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Clip File: Loose Change
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September 28, 2007

BILL MOYERS JOURNAL presents another edition of Clip File — this one on news about keeping the books of the Iraq War that you might have missed. Members of the House Armed Services Committee last week learned that $6 billion worth of military contracts are under criminal review. Another $88 billion in contracts are also being audited for fraud. Take a look at the reports below:

BILL MOYERS: Let's take a look now at the clip file of stories we have been collecting on the cost and conduct of the war in Iraq. You heard John Bogle talk about how those costs could soar beyond a trillion dollars.

By one estimate, we are now spending half a million dollars on the war every minute. And now President Bush is asking Congress for another $200 billion dollars for next year. That would make 2008 the most expensive year of the war yet.

It's not just the cost that boggles the mind; it's the fact that no one in Washington, from the President on down, really knows where that money is going.

The government is required by law to have outside auditors review the federal books. But this month, when the Associated Press took its own look at the audits of 15 executive departments, it found that the Defense Department and the Department of Homeland Security hadn't passed their audits and didn't even meet basic accounting requirements. They were given "Disclaimers" - that is their fiscal records are so disorganized and inconsistent, they can't be fully assessed. By these departments' own admission, this makes them vulnerable to waste and fraud. For example, the Defense Department, with a $460 billion budget this fiscal year alone - is easy pickin's for every Jesse James wannabe with an empty sack to fill.

Rep. Jim Saxton (R-NJ): There are 78 criminal investigations and 20 indictments, we're told related to contract fraud in theater. The 20 indictments are a combination of civilian and military personnel.

Rep. John Kline (R-MN): So I am doubly appalled, triply, quadruply appalled at this day at the horrific conduct of commissioned officers, at a clear breakdown in leadership.

BILL MOYERS: Members of the House Armed Services Committee could hardly believe their ears last week when they learned that $6 billion dollars worth of military contracts are under criminal review. Another $88 billion dollars in contracts — that's right: $88 billion dollars — are also being audited for fraud. Here are some excerpts from that hearing.

REP. CAROL SHEA-PORTER (D-NH): $6 billion here, $9 billion unaccounted for, you know, I feel sorry for you all because you are here defending the indefensible and you and I know that. But Americans are asking us how? How could this have happened? And what was the climate for this?

Shay Assad, Dept. of Defense Procurement & Acquisition Policy: We've not done a very good job of educating our leadership, our officers who are on the ground doing contracting, on what fraud indicators are, what they should be looking for.

Rep. Phil Gingrey (R-GA): Some of the witnesses have said that what, you know, we need more ethics training. Ethics training for a full colonel in the US army to me is like asking a Catholic bishop to re-read the Baltimore Catechism. I'm just absolutely appalled.

Rep. Ike Skelton (D-MO): Why is it that the United States military has this problem as opposed to large multinational corporations, Mr. Gimble?

Thomas Gimble, Dept. of Defense Principal Deputy Inspector General: Mr. Chairman that's a great question. And if I could give you a really definitive answer, I'd be - I think I'd be in pretty good shape.

BILL MOYERS: There are 630 private companies under U.S. government contract in Iraq. Their employees do everything from construction to guarding diplomats. You've surely heard of Blackwater — it's just one of many mercenary companies operating there.

Jeremy Scahill, Investigative Journalist: Blackwater works for the State Department, there are scores of contractors who work for the US military. The investigative journalist Jeremy Scahill wrote a best-selling book on private contractors and was asked to share his findings at a meeting of the Senate Democratic Policy Committee.

Jeremy Scahill, Investigative Journalist: I sat in a defense authorization hearing this past May and watched as representative after representative asked officials from the military and the federal government how many contractors do we have? What are they doing? How much are they being paid? What nations are they drawn from? The answers were I don't know. I don't know. I don't know. I think it's ridiculous I have representatives calling me asking me for government documents. It should be the other way around.

