Testimony 2 In conducting our investigations the BGA often relies on the Freedom of Information Act to gain access to government records. By using this Act, we have been able to identify serious abuses in government programs including schemes to defraud the government out of millions of dollars. First, I would like to outline for the Subcommittee today how we used the Freedom of Information Act in four of our recent projects. All four projects identified fraud, waste, or abuse in a federal government program. They also all led to Congressional action. Second, I wish to describe how a recent Justice Department policy change has effected our investigations. The first project I wish to describe involves an eight-month review of Naval shipbuilding. It began with a telephone conversation between a BGA investigator and a Mississippi attorney, who had filed a citizen's false claims action against the Ingalls Shipbuilding Division of Litton Industries. This attorney suggested that a visit to Pascagoula, Mississippi, Ingalls headquarters, would be informative. BGA investigators who traveled это тие there were told of cross-charging and mischarging, exorbitant bills for spare parts, and widespread waste. Almost immediately we began filing Freedom of Information requests to corroborate these allegations. Before completing this project we had filed more than thrity-five requests with four different agencies of the Navy, two Defense Department agencies, and the Justice Department. I might add parenthetically that obtaining these records was not easy. Several requests remain outstanding after more than a year, and there was a problem with fee waivers which I will describe later in my testimony. After an initial review we concluded that a full investigation was warranted. We contacted "60 Minutes" and asked them to collaborate with us in conducting this project. Believing these issues merited Congressional oversight, the BGA also presented our initial findings to the Senate Permanent Investigations Subcommittee of the Government Affairs Committee. Subsequently, committee staff began their own independent investigation. On April 24, 1983, "60 Minutes" broadcast the results of this investigation in a segment called "Dollars Aweigh". The BGA and "60 Minutes" revealed that Navy captains had ordered lavish furnishings for their destroyers' wardrooms including a $14,000 custom made leather couch and $41,071 for Testimony 3 pure wool carpeting at $93 a yard; and, that Ingalls' management deliberately submitted phony labor charges to the Navy on government contracts. A little over a week later, the Senate subcommittee held hearings. The subcommittee's findings were that Ingalls engaged in "regular, systematic" false billing, including mischarging between Navy contracts, and cross-charging between Navy and civilian contracts. The BGA also testified at these hearings where we expanded on our original findings and presented new information. These findings included: Documentation that the Navy was paying And, information that, despite the vast As a result of these hearings the Naval Sea Systems Command issued a new manual detailing what furnishings could and could not be installed on warships. In addition, the Chairman of the Permanent Investigations Subcommittee, Senator William Roth (R-Del.), recently announced a contract settlement between Ingalls and the Navy. With this settlement, the taxpayers potentially saved $170 million. In that announcement Senator Roth stated, "I believe it took the public scrutiny of a Congressional hearing (i.e., the May 3, 1983 hearing) to ... ultimately save the taxpayers money." A second BGA investigation that used the Freedom of Information Act involved a major supplier of ground beef to the federal school lunch program and the military. Meat inspectors for the Agriculture Department told the BGA there were problems with a packing plant in Denver called Cattle King. The owner, Rudolph (Butch) Stanko, had been convicted for violating the Meat Inspection Act. His packing plants had also been convicted of conspiracy to violate the same Act and for shipping putrid meat across state lines. Testimony " ... By using the Freedom of Information Act we learned a great deal more about this plant. Not long after Cattle King opened, a federal compliance officer had recommended placing this plant in the highest risk category because of "mushy steaks and the handling of 3-D (dying, diseased, and disabled) cattle...' A Canadian government inspection, on file with the U.S. Department of Agriculture, reported poor sanitation and contaminated meat. Based on this inspection, Cattle King was prohibited from exporting their product to Canada. The files of the National Labor Relations Board indicated a series of labor law violations. However, even with this evidence of poor conditions and questionable practices, USDA contract files showed that Cattle King was increasing its share of the federal school lunch program's gound beef procurement. By September, 1983, Cattle King alone was supplying 24% of the ground beef purchased. Over