Obama’s Claim about Sacrosanct Audits is Not True
Policy + Politics

Obama’s Claim about Sacrosanct Audits is Not True

Reuters/Jonathan Ernst

The Obama administration insists it obeys a “cardinal rule” of not interfering with reports by inspector generals.

As a line of defense, it is meant to distance President Obama from revelations that the Internal Revenue Service specifically targeted for review Tea Party-based nonprofits, according to an audit released last week by the Treasury Inspector General for Tax Administration.

But the hands-off approach has not always been an ironclad principle—and that can often be a positive.

“When I keep hearing that we would never interfere with any audit of the IG, I don’t know what it means,” said Neil Barofsky, who detailed his experiences as the special inspector general for the Troubled Asset Relief Program in the book Bailout. “I’ve had Treasury and Federal Reserve officials call me up and yell at me to change the conclusions of my audits. That’s okay. It’s an audit. It’s an interactive process.”

The administration wants to assure the country that it never tinkered with IRS policies, tamping down concerns that the president’s men tried to hamstring their potential adversaries.

“The cardinal rule here is you don’t intervene,” White House press secretary Jay Carney said at the Wednesday press briefing.

“Our core principle is that we do not interfere in any way – or do anything to create the perception of interference – with the independent review of an inspector general,” Deputy Treasury Secretary Neal Wolin told the House Oversight and Government Reform Committee on Wednesday.

But the claim leaves much of the country befuddled, wondering why Obama cannot have more oversight of the sprawling bureaucracy that voters elected him to run. After all, the audit found no evidence that “outside” pressure caused the IRS to begin tracking conservative groups in March, 2010. But it did conclude that there was managerial incompetence.

To avoid conflicts of interest and dispel any appearance of federal agencies being used as partisan weapons, Obama says he did not learn until this month about the inspector general’s audit. His Treasury Department was notified of it in June, 2012, while the White House General Counsel learned about the report last month.

The IRS felt no obligation to correct its past statements to Congress that targeting had “absolutely” not occurred. From the perspective of its leadership, the targeting had been stopped last year as the audit was ramping up, so there was no need to update lawmakers.

However, the “cardinal rule” is a simplification of how inspectors general are supposed to operate. The audit process—unlike an investigation—exists to provide feedback on improving the government, so interactions between an inspector general and the administration should be de rigueur, a chance to identify and develop fixes for problems.

Barofsky’s book detailed how egos and human vanities drove many of the policy choices to resurrect the economy after the 2008 financial crisis.

His experiences at SIGTARP from 2008 to 2011 showed how an inspector general’s report could be sidelined if a government agency refused to share documents or make officials available for interviews.

In one telling anecdote, Barofsky claims that Herbert Allison, a former Wall Street executive who oversaw TARP for Treasury, encouraged him to be less tenacious or else he might face lifelong unemployment after leaving his post.

Barofsky wrote that Allison said to him, “All you really have to do is change your tone, just a bit, and things can really change for you. Including with the White House.”

Now a senior research fellow at New York University, Barofsky explained that in the IRS case that it was legitimate for the White House to wait on discussing the report until it had the full array of facts. But with the draft report circulating in March, he said there was likely little that the administration could do to tamper with its conclusions, let alone to disrupt the process.

“I don’t understand why telling the president about the results of one of my audits would interfere with my independence in any shape or form,” Barofsky told The Fiscal Times. “What would be interference is if they told the president about the results of my audit and he fired me. That would break the cardinal rule.”

The “cardinal rule” talking point does reflect the sharp angles that increasingly define the IRS controversy.

First of all, some House Republicans are out for blood.

At the House Oversight Committee hearing, a skeptical Rep. Jim Jordan, R-Ohio, envisioned a West Wing conspiracy, noting that then IRS commissioner Douglas Shulman visited the White House 118 times in 2010 and 2011.

When Jordan asked Shulman about the purpose of the visits, his first response struck an absurd chord.
"The Easter Egg Roll with my kids," said Shulman, who led the IRS from 2008 to 2012.

The George W. Bush appointee later said that other White House meetings involved budgetary issues and the implementation of Obamacare. But Shulman’s credibility with lawmakers was damaged by his evasiveness and his assumption that he had behaved properly by not informing Congress about the targeting.

Statements by IRS officials all seem to reinforce an agency that was unprepared to manage the repercussions of the 2010 Supreme Court ruling on Citizens United that removed restrictions on political spending by nonprofit groups.

This launched a wave of applications by politically minded groups seeking 501(c)(4) status as “social welfare” charities, which would enable them to not disclose their donors. Under IRS regulations, less than 50 percent of the activities by these groups could involve politics.

“They didn’t understand how much Citizens United affected them,” said Melanie Sloan, executive director of the Citizens for Responsibility and Ethics in Washington. “They didn’t do anything in response to Citizens United, and so they were operating as they previously operated.”

According to Sloan’s figures, 501(c)(4) charities nearly spent $255 million during the 2012 election cycle. Her organization filed a lawsuit Tuesday in U.S. District Court to require the IRS to enforce its rule that these charities not devote funds to electoral activities, as there is a separate “527” tax-exempt classification for political organizations.

Instead, the IRS responded within a few months of the Supreme Court decision by singling out for review outfits with names that included the words “Tea Party,” “Patriots,” or “9/12.”

This was an improper form of ideological profiling, but IRS supervisors insist they played by the rules when dealing with the issue.

“I have not done anything wrong,” Lois Lerner, director of tax-exempt organizations for the IRS, told the House Oversight Committee. “I have not broken any laws.”

Lerner then invoked her Fifth Amendment protection against self-incrimination and refused to answer more questions. The committee chairman Darrell Issa, R-Calif., ended the hearing by saying that Lerner may have inadvertently waived her Fifth Amendment protection against self-incrimination with her statement of innocence.

Just as IRS officials have tried to stonewall Capitol Hill, evidence surfaced that they did try to interfere with the inspector general’s audit. The targeting has been blamed on two rogue employees in the Cincinnati office, but neither was made available to the office of the inspector general, J. Russell George.

“We have had some difficulty,” George explained to the committee, “in terms of getting clarity from some of the IRS employees we interviewed.”