The Senators also heard from whistleblowers about contractor fraud. Robert Isakson, a former FBI investigator of white collar crime, went to Iraq with his disaster recovery firm. He won a subcontract with an American company called Custer Battles.

Robert Isakson: Former Contractor in Iraq: They asked me three times to assist in preparing fake invoices and leases that they could then submit to the government. The first time I told them no. The second time I told them hell no. The third time, after telling them no, I told them they were all going to prison. As a result of my continued refusals to cooperate in their fraud they pointed machine guns at us and seized our identifications.

Later I learned that this company had handed in $10 million in fake invoices for approximately $3 million dollars of work.

BILL MOYERS: Isakson sued Custer Battles for fraud and to have that $10 million restored to the United States. He won in civil court.

But a federal judge overturned the decision, ruling that the, now defunct, Coalition Provisional Authority, which hired the firm was not part of the U.S. government — so Isakson couldn't sue them under U.S. law. He's still fighting it.

Sen. Byron L. Dorgan (D-ND): The question of accountability is important. It appears to me from all that I know there is precious little accountability with respect to contractors in Iraq and it seems to me that leads to frightening problems.

BILL MOYERS: As Inspector General of the State Department, Howard Krongard — known as "Cookie" — was supposed to be the watchdog guarding against corruption there. But he's a political appointee with strong partisan loyalties, and now seven people on his staff have accused him not only of failing to do his job but of actively blocking their efforts to do theirs. The reason? Quote: "To protect the State Department and the White House from political embarrassment."

Chairman Henry Waxman of the key House Oversight Committee is asking "Cookie" to answer those allegations in person. Waxman sent the Inspector General a l4-page letter with a litany of investigations that may have been blocked. Cookie, says the Chairman, has some explaining to do.

But so does his boss, Secretary of State Condoleezza Rice. Waxman claims she is holding back documents on Blackwater as well as what the State Department knows about corruption in Iraq.

Stay tuned: Chairman Waxman has scheduled hearings on both Blackwater and corruption in the Iraqi government next week.

Published on September 28, 2007

Related Media:
Bill Moyers Clip File: August 24, 2007
Bill Moyers examines underreported stories about the Iraq war.

References and Reading:
"Defense, DHS Fail Audits," Associated Press, September 14, 2007
"The Federal Financial Management Improvement Act of 1996 requires, among other things, that the financial systems of major federal agencies 'comply substantially' with generally accepted accounting standards. Each year, those agencies are required to release results of outside audits....The entire Homeland Security Department, with a $35 billion budget this fiscal year, passed its first audit in 2003 with strong stipulations but has failed every one since. And the Defense Department, with a $460 billion budget this fiscal year, has never even come close to passing."

House Armed Services Committee Hearings: Hearing on Accountability During Contingency Operations, September 20, 2007
"We will hear testimony today about serious fraud and corruption in contracting and the status of controls on weapons and supplies provided to foreign security forces." -Opening Statement of Chairman Ike Skelton (D-MO)

$6 Billion in Contracts Reviewed, Pentagon Says Eric Scmiitt and Ginger Thompson, THE NEW YORK TIMES, September 21, 2007
"Military officials said Thursday that contracts worth $6 billion to provide essential supplies to American troops in Kuwait, Iraq and Afghanistan including food, water and shelter were under review by criminal investigators, double the amount the Pentagon had previously disclosed. In addition, $88 billion in contracts and programs, including those for body armor for American soldiers and materiel for Iraqi and Afghan security forces, are being audited for financial irregularities."

"Blackwater: Hired Guns, Above the Law,"
Edited transcript of the prepared testimony of Jeremy Scahill, author of BLACKWATER: THE RISE OF THE WORLD'S MOST POWERFUL MERCENARY ARMY, before the Senate Democratic Policy Committee, September 21, 2007.

"Abuses in Private Security and Reconstruction Contracting in Iraq: Ensuring Accountability, Protecting Whistleblowers," September 21, 2007
Video and audio of the complete hearing.

