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05/9/2019

CoA Calls on IG to Investigate Use of Government Owned Vehicles at EXIM Bank

Cause of Action Institute (CoA Institute), a nonpartisan government watchdog organization, sent a letter today to the Office of Inspector General (OIG) at the Export–Import Bank of the United States (EXIM Bank), requesting the EXIM Bank’s Inspector General investigate the use of government owned vehicles by EXIM Bank staff based on documents uncovered by Cause of Action Institute through a freedom of information request. The newly released documents reveal troubling evidence of EXIM Bank staff abusing the use of government owned vehicles.

Kevin Schmidt, director of investigations at Cause of Action Institute issued the following statement:

“We’re calling on the EXIM Bank’s Office of Inspector General to launch an investigation into what appears to be ongoing abuse and use of government vehicles by Bank staff.

“As a result of our own independent investigation, we’ve discovered what appears to be unauthorized use of government vehicles by Bank staff, lack of details in automobile use logs that are required under EXIM Bank policies, including staff leaving off the purpose for the use of government owned vehicles.

“As a financial institution with the power to hand out billions of dollars in federally subsidized and backed loans to corporations, all taxpayers should be concerned that the bank staff cannot seem to follow standard government automobile use protocols that are designed to prevent abuse and protect tax dollars.”

EXIM Bank’s OIG had previously investigated this matter in 2016, producing a report that included a detailed list of deficiencies by the Bank and Bank staffs’ use of government owned vehicles.

Letter and exhibits to the EXIM Bank’s Office of Inspector General

Questionable Vehicle Use

Ex-Im Vehicle Use Policy

2019.4.3 FOIA Request to Ex-Im Bank Vehicle Use

 

 

 

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11/22/2016

CoA Institute Investigates Employee Telework Fraud at U.S. Patent Office

Washington D.C. – Cause of Action Institute (CoA Institute) today sent a Freedom of Information Act (FOIA) request seeking records from the U.S. Patent and Trademark Office (USPTO) after details emerged about extensive attendance and telework abuse by agency employees. The FOIA request seeks records to clarify whether disciplinary action has been taken against those who claimed hours they did not work.

The Department of Commerce Office of Inspector General (OIG) released a report in August 2016 that found USPTO telework employees were paid for nearly 300,000 unsupported hours of work over a 15-month period. These hours equate to more than $18 million in wages and benefits fraudulently paid to employees.  

CoA Institute Assistant Vice President Henry Kerner: “Such rampant abuse is particularly concerning given the USPTO’s policies to promote more telework for its employees. Over the last decade, the agency has doubled its number of patent examiners largely through teleworking. The American people deserve to understand whether disciplinary action has been taken to hold employees accountable for telework fraud.”

Teleworking is common in many industries and allows employees to work from home, but requires close oversight to prevent abuse by employees.  The USPTO is particularly susceptible to telework abuse because approximately half of its 12,600 employees work from home full-time without ever reporting to a physical office. The OIG report also found that 415 patent examiners who fraudulently reported hours racked up nearly $8 million in bonuses in less than two years.

CoA Institute today requested all records related to time and attendance abuse at USPTO in order to understand the full extent of the abuse and to identify potential policy changes that could address the problem.

The full FOIA request can be found here.

 

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05/22/2014

Cause of Action: “Court Must Hold Chicago Transit Accountable for Fraud”

FOR IMMEDIATE RELEASE            CONTACT: Adam Temple, (843) 722-9670

May 22, 2014                                                              temple@jdafrontline.com

Cause of Action: “Court Must Hold Chicago Transit Accountable for Fraud”

CTA Seeking Dismissal Over Technicality To Avoid $150 Million Fraud Allegation

 WASHINGTON – The Chicago Transit Authority (CTA) engaged in a potentially years-long fraud, fleecing the American taxpayer, and is now pushing a federal court to follow the Justice Department’s lead and look the other way rather than hold it accountable. Cause of Action (CoA), a government accountability organization that is pursuing False Claims Act litigation against the CTA, filed opposition papers today calling on the U.S. District Court for the Northern District of Illinois to rule against the CTA’s motion to dismiss its claims.

