FatCratz

Rep. Jan Schakowsky's "Despicable" Hypocrisy

Rep. Jan Schakowsky of Illinois thinks the tea party protests were "despicable" and "shameful," cheapening the memory of an honorable moment in American history. As many in the blogosphere have pointed out, this is rich given that Schakowsky's husband, Robert Creamer, plead guilty to tax violations and bank fraud that swindled financial institutions of $2.3 million during the 90's.

People protesting high taxes and the waste of their tax dollars are despicable, but an admitted felon who defrauded the government and others is a "good man," who has done "good work" for forty years and will continue to do so in the future?

In the current climate it is difficult to ask this question in a non-partisan way, but why do so many of those who bear the responsibility for creating the tax code take the responsibility of paying their taxes so lightly?

Perhaps this is the Spirit of '76 that was on display this week... it's not that we have taxation without representation, but that the representation we have is so feckless and disinterested in the plight of the those who pay taxes.

Who is Tracking Fraud?

As we noted in an earlier post, the incentives regarding fraud differ widely in the public and private sectors. Fraud is not the worst thing for a government agency, the discovery of it is.

So fraud enforcement is habitually under-funded and staffed. Thus, no surprise that "...no one at IRS had examined teleconferencing-related charges for unusual charges or potential waste and improper use," according to a recent report, and that, unwatched, employees abused their privileges:

On one calling card alone, an employee charged $59,000 for improper overseas calls made over a 12-month period in 2007 and 2008, according to the report by the Treasury Inspector General for Tax Administration. The report offered no estimate of the total amount of money wasted in improper use of the calling cards.

...$8.4 million was charged to IRS calling cards between October 2005 and April 2008. IRS employees primarily use the cards to dial into teleconferences, accounting for $7.4 million of that spending....no one at IRS had examined teleconferencing-related charges for unusual charges or potential waste and improper use, the report states. IRS hasn’t validated its calling card inventory in more than three years, the report states. It analyzes one month of telephone call activity every quarter, and the report concludes that isn’t enough to prevent fraud.

Do you know about a case of fraud that's too small for an IG to investigate, or wouldn't merit a report in the Federal Times? Report it here.

The truth will set us free. People behave better when they know people are watching.

Mr. Chiekwe Cheating with Chits

One of the first government jobs I ever held included research activities. Shortly after arriving on the job, I asked how I could go about purchasing a book for work purposes and expensing the costs. A colleague in a position of authority told me not to worry about the official process for expensing such a small purchase. Rather, she said, just buy the book with your own money and manufacture a taxi receipt in the same amount to reimburse yourself. That's how red tape usually works, encouraging honest employees to engage in deceptive behavior for the sake of practicality.

I thought of that story when I came across the following story [WARNING: Canadian content follows]:

A former civil servant faces criminal charges for allegedly billing about $20,000 worth of unauthorized cab rides to the federal government over a six-year period. Lewis Chiekwe, 61, of Cole Harbour [Nova Scotia] used government taxi chits to pay for trips for personal use between January 2000 and June 2006, the Crown alleges. He was employed in the information technology services division of Public Works and Government Services Canada at the time but is no longer with the government. ... In an interview outside court, Crown attorney Craig Botterill said Mr. Chiekwe used the taxi chits “as if he were using his own private automobile.” The alleged activity went undetected for years until a department employee responsible for vetting the taxi chits couldn't make out the signature on one of the slips.

Maybe Mr. Chiekwe was just reimbursing himself for some work supplies he bought out of his own purse?

As usualy with these stories, the exposure of the criminal act reveals two offenses. First, the guy who bilked the system for personal gain. Then the system itself and its monitors, which failed in its oversight and proved all to easy to manipulate.

Public Sector vs. Private Sector Incentives in Health Care

A central theme of FatCratz is how different a whole range of incentives are for public vs. private sector employees. These differing incentives are illustrated brilliantly in the field of health care by Kerry Weems and Benjamin Sasse in a piece in today's WSJ. They compare a number of different aspects, but the most salient for FatCratz is the handling of fraud:

Private insurers must combat fraud -- or go out of business. Indeed, these payers have every incentive to invest in antifraud personnel and strategies down to the point where return and investment are equal. ... In fact, the total amount of Medicare fraud is unknown. The government does not measure or estimate fraud in its programs; instead, it measures payments made "in error." According to Medicare's own most recent data, payments made in error amount to over $10 billion annually. (Medicaid's payment errors in 2007 equaled a whopping $32.7 billion, according to a report by the Department of Health and Human Services.) Others have claimed Medicare's payments made in error are much higher. Even with the inclusion of the budget of the inspector general for the Department of Health and Human Services, Medicare spends less than one-fifth of 1% on antifraud measures -- a small fraction of what private plans invest in their efforts to build a network of honest providers.

Fraud in the Public vs. Private Sectors

Fraud is inevitable in both the public and private sectors, because human nature is the same everywhere. Cheats will find a way to abuse any system.

However, incentives to root out fraud differ widely in the public and private sectors, as illustrated in a few recent stories here and here.

In the private sector, fraud eats away at profit, as well as undermining credibility in the marketplace. Private corporations are therefore highly motivated to root out fraud, and will spend as much as they need to reduce it to a negligible amount.

In the public sector, there is no profit motive to speak of, and marketplace credibility is less of an issue because government is a monopoly. Fraud, per se, does no direct damage to the well-being of a government organization. The awareness of fraud, however, does do harm, since government actors can be penalized when fraud comes to light (individually by management, corporately by appropriators).

