http://online.wsj.com/article/SB10001424052748703948504574648331267709784.htmlThe Obama administration—and state and local governments—should brace themselves for fraud on an Olympic scale as hundreds of billions of taxpayer dollars continue to pour into job creation efforts.
Where there are government handouts, fraud, waste and abuse are rarely far behind. The sheer scale of the first and expected second stimulus packages combined with the multitiered distribution channel—from Washington to the states to community agencies to contractors and finally to workers—are simply irresistible catnip to con men and thieves.
There are already warning signs. The Department of Energy's inspector general said in a report in December that staffing shortages and other internal weaknesses all but guarantee that at least some of the agency's $37 billion economic-stimulus funds will be misused. A tenfold increase in funding for an obscure federal program that installs insulation in homes has state attorneys general quietly admitting there is little hope of keeping track of the money.
While I was in charge of investigations at the Manhattan District Attorney's office, we brought case after case where kickbacks, bid-rigging, false invoicing schemes and outright theft routinely amounted to a tenth of the contract value. This was true in industries as diverse as the maintenance of luxury co-ops and condos, interior construction and renovation of office buildings, court construction projects, dormitory construction projects, even the distribution of copy paper. In one insurance fraud case, the schemers actually referred to themselves as the "Ten Percenters."
Based on past experience, the cost of fraud involving federal government stimulus outlays of more than $850 billion and climbing could easily reach $100 billion. Who will prevent this? Probably no one, particularly at the state and local level.
New York, for instance, has an aggressive inspector general's office, with experienced and dedicated professionals. But, it is already woefully understaffed—with a head count of only 62 people—to police the state's already existing agencies and programs. There is simply no way that office can effectively scrutinize the influx of $31 billion in state stimulus money.
There is a solution however, which is to set aside a small percentage of the money distributed to fund fraud prevention and detection programs. This will ensure that states and municipalities can protect projects from fraud without tapping already thinly stretched resources.
Meaningful fraud prevention, detection and investigation can be funded by setting aside no more than 2% of the stimulus money received. For example, if a county is to receive $50 million for an infrastructure project, $1 million should be set aside to fund antifraud efforts; if it costs less, the remainder can be returned to the project's budget.
While the most obvious option might be to simply pump the fraud prevention funds into pre-existing law enforcement agencies, that would be a mistake. Government agencies take too long to staff up and rarely staff down.
A better idea is to tap the former government prosecutors, regulators and detectives with experience in fraud investigations now working in the private sector. If these resources can be harnessed, effective watchdog programs can be put in place in a timely manner. Competition between private-sector bidders will also lower the cost.
Some might object to providing a "windfall" to private companies. Any such concern is misplaced. One should not look at the 2% spent, but rather the 8% potentially saved. Moreover, consider the alternative: law enforcement agencies swamped trying to stem the tide of corruption on a shoestring and a prayer.
There will always be individuals who will rip off money meant for public projects. In the aftermath of the 9/11 attacks, and Hurricane Katrina hundreds of people were prosecuted for trying to steal relief funds. But the stimulus funding represents the kind of payday even the most ambitious fraudster could never have imagined
To avoid a stimulus fraud Olympics that will be impossible to clean up, it is better to spend a little now to save a lot later. The savings could put honest people to work and fraudsters out of business.
Topic: HOW TO GUARD AGAINST STIMULUS FRAUD (Read 1636 times)