“The Chicago Transit Authority potentially defrauded hard-working American taxpayers of up to $150 million,” said Cause of Action Executive Director Dan Epstein. “To date, no funding has been paid back and the CTA is hoping to avoid any accountability by having this case dismissed on a technicality. The court has an opportunity in this case to defer to how Congress intended accountability to work by allowing these claims to proceed past this threshold stage and get to the merits.  Our hope is that the district court validates the role that the public can play in making government open and honest.”

CTA has likely been overreporting estimated mileage to receive a higher amount of federal grant funding at least as far back as 1982.  As a result, it has potentially obtained up to $150 million at the expense of American taxpayers. After CoA reported this story to the government, the Department of Justice, led by Attorney General Eric Holder, declined to intervene in the case.  CoA then filed the False Claims Act litigation to challenge CTA’s possible fraud.

On March 13, 2014, the CTA moved for the dismissal of CoA’s claims on a procedural technicality.  The court will now decide whether to dismiss the case or elect to hold oral argument prior to deciding.

About Cause of Action:

Cause of Action is a non-profit, nonpartisan government accountability organization that fights to protect economic opportunity when federal regulations, spending and cronyism threaten it. For more information, visit www.causeofaction.org.

To schedule an interview with Cause of Action’s Executive Director Dan Epstein, contact Adam Temple, temple@jdafrontline.com 

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05/22/2014

Related Documents: Fraud at the Chicago Transit Authority

United States District Court for the North District of Illinois Eastern Division

Memorandum of Points and Authorities in Opposition to Defendant’s Motion to Dismiss (May 22, 2014)

Defendant CTA’s Motion to Dismiss (March 13, 2014)

Complaint for Damages, Injunctive Relief, and Declaratory Judgment (May 8, 2012)

 

 

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06/17/2013

Lack of IRS Oversight Lead to Fraud, Money Laundering, and Abuse by Tax-Exempt Groups

FOR IMMEDIATE RELEASE                                                                                                 CONTACT:      

June 17, 2013                                                                                       Jamie Morris, 202-499-2425

 

Lack of IRS Oversight Lead to

 Fraud, Money Laundering, and Abuse by Tax-Exempt Groups

Cause of Action releases investigative report on fiscal sponsorship: “Conprofit: How the IRS’s Failed Oversight Allows Nonprofit Money Laundering”

WASHINGTON – Cause of Action (CoA), a government accountability organization, today released “Conprofit: How the IRS’s Failed Oversight Allows Nonprofit Money Laundering,” a comprehensive report revealing significant loopholes in the tax code which allow nonprofits to engage in corruption, fraud, and money laundering—in some cases with federal funds. In light of these findings, Cause of Action filed a petition for rulemaking with the IRS, asking them to define and set clear parameters for the practice of fiscal sponsorship.

CoA’s fifteen-month long investigation demonstrates how the Internal Revenue Service (IRS)  has consistently lacked oversight and enforcement of its Tax Exempt and Government Entities Division, the same division that has recently come under public, Congressional, and legal scrutiny for allegedly targeting applicants for 501(c)(4) status that hold specific political beliefs. The report reveals how the International Humanities Center (IHC), Christian Community, Inc. (CCI), and Help Is Here, Inc. (HIH), as well as other nonprofits, routinely used the practice of fiscal sponsorship to abuse their tax-exempt status, and in some cases even commit fraud.

“Conprofit: How the IRS’s Failed Enforcement Allows Nonprofit Money Laundering” exposes how these groups subverted the original intent of fiscal sponsorship, which is to create opportunities for charitable projects to start their endeavors under existing nonprofit groups. Instead, “Conprofit: How the IRS’s Failed Oversight Allows Nonprofit Money Laundering” documents fraud, corruption, and money laundering happening under the guise of fiscal sponsorship.