a seven month period, the information received pursuant to FOIA requests, through interviews, and other searches indicated there were serious problems at this plant. Working in conjunction with NBC's "First Camera" the BGA was able to report that: Cattle King employees distracted USDA Spoiled and diseased meat had been re- And, the plant's management engaged in The response to this investigation was swift and sustained. Within days the Secretary of Agriculture impounded the 6.5 million pounds of Cattle King hamburger in federal warehouses. Shortly thereafter Cattle King and related plants were suspended from bidding on additional federal contracts, and the USDA moved to withdraw inspection--which, in effect, closes a packing plant. The House Subcommittee on Livestock, Dairy and Poultry held hearings regarding the problems at Cattle King last December in Denver. At these hearings the USDA proposed new legislation and administrative ac Testimony 5 tions to regulate problem plants like Cattle King. The BGA also presented its findings at this hearing. In March of this year, federal contracting officials from the Defense and Agriculture Departments began seeking monetary recoveries totaling $29 million from Cattle King. Finally, following a USDA Inspector General investigation, a federal grand jury indicted ten people, including owner Rudolph Stanko, manager Henry Stanko, and five other packing plant officials. Two federal meat graders were also indicted. Among the charges were: processing dead cattle, selling previously rejected beef, and defrauding the government. The third study I wish to mention today, Mr. Chairman, does not involve millions of dollars. It does describe, however, a clear violation of law and an abuse of power. In May of 1982, the BGA, in conjunction with Cox Newspapers and WJLA-TV, announced that the then Veterans' Administration chief, Robert P. Nimmo, had spent more than $46,000 to improve his personal offices. This was despite a presidential directive to avoid unnecessary expenditures in setting up personal offices. The improvements included a private bathroom and shower, the refinishing of wooden floors, and the subsequent carpeting of these same floors. In addition, Mr. Nimmo's chauffeur had earned over $8,000 in overtime; many of those hours were accrued taking the Veterans' chief back and forth to work. Nimmo had been advised by his agency's legal staff that such use violated federal law. Senators William Proxmire (D-Wisc.) and Alan Cranston (D-Calif.) immediately requested the General Accounting Office to examine Nimmo's practices. The Inspector General at the Veterans' Administration began his own investigation, and subsequently announced that existing law prohibited the use of public funds for non-official transportation. Nimmo discontinued his use of the chauffeur for commuting to work and wrote a personal check for $6,411 to reimburse the government for his driver. Prior to the release of the GAO report, which also confirmed the BGA's findings, Robert Nimmo resigned his post. Testimony 6 Mr. Chairman, all of the information we disclosed in this investigation was based on an analysis of records obtained under the Freedom of Information Act. The last project I will be reviewing this morning used Freedom of Information requests to expose a bankruptcy scam in the Small Business Administration's (SBA) Surety Bond Guarantee Program. This program is designed to assist small contractors who are unable to secure performance bonding through conventional channels. The SBA will guarantee a bond, which is obtained through a private surety company, and will pay up to 90% of the cost of completing a project if the contractor defaults. In a preliminary discussion with SBA officials, the BGA learned that one of this program's most active underwriters was International Fidelity Insurance Company of Newark, New Jersey. An SBA computer printout indicated that this company had a loss ratio twice as high as the program average. We also learned that most of International Fidelity's business in Region V (Chicago) was underwritten by the American Bonding Company, which was owned by Irwin Weiner. Irwin Weiner is a well-known organized crime figure in Chicago who specializes in bankruptcy schemes. According to the House Committee on Assassinations, Weiner's links to organized crime have been a dominant, if not pervasive, element in his life" including "links to the highest levels of organized crime nationally and in Chicago..." After learning of Weiner's active participation in this program, the BGA used the Freedom of Information Act to ascertain the extent of his underwriting in the SBA program. We discovered that American Bonding had written more than $66 million in these guaranteed surety bonds. Twentyfour of those bonds, with a total contract value of $2 million, were written for another firm controlled by einer, Chicago Automatic Machine (he was listed as treasurer of the company in corporate records). Chicago Automatic Machine went bankrupt, defaulting on twenty-three of the SBA backed bonds. |