Fraud crackdown to include overseas contracts

The government spends an estimated $350 billion a year on contracts. For decades, contractors have been asked to voluntarily report internal fraud or overpayment on government-funded projects.

But over the last 15 years, the number of company-reported fraud cases has declined steadily, according to Justice Department data. And since the start of the so-called war on terror, prosecutors have charged 44 people in investigations into kickbacks, bribes and other abuses of taxpayer money in Iraq and Afghanistan.

The increased violations led the Justice Department in May to ask for regulations that would force companies to notify the government if they find evidence of contract abuse of more than $5 million. Failure to comply could make a company ineligible for future government work.

Loophole fuels criticism
The loophole showed up in the final draft of the regulations when they were published in the Federal Register last November. It led to bipartisan criticism in Congress and by Bush administration inspectors general fearing it would undercut government efforts to curb waste, fraud and abuse in contracts.

A Bush administration official on Monday called the loophole "a drafting error" that happened when policywriters merely cut and pasted a 20-year-old Defense Department regulation into the contracting crackdown. As required under government guidelines, the updated draft calls for public comment about the new effort to close the loophole.

Business groups opposing the crackdown say companies generally have been diligent about voluntarily reporting abuse to the government. For example, the number of export violations reported to the State Department increased from 216 in 1999 to 394 in 2004, according to data provided Monday by the Arlington, Va.-based Professional Services Council.

Many U.S. firms are required under the terms of their contracts to subcontract out work to foreign businesses _ particularly in third-world nations where U.S. contracts would provide an economic boost, said PSC President and CEO Stan Z. Soloway. Without the exemption, U.S. firms could be unfairly held liable for abuse that they have little or no way of preventing, he said.

The PSC represents more than 300 government contractors and other businesses, including Blackwater USA, KBR Inc., Boeing Co., CACI International Inc. and Lockheed Martin.

"It's impractical, and it raises a severe challenge for the U.S. government trying to assist developing countries," Soloway said.

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