Nov/Dec 2009

State News: August 2009



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States Act as Watchdogs for Stimulus Fraud

By Mikel Chavers, CSG Associate Editor
When it comes to misuse or abuse of federal stimulus dollars, people are watching. The U.S. Government Accountability Office received 122 allegations of Recovery Act-related waste, fraud, abuse and mismanagement so far, and according to the GAO, 64 of those complaints have substance.
In addition to the GAO and other federal stimulus watchdog efforts of the Inspector General and the federal RecoveryAccountabilityandTransparency Board, there are those in the states that are focused—determined even—to make sure the risk of stimulus fraud is greatly reduced.
“Fraud is always an issue when a lot of money is floating around,” said Phil Mattera, research director of Good Jobs First, a Washington, D.C.-based nonprofit that runs The States for a Transparent and Accountable Recovery Coalition. Mattera and the coalition keep an eye on how transparent states are being with the stimulus dollars on their Web sites—one of the ways to combat stimulus fraud. His organization released a report Wednesday scoring each state’s Recovery Act Web site.
Laura Chick is one of those people watching. Chick took the new job of California Recovery Act Inspector General in April when California Gov. Arnold Schwarzenegger created it. In that role, Chick acts as the central coordinator and stimulus watchdog to make sure all of California’s moving oversight parts work together.
That’s no small feat because in that state—like many others—the oversight family is huge. It’s made up of the state controller, who does fiscal audits of local entities that receive state and federal funds, the bureau of state auditors that does a single audit and looks at state departments receiving federal funds as well as auditors, investigators and contract monitors in nearly every single department of state government, according to Chick.
The state’s attorney general’s office, the district attorneys, the local attorneys and controllers, the U.S. Inspector General, the U.S. Attorney and the Federal Bureau of Investigations all keep an eye on stimulus funds as well, she said.     
“Another reason I think my role is important is at the front end, the preventive piece—raising consciousness on the part of both state employees and the recipients of the money—putting them on notice and saying, ‘you know there are lots and lots of eyes who are watching,’” Chick said in an interview with State News.
“We’re watching, we’re listening and we are determined that we are going to lower the percentage that typically occurs of fraudulent activity.”
People are watching because experts believe there’s a portion of stimulus dollars that’s will be a casualty of fraud.
David Williams, who runs Deloitte Financial Services Advisory and counsels clients on how to prevent fraud, told MarketWatch that between 5 percent and 10 percent of the $500 billion in Recovery Act dollars now being channeled through the procurement process in the states will potentially run into problems. That means fraud and theft losses from the stimulus package could reach an estimated $50 billion, Williams told MarketWatch.
So what’s a state to do?
“This is somewhat overwhelming; the feds are giving us more money than ever before. They’re saying spend it faster than ever before and spend it better than ever before,” Chick of California said. “And the spending it faster is scary and the spending it better is very important and part of that is oversight.”
In fact, on Tuesday Chick hosted a first-in-the-nation comprehensive fraud awareness training program for stimulus dollars in Sacramento. Two sessions devoted to stimulus fraud brought together oversight folks from California as well as the U.S. Attorney, the Department of Justice’s Anti-Trust Division, the FBI and a slew of federal inspectors general, according to Chick.
Chick has some advice to states when it comes to preventing stimulus fraud:
  • Take a look internally at departments awarding the stimulus grants, she said. “Look inward to make sure they have strong oversight plans (and) robust internal controls.” Robust controls include things like good cash management and good plans to watch the money once it leaves the state purse and goes on to contractors, Chick said.
  • Have someone in the state act as a central coordinator on stimulus fraud—that doesn’t have to be inspector general. (Mattera said a lot of states do use their inspector general as the stimulus funds watchdog. Some states also charge their Recovery Act czar with this role, he said.)
  • Do risk assessments, Chick said. “We’ve been spending federal dollars for years in different grant forms and we have track records with local governments, contractors and community-based organizations,” she said. “Where are the track records that cause you to worry?” Do assessments of the places where you need to tighten up, she said.
But Chick’s biggest piece of advice to all who touch stimulus dollars is this: “The advice that I’m giving is before you go to bed at night, pretend that there’s a banner headline story tomorrow in your most widely read newspaper in your area that’s going to give a story about how you’re spending public taxpayer Recovery Act money—and if you can go to sleep with a smile on your face, you’re OK,” Chick said.
“If you’re tossing and turning, go back to the drawing board and start thinking again how you’re going to be spending that money.”

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