Thus, in the public sector the primary incentive is to reduce the awareness of fraud, and not necessarily fraud itself.

Fraud Flowers When Funds Flow Fast

In California, a helpful reminder of how hard it is to police even good programs when they expand too rapidly. A state program was set up to provide in-home health care for elderly and disabled; this year it was budgeted at $5.42 billion to service 440,000 Californians. Under the program, people receiving care can hire whomever they want at state expense, and most hire their own family members for anywhere from $8 to $14.68 an hour. This is where it gets interesting.

One of the bigger busts in Fresno so far involved a husband and wife who got their children to bill the state $150,000 to care for them. The husband claimed he was completely disabled and could not get out of bed. A few days of surveillance revealed that he was spending eight to 10 hours a day working on his ice cream truck. He was caught on camera stocking the truck -- as well as dragging a washing machine across his driveway. His wife claimed to be completely paralyzed on one side. She was caught using the arm that she said was paralyzed to wave to her husband, pull down a heavy wood garage door and unload groceries from her car.

Problem is, no one is even investigating most of the alleged fraud. L.A. County has no investigators at all, and a backlog of over 800 fraud tips. Fresno County had to spend $650,000 of their own money to set up the state's only investigative unit. It is tiny, and they have a backlog of over 1,700 tips.

The nasty little secret: Those family members providing care have to pay union dues to SEIU, who collect over $5 million a month from in-home caregivers. They in turn donate heavily to the Democratic party, which enjoys single party rule in the state legislature, who in turn keep the spigots to the program running at full blast.

"So What If We Blow a Few Billion?"

Stimulus waste is good, don't you know? [The title of this post is a quote from the subtitle of a Washington Post opinion piece]

It's a little refreshing, actually, to have someone come out and say that waste is not only inevitable, but desirable, when it comes to stimulus spending:

When the whole point of a major government spending program is to stimulate the faltering economy as quickly as possible, what exactly counts as "wasted" money? After all, if some stimulus cash is misspent -- say an errant official or contractor buys himself a Cadillac or a Harley Davidson, only to suffer the full force of law -- might not such fraud boost the economy more than if the cash languished in a law-abiding state account?

Might not such fraud boost the economy more than if the cash languished in a law-abiding state account? You see, too much oversight and talk about "making sure taxpayer money is wisely spent" slows down how quickly the dollars get spent. Those unfortunate government officials, scared about potential investigations and bad press, will be too cautious and too slow to spend money.

Note, dear reader, that waste, even fraud, is assumed to be a necessary byproduct of government spending, by a proponent of government spending!

Hiring a Consultant to Hire a Contractor

You know your staffing system is broken when you have to hire a consultant to hire your contractors, and this in the name of reform:

When then-D.C. Chief Technology Officer Vivek Kundra contracted with a company to oversee the agency's hiring of consultants last summer, he said his aim was to free employees from cumbersome paperwork and get the experts onboard faster.

Hmm... I guess it doesn't require any paperwork to hire a consultant? Or maybe it's just not as cumbersome. Only a FatCrat adds an additional step to a process to make it go faster.

But of course, this was also a "reform" effort, "an effort to get rid of what city employees and consultants have described as rampant cronyism."

Seems it didn't work. Federal investigators are looking into an alleged $500,000 fraud.

When a FatCrat hires a consultant to hire a contractor to get rid of cronyism, odds are pretty good it's just another way of hiring a new batch of cronies.

Stimulus Fraud in 34 States Deemed Irrelevant

The Washington Post reports that the Government Accountability Office (henceforth on FatCratz, GAO) is asking for help from Americans in reporting waste related to the $787 billion economic recovery package, because "Experience tells us that the risk of fraud and abuse grows when large sums are spent quickly." Apparently, the normal federal spending rate of about $8.5 billion a day is far more manageable.

Unfortunately, it seems that tracking fraud and abuse in the (rapid) spending of $787 billion is too big a job even for government. So they're only going to try to keep track of two-thirds of it:

The agency will track Washington, D.C. and 16 other states that account for 65 percent of the U.S. population and are expected to receive at least two-thirds of the stimulus funding: Arizona, California, Colorado, Florida, Georgia, Illinois, Iowa, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Pennsylvania and Texas.

Apparently, GAO isn't interested in stimulus fraud in the remaining 34 states and 5 territories. 

In the interest of good government, FatCratz is looking to take up the slack. We're asking for help from Americans in reporting stimulus waste in Alabama, Alaska, American Samoa, Arkansas, Connecticut, Delaware, Guam, Hawaii, Idaho, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Northern Marianas Islands, Oklahoma, Oregon, Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Virgin Islands, Washington, West Virginia, Wisconsin, and Wyoming.

Oh, if you're from one of the important states and think GAO might miss an abuse or two, feel free to let us know. 

Size Doesn't Matter

At FatCratz, good things come in small packages. 

One of the reasons that misdeeds in the government workplace are under-reported is because there is a tacit assumption that only large scale fraud, waste, and abuse are newsworthy, or criminal. 

Think for a moment what this means. The operating assumption is that the government workplace is inefficient. Journalists, Inspectors General, and the Government Accountability Office are too busy chasing down the billion dollar excesses of TARP or Medicare fraud to care whether your boss plays solitaire all day long.

But small can be funny, as Danny DeVito taught us in twins. 

And truth be told, the myriad small inefficiencies of a bureaucracy may be more damaging than the large bungles we read about in the newspaper. They are the fine grit that chokes the engine of government.

FatCratz is a filter for the grit.