Despite bipartisan outrage over Pentagon spending in the 1980s -- remember the $600 toilet seat? -- such contracting abuses continue to take place.
Boeing overcharged the U.S. Army up to 177,000 percent on helicopter spare parts -- $71.01 for a metal pin worth 4 cents that the Pentagon already had plenty of in storage -- according to an audit by the Department of Defense's inspector general and obtained by the Project on Government Oversight. The audit focused on the Army Aviation and Missile Life Cycle Management Command's transactions with Boeing to supply the Corpus Christi Army Depot in Texas.
The IG found that the Army should have only paid $10 million -- instead of the nearly $23 million it was charged by Boeing -- for various parts, about 131.5 percent above "fair and reasonable" prices. The audit concluded that Boeing should repay the $13 million overcharge. The defense industry giant has refunded about $1.3 million plus a $324,616 credit as of the date of the audit.
Though the amount pales in comparison to the total Pentagon budget, POGO notes:
The individual transactions of tens of thousands to millions of dollars examined by the DoD OIG may at first appear to be small potatoes against an annual DoD budget of more than $700 billion, including the costs of the wars. But when viewed over the cost of a weapon system's lifespan, the total cost of spare parts—including simple components such as ball bearings, retainers for nuts and bolts, sleeve bushings (basically just a metal cylinder), and straight metal pins—can be significant. The cost to buy a weapon system out of the factory, such as the AH-64 helicopter, usually is less than the cost to operate and maintain the weapon over its life. Parts on a weapon have to be replaced at varying intervals and, similar to how the human body replaces most cells in the body in less than a decade, a major weapon system with a long-enough life span may eventually be largely rebuilt with new spare parts. Hence the expression that aircraft are nothing but "spare parts" flying in close formation.
One In Ten Investment Advisers Disciplined
More than one in ten investment advisers have been the subject of a disciplinary action over the last decade -- including 39 who have been convicted of a felony, 722 that have violated investment-related regulations or statutes and 614 that have been subject to an order by a government regulatory agency. That's according to an analysis of data from the Securities and Exchange Commission (SEC) done by the Sunlight Foundation's Nancy Watzman.
Among the most glaring examples is Anthony Gerard Manaia, who has been fired twice, subject to 18 complaints by investors and is currently under investigation for a scandal involving a medical financing company's offerings. Five months after giving up his broker-dealer registration, Manaia set himself up as an investment adviser targeting "high net worth individuals."
The number of investment advisers has mushroomed in recent years and the amount of money they manage has grown from $24.1 trillion to $38.3 trillion from 2004 to 2010, according to the Sunlight report.
SEC's New Ethics Rules For Derivatives Dealers
The SEC proposed new ethics standards for the derivatives industry Wednesday, requiring banks and other firms to "bolster their compliance departments and act in the 'best interests' of pension plans and local governments that use derivatives to hedge risk," reports Dealbook's Ben Protess. The vote by the SEC's commissioners was unanimous.
Health Care Army Lobbies To Block Cost-Cutting Panel
In an under-reported sequel to the health care reform saga, industry officials and lobbyists have swarmed Washington in a concerted effort to block the creation of the Independent Payment Advisory Board. The panel was set up to target wasteful and inefficient Medicare spending, with the potential to save the government billions of dollars, but the industry claims that it will hurt profits.
As an example of the lobbying push, the Boston Globe notes the Massachusetts Biotechnology Council's all-out effort to try to get Senator John Kerry (D-Mass.) to oppose the panel. When council president Robert Coughlin and his colleagues recently visited Washington, they attended an evening fundraiser for Kerry and the next day lobbied Kerry's staffers. The senator is not opposed to the board -- although he's open to "improvements," his spokesman told the Globe.
Kudos to the Milwaukee Journal-Sentinel's John Fauber, whose investigations of medical device-maker Medtronic's payments to doctors whose studies downplayed side effects of one of the company's products prompted a probe by a U.S. Senate committee.
The Spine Journal followed up that reporting Wednesday with its own blockbuster expose, devoting an entire issue to the subject and revealing that complication rates for the product -- Infuse, a biologic agent used in spinal fusion surgery -- were actually 10 to 50 times greater than that estimated in papers co-authored by Medtronic-paid doctors. The publication also cited lax oversight by the Food and Drug Administration.
Medtronic chairman and CEO Omar Ishrak told the Journal-Sentinel that he strongly believes in the safety of Infuse.
How Do You Put A Dollar Value On Cleaner Water, Safer Passengers?
Over the last several decades, cost-benefit analysis (CBA) has become the standard way to assess the impact and value of new government regulations and rules. Regulators are required to determine whether the cost to implement a new rule -- such as a proposal regulating the type of fuel tanks in airplanes -- does not exceed the benefits. Critics have argued that the method is flawed because benefits (such as lives saved by switching to a sturdier fuel tank) are much more difficult to quantify monetarily than costs (the price of purchasing and installing the new fuel tanks).
Now, as Congress mulls codifying CBA analysis requirements, a legal scholar argues in a new study that existing CBA procedures systematically undervalue the benefits of regulation, leading to widespread under-regulation of health hazards and environmental harms.
"Federal agencies consistently undervalue the benefit of saving human lives in the future by failing to account for 'health inflation,' the rate at which health care costs rise more quickly than prices of normal goods and services, and 'wealth inflation,' the phenomenon by which residents of wealthy countries tend to get richer over time," writes Ben Trachtenberg, a visiting associate professor at the University of Missouri School of Law. "The resulting undervaluation causes the agencies to underestimate the likely benefits of regulations, thereby causing agencies to forgo enacting some lifesaving policies."
Poor Planning For Disaster Procedures At Nuke Plants Much More Pervasive Than Thought
Problems with emergency equipment and disaster procedures at U.S. nuclear plants are far more pervasive than currently reported by the Nuclear Regulatory Commission. A probe by ProPublica's John Sullivan found that 60 plant sites had problems from broken machinery and missing equipment to blocked drains -- far more than the 12 reactor sites cited by the NRC last month during their inspection ordered in the wake of the Japanese nuclear disaster.
Among the more serious problems: several flood-control pumps didn't work at the Arkansas Nuclear One plant and a fire pump broke down during a test at the Clinton plant outside Bloomington, Ill.
The extent of the deficiencies is all the more troubling after this weekend's flooding in Nebraska and Iowa threatened two plants in those states -- Fort Calhoun Station and Cooper Nuclear Station.
Financial Crimes Not Such A High Priority, Says DOJ
Though the Justice Department has been criticized for not being more aggressive in pursuing financial crimes, particularly the potential fraud that helped cause the financial crisis, its inspector general does not consider doing so much of a priority.
"Financial Crimes and Cyber Crimes" were listed as seventh on a list of performance challenges at DOJ in 2010, below "Restoring Confidence in the Department of Justice" and "Informational Technology Systems Planning, Implementation and Security." The list was compiled by acting inspector general Cynthia A. Schnedar in her semi-annual report to Congress.
In other DOJ news, the long wait for the department's new number-two is over. James Cole's nomination to the post of Deputy Attorney General was held up for over a year due to opposition from Republican Senators and government watchdogs, including the Government Accountability Project, because of his tenure as a compliance officer at AIG.
Yesterday, Cole was confirmed, 55-42, by the Senate amid a strong push by Democratic leadership.
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