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Overseas work omitted from contract fraud bill

WASHINGTON - A Bush administration plan to crack down on contract fraud has a multibillion-dollar loophole: The proposal to force companies to report abuse of taxpayer money won't apply to work overseas, including projects to secure and rebuild Iraq and Afghanistan.

WASHINGTON - A Bush administration plan to crack down on contract fraud has a multibillion-dollar loophole: The proposal to force companies to report abuse of taxpayer money won't apply to work overseas, including projects to secure and rebuild Iraq and Afghanistan.

For decades, contractors have been asked to report internal fraud or overpayment on government-funded projects. Compliance has been voluntary, and over the past 15 years the number of company-reported fraud cases has declined steadily.

Now, the Justice Department wants to force companies to notify the government if they find evidence of contract abuse of more than $5 million. Failure to comply could make a company ineligible for future government work.

The proposed rules, which are in the final approval stages, specifically exempt "contracts to be performed outside the United States," according to a notice published last month in the Federal Register.

Critics including the watchdog group Taxpayers Against Fraud said the overseas exemption raises suspicions.

"I hate to sound cynical, but what lobbyist working for a contractor in Iraq wanted this get-out-of-jail card?" asked Patrick Burns, spokesman for the government watchdog group.

"I'm not saying that's the way it went - I'm just suggesting that's the most logical line to draw," said Burns. "I think somebody's got some explaining to do."

The Justice Department, which pushed for the self-reporting requirement, called the overseas exemption a mistake that should be fixed before the plan becomes final.

"We do not agree with also excluding contracts performed entirely outside the United States," Assistant Attorney General Alice Fisher wrote Jan. 14 in a letter otherwise supporting the new rules.

"These types of contracts, which in many cases support our efforts to fight the global war on terror, need greater contractor vigilance because they are performed overseas where U.S. government resources and remedies are more limited," Fisher wrote.

A spokeswoman for the White House Office of Management and Budget, which oversees federal procurement policy, declined to answer questions about the planned exemption of overseas contractors from the beefed-up requirements for reporting fraud.

"This is a proposed rule," OMB spokeswoman Jane Lee said. "We are currently reviewing the public comments that were submitted."

Following the U.S.-led invasions of Afghanistan and Iraq, the United States poured billions of dollars into projects to secure and rebuild the two nations. With the money came the fraud. At least $14 million has been lost in bribes alone over the last five years in Iraq and Afghanistan. *