companies Lawson once head, Courier-Journal, January 20, 2010.
[4] U.S. Department of Education Office of Inspector General. "New York State System of Internal Control Over American Recovery and Reinvestment Act funds": ED-OIG/A02j0006, November 2009.
[5] Rick Karlin, Cash in, and then what?, Times Union, January 5, 2010.


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