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State Dept Document from 2005 Shows Fraud in Blackwater's Iraq Contract
A report prepared for the State Department's inspector general in January 2005, and obtained by TPMmuckraker, shows Blackwater's accounting system for its no-bid, multimillion dollar Iraq contract was "not considered adequate for accumulating costs on government contracts."
The report is an audit of Blackwater's contract prepared by the accounting firm of Leonard H. Birnbaum. It has been referred to by the House Oversight and Government Reform Committee (pdf) and in a 2006 story in The Nation, but has not been made publicly available until now. It was obtained by TPMmuckraker after we filed a Freedom of Information Act request in October with the State Department for Blackwater-related documents. You can read the 2005 State Department report in our Documents Collection here.
Much of the document is redacted -- including any description of how Blackwater's accounting system in Iraq operated, as well as any numerical figure for the size of the contract. (In 2004, the year that the report covers, Blackwater held contracts from the federal government totaling $48 million, of which the State Department contract was a portion.) But the unredacted portion of the report finds problems with how Blackwater tallied its labor costs, its overhead-expense costs, and its indirect costs. It also found that Blackwater cited its profit from the contract as a cost it incurred, and billed the government for it -- resulting in what the report called "a pyramiding of profit."
The State Department was under a massive time-crunch in mid-2004 to stand up its new Baghdad embassy as the Coalition Provisional Authority went out of business that June. As a result, State Department logistics official William Moser explained to Congress, State opted to sign a no-bid contract for diplomatic security services with the company already on the ground: Blackwater. "We did not like doing a sole source award for Blackwater," Moser told the House oversight committee in October. No wonder: Blackwater, apparently, took advantage of the opportunity.
Yet despite its own internal watchdog's finding of fraudulence in Blackwater's Iraq contract, months later, the State Department re-signed a deal with the company to provide security for U.S. diplomats.
We'll bring you more from this report throughout the day. And in the coming days, we'll be bringing you more documents on Blackwater that we've acquired through the Freedom of Information Act. I know that's what I wanted for Christmas!
Comments (27)
luneylegume wrote on December 21, 2007 12:37 PM:Bruce Wayne in cahoots with the Jokers , Oh noes !
TheraP wrote on December 21, 2007 1:01 PM:Congrats for this, tpm!
These mercenaries.... rice loves 'em!
jrw wrote on December 21, 2007 1:17 PM:Profits as a cost of doing business...jeez, why didn't I think of that? Package that with no accountability, exemption from any laws and lots of guns and you have a heck of a business model.
Mair wrote on December 21, 2007 1:20 PM:"I know that's what I wanted for Christmas!"
Me, too! Great news.
Keep up the good work.
Merry Christmas!
Drew wrote on December 21, 2007 1:38 PM:Actually, the document you've got is a review of a contract PROPOSAL. During government contracting on a letter contract issued on an urgent & compelling basis, the formal proposal is reviewed/negotiated prior to contract finalization. In other words, this was all part of routine contract negotiations, no fraud. This is actually an example of the checks & balances in the government contracting system working exactly the way it is supposed to work, for once. Oops.
Skippy wrote on December 21, 2007 1:38 PM:I still want to know who ordered, and who paid for, Blackwater's presence in New Orleans post Katrina. I've never seen a discussion of how Blackwater was sent in to be "the law" in New Orleans...with no legal authority whatsoever.
And which agency paid the bills?
Or, did Blackwater simply show up on their own, without authorization, and send bills later?
ProDem wrote on December 21, 2007 2:33 PM:Maybe it's just me, but this woman just makes me cringe! From the large gap between her two front teeth, to her strange grin, and her stiff gate (she walks like she has a stick up her pathetic ass)...I just can't help but to find her nauseating in every imaginable way...
AltHippo wrote on December 21, 2007 2:34 PM:Drew wrote: "Actually, the document you've got is a review of a contract PROPOSAL."
More precisely, it's an audit conducted as a result of a proposal. I haven't noticed the word "fraud" yet, but the summary contains language like this, which is close enough for government work:
"We recommend that the contracting officer consider the adjustments presented in the the exhibits and schedules of this report in the negotiation of a definitive contract.
