Stimulus spending remains ripe for fraud

The many billions shoveled to the Energy Department as part of the $787 billion stimulus package recently signed into law may provide a cautionary tale about potential abuse, judging from a recent Energy Inspector General's warning.

As if on cue, FBI Director Robert Mueller told Congress yesterday that he, too, expects a surge in stimulus-related fraud. "Our expectation is that economic crimes will continue to skyrocket," he said. "…The unprecedented level of financial resources committed by the federal government…will lead to an inevitable increase in economic crime and public corruption cases."

Undaunted, President Obama earlier this week continued his intense promotion of the stimulus package, ignoring the great potential for significant fraud as federal agencies rush to dispense the money. He hyped the $59 billion for clean energy and related tax incentives in the stimulus bill as a down payment on an additional $150 billion in Energy Department spending in his 2010 budget. He didn't seem to get the recent warnings from Energy Inspector General Gregory Friedman about the high probability for fraud and waste in distributing stimulus dollars, which call into question the agency's ability to even distribute the stimulus money effectively.

Most importantly, Friedman, a Clinton-era appointee, highlighted the need for a level of proactive accountability historically absent in the federal bureaucracy. As reported by Congress Daily, Friedman's memo last week to Energy Secretary Steven Chu and other department officials argues that the massive increase in funding going through the agency will strain and fundamentally change the agency's mission while creating the potential for rampant abuse. The stimulus provides the agency over $38 billion in funding along with authority over energy loans totaling $127 billion, spending that dwarfs the $27 billion provided in the agency's 2009 budget.

Friedman reportedly notes that during regular agency operations misuse of funds, falsification of data, kickbacks, bribes and other forms of fraud happen with "troubling" frequency. He also argues, correctly, that anti-corruption oversight should be a priority. Friedman's laudable honesty exposes both the unintended consequences inherent in the quickly passed package and the daunting task faced.

The same attitude must be adopted by all agencies overseeing the implementation of the massive spending measure. What is true, or likely, at Energy is very likely true or likely at other departments and agencies as well. Exhibit "A" is the continued lax oversight and lack of transparency seen with the Treasury Department's handing of the banking industry bailout. The White House is yet to be convincing that it is adequately addressing the potential of a major waste of taxpayer funds.

Recovery Accountability and Transparency Board chairman Earl Devaney, who is functionally the chief auditor of the stimulus package, told a House panel last week that some fraud is inevitable. But he also expressed horror that accounting industry standards for fraud acceptability is 7 percent, or $55 billion in taxpayer money. Devaney, who has a reputation for vigilance, promised a zero tolerance approach. That is very good to hear.

With over 40 states launching websites intended to track stimulus spending, Devaney's board will oversee the Web site Recovery.gov, aimed at maintaining public access to the Fed's spending records. The board aims to change the fact that the federal government has never been particularly successful in the timely and reliable tracking of spending data.

But even an unprecedented level of post-spending transparency will only do so much to ensure waste is kept to a minimum. Perusing the data online only comes after the fact. It will take more than a new Web site and the sort of staff training the administration has implemented to turn an understanding of the problem into real accountability.

While some degree of waste is almost inevitable from any government endeavor, the degree must not reach the level of finding 7 percent fraud - $55 billion in the case of the entire package - an acceptable figure. The White House is saying the right thing by indicating zero is the goal, not $55 billion. We can only hope their rhetoric translates into additional action that defies history and saves billions.