Some of the most egregious examples of fiscal sponsorship abuse:

  • IHC sponsored over 200 projects as a fiscal sponsor then collapsed after funneling almost $1 million in project funding toward its own mismanaged debts.
  • HIH preyed upon projects, improperly seizing funds, refusing to disburse funding to projects, and attempting to wrest control over projects which attempted to leave.
  • CCI posed as a fiscal sponsor for twenty years.  Tax documents, audits, and bank statements were fabricated and over $400,000 in project funding was lost.

 

Cause of Action’s Executive Director Dan Epstein explained the consequences of these findings:

“Cause of Action has exposed yet another layer of mismanagement and lack of oversight at the IRS.  This report exposes how the IRS engaged in selective enforcement, targeting certain 501(c)(3) applicants with additional scrutiny while it has approved the tax-exempt status of charities that have engaged in money laundering and fraud.

 

Significant loopholes in the tax code have opened the door to abuse for organizations to funnel money, fabricate tax documents, and destroy charities by abusing fiscal sponsorship. We now turn to Congress and the IRS to define fiscal sponsorship and remove the ambiguities which have allowed groups such as IHC, CCI, and HIH to exploit and defraud American taxpayers.”

 

Click here to read a full copy of the report.

About Cause of Action:

Cause of Action is a nonprofit, nonpartisan organization that uses investigative, legal, and communications tools to educate the public on how government accountability and transparency protects taxpayer interests and economic opportunity. For more information, visit www.causeofaction.org.

To schedule an interview with Cause of Action’s Executive Director Dan Epstein, contact Jamie Morris, jamie.morris@causeofaction.org.

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06/17/2013

REPORT: Conprofit: How the IRS’s Failed Oversight Allows Nonprofit Money Laundering

I. Executive Summary

“We will continue to work tirelessly with our partners from SIPC, the FBI, and the IRS, to track down any and all proceeds of Madoff’s Ponzi scheme and return them to their rightful owners. . .The investigation of prodigious fraud, like that of Madoff, remains one of the FBI’s top priorities. From robbers to fraudsters, the FBI will continue to bring to justice crooks who steal.” 

-Preet Bhara, U.S. Attorney

 “Nonetheless, there are some investigations underway. The California attorney general’s office has received sufficient complaints to have begun its own investigation. . . . . [C]ontacts have been made with the FBI and the Los Angeles district attorney. . . . Meanwhile, these projects will have to track down known donors, explain the details of what amounts to a fiscal sponsorship Ponzi scheme, and hope that the donors will be willing to ante up more money to make up what was lost.”

-Nonprofit Quarterly

 

The two above quotes may sound like depictions of the same problem, but the first statement was made by U.S. Attorney Preet Bharara concerning the money laundering, embezzlement, and fraud of white collar criminal Bernie Madoff.  The second, however, came from a Nonprofit Quarterly article about the nonprofit International Humanities Center that defrauded over 200 projects it sponsored and ran off with nearly $1 million.

While the IRS’s recent attention has been focused on scrutinizing tax-exempt applications, it has approved the tax-exempt status of charities that have engaged in money laundering and fraud. This system of abuse involves CEOs and corporate fraud, but its culprit cannot be found on Wall Street or in the boardrooms of large, publicly-traded corporations.  This fraud occurs in small, tax-exempt nonprofits, often run by one or two individuals who have discovered an opening in the tax code that allows them to dupe unsuspecting start-up charities and fly under the radar of an over-complicated tax code.

What follows in this report, based on Cause of Action’s fifteen-month investigation, is an account of a dangerous pattern of abuse that has destroyed jobs and ruined charities whose aim was the public good.  This abuse, combined with fabricated tax documents and bank statements and the mismanagement of federal grant money, paints a picture of corruption protected under the auspices of a process called fiscal sponsorship that is unmanaged, unchecked, and undefined by the Internal Revenue Service (IRS).

