House Panel Votes To Close Fraud Reporting Loophole

Wed. Apr. 16, 2008


WASHINGTON (April 16, 2008) The House Oversight and Government Reform Committee on Wednesday passed a bill intended to close a loophole in proposed fraud reporting requirements for federal contractors - even though the Office of Management and Budget has already announced the loophole will be eliminated.

The bill (H.R. 5712) requires that federal contractors report fraud by their employees or subcontractors. It passed by unanimous voice vote after the committee unanimously adopted an amendment aimed at addressing Republican concerns that the legislation is unneeded.

Rep. Peter Welch, D-Vt., introduced the measure this month amid congressional criticism of what observers dubbed a "mystery loophole" in a draft regulation issued last November by an-OMB-overseen council that drafts procurement rules.

The loophole exempted contracts performed overseas and contracts for some commercial items from the regulation, which requires federal contractors to adopt procedures for detecting and then reporting fraud and overpayments received to federal agencies.

The proposed rule followed a suggestion by Justice Department officials who have said a program encouraging contractors to voluntarily report fraud has proven ineffective.

Accused by Welch and other Democrats of quietly slipping the exemption into an earlier draft regulation proposed by Justice, senior federal acquisition officials have said the exemption was inserted mistakenly by career federal employees who "cut and pasted" from 20-year-old Defense Department contracting rules that contain similar exemptions.

"The truth is they made drafting error," David Drabkin, the General Services Administration's acting chief acquisition officer, testified Tuesday at a House Oversight and Government Reform Government Management Subcommittee hearing on Welch's bill.

Paul Denett, administrator of OMB's Office of Federal Procurement Policy, told the subcommittee that a new rule without the loophole will be issued soon. Denett, Drabkin and Barry Sabin, the Justice Department' acting chief of staff, said the shift makes Welch's bill redundant. The officials and House Oversight and Government Reform Committee ranking member, Tom Davis, R-Va., argued lawmakers should let the regulatory process proceed before legislating.

But Welch and Oversight and Government Reform Chairman Henry Waxman, D-Calif., argued Welch's bill will ensure all contractors remain subject to the reporting requirements.

"Voluntary disclosure is something that is simply not working," Waxman said.

But Waxman reached an agreement with Davis to amend Welch's bill to eliminate sections creating new law forcing contractors to report fraud. The amendment instead mandates updating federal acquisition regulations to ensure the controversial exemptions for overseas and commercial contractors are eliminated from the new rule OMB will issue.

The amendment "preserves Mr. Welch's original intent while at the same time preserving ... the role of the regulatory process," Waxman said.

Recorded Votes

No roll call vote.

by By Dan Friedman, CongressDaily

Wed. Apr. 16, 2008

  •  
  •