Takeaways
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The recently issued SIGAR Report looked at public spending for Afghanistan reconstruction efforts and identified at least $15.5 billion in waste, fraud and abuse.
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The Report specifies that “fraud” accounts for less than 1% of this figure. Over 99% of the Government findings in the recent audit were characterized as “waste.”
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Further regulatory and enforcement actions may be on the horizon for contractors that perform contracts in this region.
We recently reported on a Department of Defense (DoD) regulation effective April 13, 2018, that prevents government contracting officers from funding projects in Afghanistan that cannot be safely accessed and monitored by military or civilian personnel, as these projects raise a heightened specter of waste, fraud, and abuse. A new report (the “SIGAR Report”) from the Office of the Special Inspector General for Afghanistan Reconstruction, the government entity charged with monitoring U.S. reconstruction efforts in Afghanistan, effectively validates the concerns that gave rise to this regulation and suggests that government scrutiny of public spending in Afghanistan is likely to continue to intensify.
The SIGAR Report
The SIGAR Report was created at the behest of members of Congress, who last year asked the SIGAR to quantify the dollar impact of wasteful spending in Afghanistan since the Office of the SIGAR was created in 2008. The SIGAR studied hundreds of its own audits, inspections and investigations from 2008 through 2017 and identified at least $15.5 billion in waste, fraud and abuse over that period—representing almost 30 percent of the $52.7 billion in public spending for Afghanistan reconstruction efforts that the SIGAR studied. The SIGAR Report explains that this $15.5 billion total comprises $3.5 billion associated with 643 instances of waste, fraud and abuse, as well as $12 billion “spent on two whole-of-government reconstruction efforts that appear to have failed and resulted in wasted U.S. taxpayer dollars.” Fraud cases include bribes, kickbacks, theft and other unlawful acts, and ranged from $6,800 to $1 million.
The report enumerates several of the individual instances of waste, fraud and abuse that make up the $3.5 billion total, including: (1) the $486 million procurement of 20 aircraft for the Afghan Air Force, which “did not meet operational requirements” and 16 of which “were sold and scrapped in Afghanistan for approximately 6 cents a pound;” (2) a $335 million construction of a power plant, which has been operating at less than one percent of its capacity since construction; and (3) $129 million in overbillings by a contractor.
Notably, the SIGAR Report revealed that waste accounted for over 99 percent of the total $3.5 billion of waste, fraud, or abuse identified through December 31, 2017. The most common instances of waste—69 percent—involved taxpayers not receiving reasonable value for their money. The Report specified that “... waste involves using resources carelessly, extravagantly, or to no purpose and does not necessarily involve a violation of law. Waste relates primarily to mismanagement, inappropriate actions, and inadequate oversight that prevent U.S. taxpayers from receiving reasonable value for their tax dollars” whereas “[f]raud ‘involves obtaining something of value through willful misrepresentation.’”
The additional $12 billion loss, the SIGAR Report states, is attributable to: (1) $4.7 billion spent on “stabilization programs” in Afghanistan from 2002-2017 that were “largely unsuccessful in building and reforming government institutions;” and (2) $7.3 billion spent on counternarcotics programs that “have done very little to stem the production and exportation of illicit drugs.”
In a cover letter to its report, the SIGAR notes that it “is only one of several agencies with purview over U.S. funds spent in Afghanistan” and that its analysis of its own investigations since 2008 has “likely uncovered only a portion of the total waste, fraud, abuse and failed efforts” in Afghanistan. The letter states that the SIGAR will update its findings on U.S. spending in Afghanistan annually.
Although U.S. Government efforts in Afghanistan have fallen off of the public and media radar in recent years, significant projects are still in the works for future reconstruction, development and aid. While it is encouraging that SIGAR is finding relatively minimal instances of fraud, it is important to recognize that the media and political figures will rarely draw distinctions between “waste, fraud and abuse,” leaving the inaccurate impression that large numbers of government contractors are willfully cheating their clients.
Conclusion
The SIGAR Report and new regulation discussed above reflect growing political pressure for the Government to enhance its oversight over public spending in Afghanistan. On July 26, 2018, the same members of Congress who requested the SIGAR Report sent similar requests to eight inspectors general for other agencies that oversee spending in Afghanistan. Further regulatory and enforcement actions are likely on the horizon for contractors that perform contracts in this region. Clients working in Afghanistan, and other contingency environments worldwide, are reminded of the need for continuous vigilance towards ethics and compliance.
