After a week of heavy scrutiny, the New Orleans Times-Picayune issued a sort of elegy for a situation five years in the making. In the story by Michelle Krupa, the Times-Picayune analyzed three instances of fraud and abuse between local government officials and those hired to do work for the government, finding that most of the issues originate not with the main beneficiary of a government contract, but with subcontractors.
Former Mayor Marc Morial took bribes from a subcontractor in the city’s energy-efficiency program; City Councilman Oliver Thomas went to prison for taking bribes from a subcontractor interested in downtown parking lots; and most recently, Mayor Ray Nagin and city Chief Technology Officer Greg Meffert have been caught up in a scandal for taking a subcontractor-funded vacation to Hawaii.
In a multi-effort series, the Times-Picayune has done its due diligence in following the money from a subcontractor named NetMethods to a trip made by Mayor Nagin, CTO Meffert and their families in 2004. A close friend of Meffert’s owned NetMethods, who also owned another business, Imagine Software, which was a huge benefactor during Meffert’s tenure in office.
According to the latest article, efforts are underway in New Orleans to bring more subcontractors under the eye of the law. City Councilman Eddie Sapir who may be looking to run for mayor next year, has wrote a resolution “requiring companies hired for city rebuilding jobs to certify by affidavit all individuals and entities with a financial interest in their contracts – ‘no matter how minimal.’”
Charges are pending, but “ethics experts” the Times-Picayune interviewed disagree whether the law was broken. But what about all the attention given to reporting requirements and transparency efforts in the Recovery Act, you might ask? Would this kind of practice be caught before it happened in the future?
The recently released guidance from the Office on Management and Budget went further in defining the level of accountability expected for anyone receiving stimulus dollars. But under the most recent version of the guidelines, little changes to avoid fraud and abuse like the kinds seen in New Orleans.
Under Section 2.10 of the new guidance, “The prime recipient is responsible for reporting on their use of the funds as well as any sub-awards they make.” At a glance, this would seem to include subcontractors like NetMethods or Imagine Software, but the term “recipient” limits how far down the reporting must go.
Recipient is, “any entity that receives Recovery Act funds directly from the Federal Government,” including those funds received through grants, cooperative agreements, loans or contracts.
Because most federal funds are going to state and local economies in the form of grants, they are not going directly to companies like IBM, Siemens, Bechtel, or Raytheon. The prime “recipients” of stimulus funds are state departments of education, departments of transportation, state utility commissions and the like. Rightly, if those entities hire companies like IBM or Bechtel to build new computer systems or highways, they will have to meet the stringent standards of the Recovery Act reporting requirements. But whoever IBM or Bechtel hire to help them, will not.
There also remains the business of non-Recovery Act funds. Will those funds be watched as carefully? They should, but unfortunately, if history is any indication, funds not directly associated with the Recovery Act will likely be as transparent as they’ve always been.
Because increased scrutiny will be placed on “sub-recipients” like IBM, for example, they will be held more accountable for their subcontractors, but situations like what happened in Mayor Negin’s office in 2004 will continue uninhibited. Stronger oversight needs to be leveraged from within the city or state legislative process. Accountability is needed on the granular level.
If there is one silver lining in the latest guidance document it’s that, OMB plans to expand the reporting model in the future to also obtain sub and sub-subcontractor information, “once the system capabilities and processes have been established.”
Whenever that may be.