Our review also disclosed that the contractor's current timekeeping procedures in Iraq are deficient and that its current accounting system is not considered adequate for accumulating costs on government contracts or to support billings under this contract without the use [of] significant ancillary records and worksheets."
illlich wrote on December 21, 2007 2:42 PM:Recently Defense Secretary Robert M. Gates criticized Congress for providing less money than President Bush requested to prosecute the wars in Iraq and Afghanistan. I've heard conservatives harp on about this too, they claim this is evidence that Democrats WANT the war in Iraq to fail, and are trying to force it to happen by underfunding.
And yet, so much money sent to Iraq has just disappeared into thin air. Truckloads of cash just evaporated and the GOP wants MORE money for Iraq. The GOP has always billed itself as the fiscally responsible party, and yet here it is being fiscally ridiculous. I guess you can get away with a lot if you wear your patriotism on your sleeve (or lapel)-- criticize any part of the war on terror (even for perfectly legitimate reasons like fraud), and be accused of "helping the terrorists."
If you are a conservative, ask yourself: Who is really being responsible here?
TheraP wrote on December 21, 2007 2:59 PM:Thank you, illich. for this idea:
This administration prides themselves on being christians. So they should go over there and pick up all the crumbs of the money (loaves & fishes) they distributed. Those crumbs can pay for a lot of things needed here at home. Jesus didn't want anything wasted... and they've failed in that regard in Iraq!
illlich wrote on December 21, 2007 3:13 PM:Thanks TheraP
--It just occurred to me: conservative AM radio windbags love to point out the fraud that was rampant in the wake of hurricane Katrina, and how it was perhaps proof that big government was a bad idea. . . so how do they feel about Blackwater's fraud? Will they come to the similar conclusion that the fraud proves the US shouldn't be farming out security to private businesses?
TheraP wrote on December 21, 2007 3:17 PM:Here's the problem, illich. They see the mote anywhere but in their own eye! Same thing as before... they refuse to read and follow the gospel they're busy preaching!
all in the family wrote on December 21, 2007 3:21 PM:"pyramiding ..." - now where have I heard that sort of a model before... Ah, it was brother-in-law Devos talking about Amway ....
David wrote on December 21, 2007 3:35 PM:Nobody cares. At this point survival is really all a person can think about.
Richard H. Davis wrote on December 21, 2007 3:45 PM:The Defense Department audit department first documented the fraud and waste in Iraq some 4 years ago. Nobody in the Defense Department, the White House, or the Republican controlled Congress cared. Now there are too many frauds and crimes to investigate in any reasonable fashion in any reasonable length of time. The VERY FIRST thing that the NEXT Congress - the one WE will control with control of the White House - should do is extend the statute of limitations on any federal crimes committed after January, 2001, for an additional 8 years.
steve wrote on December 21, 2007 3:46 PM:Isn't all this intentional? Isn't one of the goals of this administration and its cronies to redistribute the treasury of the US upwards as they downsize and discredit government to the point where it can be "drowned in a bathtub?"
whidbeygrl wrote on December 21, 2007 4:38 PM:Skippy asks....I still want to know who ordered, and who paid for, Blackwater's presence in New Orleans post Katrina. I've never seen a discussion of how Blackwater was sent in to be "the law" in New Orleans...with no legal authority whatsoever.
And which agency paid the bills?
***************************************
According to a Sept. 22, 2005 story from The Nation,
titled :Blackwater Down
Private Security Groups Seize Katrina Cleanup.
"When asked what authority they were operating under, one guy said, "We're on contract with the Department of Homeland Security." Then, pointing to one of his comrades, he said, "He was even deputized by the governor of the state of Louisiana. We can make arrests and use lethal force if we deem it necessary." The man then held up the gold Louisiana law enforcement badge he wore around his neck. Blackwater spokesperson Anne Duke also said the company has a letter from Louisiana officials authorizing its forces to carry loaded weapons."
In other words, Bush's Republican guard.
dixiegrl wrote on December 21, 2007 4:49 PM:More on the Blackwater New Orleans thing...
Blackwater got a series of very lucrative contracts for its
N.O. work...The Nation reported in a May 2006 article that
"From September to the end of December 2005, the government paid Blackwater at least $33.3 million--well surpassing the amount of Blackwater's contract to guard Ambassador Paul Bremer when he was head of the US occupation of Iraq."
The Bush regime has privatized relief work, thru FEMA and Homeland Security. Making disaster profitable.
