[NYTr] Corruption: Katrina Fraud Ballooning Past $1 Billion

Mon Dec 25 14:35:56 EST 2006

AP - Dec 25, 2006
http://apnews.myway.com/article/20061225/D8M7VD680.html

Katrina Fraud Ballooning Past $1 Billion

By HOPE YEN

WASHINGTON (AP) - Already at $1 billion, the tally for Hurricane Katrina
waste will balloon next year as investigators shift their attention from
fraudulent aid to the lucrative government contracts awarded with little
competition.

Several of the contracts were hastily given to politically connected firms
in the aftermath of the 2005 storm and were extended without warning months
later. Critics say the arrangements promote waste and unfairly hurt small
companies.

In January, federal investigators will release the first of several audits
examining abuse in more than $12 billion in Katrina contracts. The charges
range from political favoritism to limited opportunities for small and
minority-owned firms, which initially got only 1.5 percent of the total
work.

Currently, half of the government's contracts valued at $500,000 or greater
are no-bid.

"Based on their track record, it wouldn't surprise me if we saw another
billion more in waste," said Clark Kent Ervin, the Homeland Security
Department's inspector general from 2003-2004. "I don't think sufficient
progress has been made."

He called it inexcusable that the Bush administration would still have so
many no-bid contracts, noting that auditors and Federal Emergency
Management Agency director David Paulison himself have said they are prime
areas for waste.

"It's a combination of laziness, ineptitude and it may well be nefarious,"
Ervin said.

FEMA spokesman James McIntyre said the agency was working to fix its
mistakes by awarding contracts for future disasters through competitive
bidding. Paulison has said he welcomes additional oversight but cautioned
against investigations that aren't based on "new evidence and allegations."

"As always, FEMA will work with Congress in all aspects to ensure that we
are carrying out the agency's responsibilities," McIntyre said.

Katrina swept ashore on Aug. 29, 2005, in southern Louisiana, Mississippi
and Alabama, leveling homes and businesses along the Gulf Coast. Its storm
surge breached levees in New Orleans, unleashing a flood that inundated the
city. The hurricane left more than 1,300 people dead, hundreds of thousands
homeless and tens of billions of dollars worth of damage.

A series of government investigations in the storm's wake faulted the Bush
administration for underestimating the threat and failing to prepare by
pre-negotiating contracts for basic supplies in what has become the
nation's costliest disaster.

Earlier this month, the Government Accountability Office said its initial
estimate of $1 billion in disaster aid waste was "likely understated,"
citing continuing problems in which FEMA doled out tens of millions of
dollars in fraudulent housing assistance.

Democrats in Congress called for more accountability. When they take over
in January, at least seven committees plan hearings or other oversight -
from housing to disaster loans - on how the $88 billion approved for
Katrina relief is being spent.

A study earlier this year by Rep. Henry Waxman, D-Calif., estimates that
hundreds of millions of dollars were likely wasted on contracting, citing
instances of double-billing and thousands of trailers meant as emergency
housing sitting empty in Arkansas.

Among the current investigations:

- The propriety of four no-bid contracts together worth $400 million to
Shaw Group Inc. (SGR), Bechtel Group Inc., CH2M Hill Companies Ltd., and
Fluor Corp. (FLR) that were awarded without competition.

The contracts drew immediate criticism because of the companies' extensive
political and government ties, prompting a promise last year from Paulison
to rebid them. Instead, FEMA rebid only a portion and then extended their
contracts once, if not twice - to $3.4 billion total - so the firms could
finish their remaining Katrina work.

The four companies, which have denied that connections played a factor,
were among six that also won new contracts after open bidding in August.
The latest contracts are worth up to $250 million each for future disaster
work.

- The propriety of 36 trailer contract awards designated for small and
local businesses as part of Paulison's promise to rebid large contracts.

Homeland Security Inspector General Richard Skinner is reviewing whether
some small and local businesses were unfairly shut out in favor of winners
such as joint venture PRI-DJI. DJI stands for Del-Jen Inc., a subsidiary of
Fluor, which has donated more than $930,000 to mostly Republican candidates
since 2000.

"It's not what you know, what your expertise is. I don't even believe it's
got much to do with price. It's who you know," contends Ken Edmonds, owner
of River Parish RV Inc. in Louisiana, a company of 9 people whose
application was rejected.

PRI, a minority-owned firm based in San Diego, said it is the "majority
partner" with Del-Jen as part of a federal mentoring program offered by the
Small Business Administration. The joint venture received four Katrina
contracts worth up to $100 million each based on price and "knowledge of
work with the federal government," president Frank Loscavio said.

- Whether small and minority-owned businesses were unfairly hurt after the
Bush administration initially waived competition requirements.

For many weeks after the storm, minority firms received 1.5 percent of the
total work - less than one-third of the 5 percent normally required -
because they weren't allowed to bid for many of the emergency contracts.

The National Black Chamber of Commerce called the figure appalling because
of the disproportionate number of poor, black people in the stricken Gulf
Coast, prompting Sen. Olympia Snowe, R-Maine, and Rep. Donald Manzullo,
R-Ill., to request GAO to investigate.

FEMA has since restored many of its competition rules, and the number of
contracts given to minority firms is now about 8.8 percent, according to
the agency.

Stephen Ellis, vice president of the watchdog group Taxpayers for Common
Sense, said he has no doubt that new reports of significant waste have yet
to emerge. The challenge now, he said, is to fight the urge to slacken
oversight as Katrina recedes in people's minds.

"In business, people are like sharks - they smell money in the water,"
Ellis said. "Companies will continue to swarm at this type of government
spending. The incentive is still there to take advantage of free money."

On the Net:

A copy of the semiannual report on Katrina spending by the agencies'
inspectors general:
http://www.dhs.gov/xoig/assets/katovrsght/OIG_pcie_sept06.pdf

Federal Emergency Management Agency:
http://www.fema.gov/

Government Accountability Office:
http://www.gao.gov/