"Claim that probes halted to spare White House", FINANCIAL TIMES, Stephanie Kirchgaessner, September 19, 2007
"The chief internal watchdog at the State Department has been accused by former and current officials of systematically interfering with investigations to protect the White House from political embarrassment."

"State IG Accused of Averting Probes," Glenn Kessler and Karen DeYoung, THE WASHINGTON POST, September 19, 2007
"Howard J. Krongard, the State Department's inspector general, has repeatedly thwarted investigations into contracting fraud in Iraq and Afghanistan, including construction of the U.S. Embassy in Baghdad, and censored reports that might prove politically embarrassing to the Bush administration, the chairman of the House Committee on Oversight and Government Reform charged yesterday in a 13-page letter."

  • Read Waxman's letter. (PDF)

    On September 28, 2007 Rep. Waxman sent another letter to Howard Krongard. A statement on the committee site reads: "Investigators working for Howard Krongard, the State Department Inspector General, say they were told "Howard can fire you" and "You have no protection against reprisal" if they cooperate with the Oversight Committee's investigation."

  • read the letter (PDF)

    "State Department inspector general target of congressional probe," The Associated Press, September 18, 2007
    "A congressional committee has opened an investigation of the State Department's inspector general, alleging he blocked fraud investigations in Afghanistan and Iraq, including potential security lapses at the newly built U.S. Embassy in Baghdad."

    "State Dept. intercedes in Blackwater probe," Peter Spiegel, LOS ANGELES TIMES, September 26, 2007
    "The State Department has interceded in a Congressional investigation of Blackwater USA, the private security firm accused of killing Iraqi civilians last week, ordering the company not to disclose information about its Iraq operations without approval from the Bush administration, according to documents revealed Tuesday."

    "Judge Clears Contractor of Fraud in Iraq Custer Battles Handled Baghdad Airport Security," Dana Hedgpeth, THE WASHINGTON POST, February 9, 2007 "U.S. District Judge T.S. Ellis III in Alexandria said there was no evidence that Custer Battles, a firm started by Army veterans Scott Custer and Michael Battles, committed fraud under a $16.8 million contract to provide security at the Baghdad International Airport in 2003."

    "On Technical Grounds, Judge Sets Aside Verdict of Billing Fraud in Iraq Rebuilding," Erik Eckholm, THE NEW YORK TIMES, August 19, 2006
    "But an underlying issue, raised by Custer Battles during its trial and on appeal, was whether bills submitted to the Coalition Provisional Authority could be regarded as bills presented to the United States government. The coalition authority was an entity created and largely financed by the United States to run Iraq, and largely staffed by American officials, but with an ambiguous legal status."

    "Judge overturns verdict against Iraq war contractor in fraud case," Matthew Barakat, Associated Press, August 18, 2006
    "A federal judge has set aside a verdict of corporate fraud in Iraq on disputed technical grounds, raising questions about the ability of whistleblowers and the United States government to pursue companies that profited illegally in Iraq during the chaotic year after the invasion."

    "Contractor Bilked U.S. on Iraq Work, Federal Jury Rules Custer Battles Is Told It Should Pay More Than $10 Million in Damages," Charles R. Babcock, THE WASHINGTON POST, March 10, 2006
    "Two Army veterans and their company cheated the U.S. government on a contract to furnish Iraq with a new currency in 2003 and should pay more than $10 million in assorted damages, a federal jury in Alexandria ruled yesterday."

  • Also This Week:

    Investment industry giant John Bogle says that as more and more money managers take control over corporations on Wall Street, Main Street is paying the price.

    Who is keeping track of the billions we're spending in Iraq. Under the radar news you need to know.

    NPR's Deborah Amos — just back from Damascus — and THE NEW YORKER's George Packer on the Iraq war and what you haven't heard from Washington.

    Bill Moyers on the fate of the authors of "The War as We Saw It"

    >CLIP FILE, August 23, 2007 — Underreported Iraq
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