Publications
Making Sure The Cleanup Is Clean
By THOMAS D. THACHER II
Published: November 19, 2005 in The New York Times (link to article | download PDF)
as an Op-Ed
Disasters bring about the best, and sometimes the worst, in human behavior. So do disaster cleanups. With tens of billions of dollars at stake, and a sense of emergency overriding normal checks and balances, the potential for fraud, waste and abuse rides like a poisonous tide in the wakes of Hurricanes Katrina and Rita. While hurricanes can't be stopped, however, fraud and abuse can.
That is one lesson learned from the enormous cleanup effort at ground zero, which the public hailed for its unusual degree of cooperation and remarkable absence of fraud. Certainly, goodwill and patriotism were never in short supply at the World Trade Center site. But the real key to squeezing out fraud was Mayor Rudolph Giuliani's early initiative to embed private sector integrity monitors into the construction companies managing the $750 million cleanup. My firm was one of those monitors.
These integrity monitors, known as independent private sector inspectors general, consist of legal, accounting, investigative, engineering, environmental and construction experts. These multiple disciplines operate as one integrated team, with each discipline supporting and supported by the others.
Companies awarded contracts at ground zero were warned at the outset that integrity counted as much as getting the job done, and that integrity monitors would be involved at every step of the way—from contract awards to on-site construction activity and invoice submission. The result was that not one corruption scandal emerged—and this in a city once renowned for graft in its construction industry. The cleanup was completed on time and under budget, and by some estimates the anti-fraud initiative saved the city more than $80 million.
Replicating that experience on the Gulf Coast would prevent billions of dollars from being squandered as we carry out public projects like removing debris, repairing levees and rebuilding roads, bridges and major government buildings.
Here is how it would work. Construction companies seeking contracts above a threshold amount (say, $10 million) would be required by the contracting agency to hire an integrity monitor. Each monitor would rigorously screen subcontractors to identify any past scandals and to ensure that they are hired because of what they know, not whom they know. The monitoring firm's auditors, engineers and investigators, working both in contractors' offices and on site, would analyze invoices for fraud, monitor compliance with internal controls, investigate and detect corrupt practices and stop fraud as it occurs instead of after the fact.
Similarly, each monitor's environmental specialists would ensure there is no fraud involved in the handling and disposal of hazardous materials. Additionally, by establishing 24-hour integrity hotlines, monitors would also collect anonymous tips about corruption and investigate claims.
It must be emphasized that the independent monitoring firms do not replace or compete with government inspectors general; rather they support them by identifying and stopping fraud before it occurs. While the monitors work closely and cooperatively with the firms they are monitoring, they also report to the government inspectors general, thereby forming a bridge between the two and a united front against fraud.
As was the case at ground zero, much of the Gulf Coast relief aid will be disbursed through time-and-materials contracts, where payments are based on whatever a contractor claims were its labor, equipment and material costs rather than on a pre-negotiated fixed price. Although such open-ended contracts are often necessary in emergency situations with looming unknowns, they are also the most fraud-prone type of contract. When companies seek reimbursement for hundreds of thousands of workers, and tens of thousands of pieces of equipment, and hundreds of millions of dollars in supplies, it is easy to inflate costs and hide billions of dollars in fraudulent overcharges.
The cost and the geographical scale of the Gulf Coast reconstruction effort differ from those in New York, but the hazards are the same. They include labor racketeering, bribery, extortion, bid rigging, payroll padding, illegal disposal of hazardous waste and overcharging for labor, equipment and materials. Add to this list vandalism, sabotage and theft, and you have a recipe for compounding the disaster and misery already heaped upon the residents of the Gulf Coast by Hurricanes Rita and Katrina.
Mayor Ray Nagin of New Orleans has already appointed a private sector committee to assist in the rebuilding effort, and the Federal Emergency Management Agency has announced that $400 million in contracts it previously awarded on a no-bid basis will now be subject to competitive bidding. These are steps in the right direction, but more must be done to protect the process from fraud, waste and abuse.
The Gulf Coast recovery program should commit to using integrity monitors. Doing so will spare citizens in the region, and taxpayers everywhere, from being victimized once again—this time by a storm of corruption.
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