Words fail me at this point.............
illlich wrote on December 21, 2007 5:29 PM:right. . . so war is profitable, and disaster is profitable.
No wonder the neo-cons harp on about pre-emptive war-- it'll spur the economy!
No wonder they deny global warming-- more disasters will also spur the economy!
Lynne wrote on December 21, 2007 6:21 PM:It would be interesting to know why Blackwater really keeps getting these contracts. Could it be because people like the Bush family and friends are making money off this war and don't want it to end?
Anonymous wrote on December 21, 2007 8:49 PM:If there was ever an example of a person given a pass by the media based on race and gender it is Condelezza Rice. This incompetent, Bush sycophant was asleep at the switch as National Security Advisor leading up to 9-11, lied to help Bush "justify" war with Iraq, and has destroyed moral and turned a blind eye to massive corruption in Iraw, including the embassy building fiasco, Blackwater and Halliburton abuses.
If Condi Rice were male or not of a minority race, she would have been trashed by the press. Instead she gets a pass. Is there any other explanation for her survival and lack of public scrutinty and criticism in the press?
Imhotep wrote on December 21, 2007 9:02 PM:TheraP wrote on December 21, 2007 2:59 PM:
Thank you, illich. for this idea:
This administration prides themselves on being christians.
Actually everything they do is based on Christian principles, unless it has absolutely even the remotest relation to money.
VictorLaszlo wrote on December 22, 2007 12:15 AM:Wait a sec... you mean to say that war is a racket?!?
I'm shocked.
JohnB47 wrote on December 22, 2007 8:44 AM:Why are the dollar amounts redacted? Doesn't the public have a right to know what they are paying and what its for?
JMOHR wrote on December 22, 2007 2:27 PM:Drew wrote on December 21, 2007 1:38 PM:
Actually, the document you've got is a review of a contract PROPOSAL. During government contracting on a letter contract issued on an urgent & compelling basis, the formal proposal is reviewed/negotiated prior to contract finalization. In other words, this was all part of routine contract negotiations, no fraud. This is actually an example of the checks & balances in the government contracting system working exactly the way it is supposed to work, for once. Oops.
RESPONSE: Gosh, I am glad that I only spent over a quarter of a century litigating government contracts including a stint as a Senior Trial Attorney for the Air Force litigating Cost Accounting Standards and Defective Pricing cases for the government. It goes along with having done the same for aerospace contractors when I left the Air Force.
Entering into a letter contract is not a justification to avoid complying with appropriate government accounting standards. It is not a vehicle to allow a contractor to provide a shoddy accounting system with practices that are clearly unsound if not outright criminal. The system presumes that the contractor is qualified to do business with the government. The cost to the government can be exteme because the contractor will usually end up in possession of the funds until a full audit can be done, the matter negotiated and possibly litigated before the ASBC or Claims Court. Criminal prosecution under this administration has been extremely rare.
Drew, you seem to know something about a letter contract. However, if you are a contracting officer or administrator and tried to give me that kind of bullshit, I would go to the top of your chain of command to have you warrant pulled or removed from a position of responsibility until you were fully trained. It is obvious that a contractor with either no experience or inclination to conform with the appropriate contract accounting standards was handed a contract with a nod and a wink. This is not an example of the system working.
Time cards and cost accumulation are the basic building blocks of any business whether in defense or other discipline. The lack of such basic records are rife with the potential of fraud and will result in horrendous negotiations. There is no way to know actual costs in the absence of such basic accounting. The current Republican controlled environment will not permit what should happen, criminal prosecution and recoupment of every dollar paid out that was not fully justified under CAS.
illlich wrote on December 22, 2007 10:47 PM:By the way, I have been counsel on enough government contract litigation that there are about 38 published decisions where I was counsel.
Oh, why even care? Nothing is ever going to be done about it, just look at how Halliburton ripped off the US taxpayer and never got more than a slap on the wrist.
. . . now where's that vodka. . . ?
Yeff wrote on December 26, 2007 3:57 PM:I work on a Postal contract and around here they take monthly inventory. There are even barcodes on the name tags stuck to our cubicles walls.
A contractor doesn't "lose" anything. Nothing remains unaccounted for. It's been accounted for somewhere. This governmental shrugging over "where did it all go?" is nothing less than complicity in the crime.