Justice Department Probing Widespread Stimulus Fraud
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The Fiscal Times
April 6, 2012

In what is shaping up as another troubled chapter in the saga of the Obama Administration’s economic stimulus program, the Justice Department is investigating whether billions of dollars worth of federal highway and transportation programs are rife with fraud and abuse.

About $48 billion of the $825 billion authorized by Congress and the administration under the 2009 American Recovery & Reinvestment Act (ARRA) went to support existing highway and transit infrastructure projects, like the massive Fulton Street Transit Center project in lower Manhattan. Eighty-eight percent of those funds have been spent, and nearly 80 percent of the projects have been completed as part of the government’s efforts to create new jobs.

But federal investigators have uncovered widespread financial management problems with many of the projects. As of early March, federal authorities were investigating 66 cases of alleged false statements, bid rigging, fraud and embezzlement, according to a report by Calvin L. Scovel III, the Department of Transportation’s inspector general. Justice Department lawyers are scouring 47 of those cases for potential prosecution, according to Scovel.

Twenty-five of those cases involve alleged fraud by minority-owned or operated enterprises that received preferential treatment in the awarding of the contracts, while 22 involve allegations of false claims. Investigators are also looking into nine cases of alleged violations of the prevailing wage law, three involving corruption and one case involving embezzlement, according to a report Scovel presented to the House transportation appropriations subcommittee on March 29. A spokesman for Scovel’s office declined to provide further details of the ongoing investigation, but stressed, “We take very seriously any allegations of waste, fraud, abuse or violations of the law.”

An aide to the subcommittee chairman, Rep. Tom Latham, R-Iowa, described the probe as an “ongoing investigation” and said subcommittee members have not yet been briefed on the details. “Hopefully the report will be coming shortly from the inspector general,” the aide told The Fiscal Times.

The investigations into a signature Obama administration economic program could add to President Obama’s political headaches as he campaigns for reelection this fall. Republicans on the  House  Transportation and Infrastructure Committee already are  planning hearings later this month into a General Services Administration scandal that brought down the agency’s administrator, Martha N. Johnson,  and two of her senior deputies earlier this week. The resignations were prompted by a scathing GSA inspector general’s report issued Monday that detailed GSA’s  misuse of $823,000 of funds to finance an extravagant employee training conference  in Las Vegas in October 2010.

The massive economic stimulus program was passed by Congress and signed into law by President Obama in 2009, in  the depths of the worst U.S. recession in modern times. The president and his Democratic allies say the program was essential to prevent the economy from tipping into a Depression, and advocates claim the stimulus package “created or saved” an estimated 2 million jobs. Many Republican leaders and conservative analysts dispute the administration’s claims about the overall benefits and say it has had little residual benefit.

Since shortly after its enactment, Republican Sens. Tom Coburn of Oklahoma and John McCain of Arizona have lambasted the legislation as a waste of money that has fostered scores of unnecessary or foolish programs. Those included  $4.7 million towards development of private supersonic jet travel years after the Concorde last flew, $2 million to help build a replica railroad as a tourist attraction in Nevada and nearly $1 million to help beef up security on a private entertainment cruise ship.

The program has been dogged for years by reports of fraud and wrongdoing in the areas of housing, transportation, environmental cleanup and  the Treasury’s first-time home buyers program.

Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.