Whether through Congress or IRS rulemaking, the abuse of fiscal sponsorship warrants correction to protect taxpayers and charities. By clearly defining the parameters and standards of fiscal sponsorship, the IRS can alleviate its backlog of failed oversight of tax-exempt groups and prevent future non-profit Ponzi schemes.

Fiscal sponsorship was intended for good, but is being used for harm

When individuals seek to establish a new charity, they often apply for 501(c)(3) tax-exempt status in order to receive tax-exempt donations.  However, many projects only intend to exist temporarily and therefore have no incentive to seek formal tax-exempt status.  Other projects may require donations while their tax-exempt applications are being processed.  Fiscal sponsorship solves these problems by allowing existing tax-exempt organizations to accept grants and donations on behalf of the charity, or “project.”  As reflected by the current IRS scandal, the process for attaining tax-exempt status can be lengthy and arduous. For groups that either cannot afford the time or money to attain their own status before wanting to conduct their charitable activities, or have no desire to become an independent organization, fiscal sponsorship allows them to come under the umbrella of an existing non-profit organization.

But despite the benefits of fiscal sponsorship, we see in the cases of International Humanities Center (IHC), Christian Community, Inc. (CCI), and Help Is Here, Inc. (HIH) that these organizations were able to use the practice of fiscal sponsorship to abuse their tax exempt status, and in some cases even commit fraud.

IHC served as a fiscal sponsor for over 200 projects, funneling almost $1 million in project funding toward its own mismanaged debts before closing its doors.

Though IHC’s overall structure was not necessarily illegal, the organization may not have abided by the law governing sponsored projects’ individual transactions, and while the IRS was conducting an audit at the time of its collapse in 2011, former IHC employees reported to Cause of Action that the agency had focused on smaller issues and missed the fundamental problem which plagued IHC: uncontrolled and unaccountable spending.

IHC came under federal investigation for the potential mismanagement of federal grant money.

Through a Department of Energy program under the American Recovery and Reinvestment Act of 2009, Cause of Action found that IHC potentially improperly accepted federal grant funds intended for one of its sponsored projects, ultimately resulting in a DOE investigation. A criminal and civil case was pending against IHC as of April 2012 and DOE was considering debarring high-level IHC officials.

CCI fabricated tax documents, audits, and bank statements, costing its projects over $400,000 in lost funding.

CCI’s director, Steven Clapp, ran the fiscal sponsor organization for twenty years with little repercussion for his fraudulent activities.  For instance, Clapp told projects that he withheld Social Security taxes but never actually submitted the withholdings.  He also failed to file accurate 990 forms with the IRS.  When a former employee of one of CCI’s projects attempted to verify forms, payments, and legal filings by CCI, she discovered “nothing but fake colored pieces of paper.”  Prior to joining CCI, Clapp himself spent over four years in prison for bank fraud in Illinois for forging financial statements in order to obtain loans to support his business. Despite a history of financial fraud, the IRS was only alerted to potential problems at CCI when the organization failed to file its tax forms.

HIH preyed upon projects, improperly seizing funds, refusing to disburse funding to projects, and attempting to wrest control over projects which attempted to leave.

Under the leadership of Maggie Lane-Baker, HIH mismanaged funds intended for its projects which, without oversight by the IRS, were forced to take HIH to court.  HIH not only attempted to seize donations, but also claimed control over the charitable projects themselves.  When one project attempted to end its agreement with HIH, the request was denied.  While Lane-Baker eventually acknowledged that she confiscated $50,000 in funding, she claimed HIH was justified in keeping the funds.  This organization not only mismanaged money, but caused its sponsored projects to expend the time and resources required to initiate litigation, all of which could have been avoided with IRS oversight and a better understanding of how to properly structure a fiscal sponsorship arrangement.

Remedy

Cause of Action’s findings demonstrate a substantial lack of guidance regarding fiscal sponsorship that has subjected hundreds of charities to abuse and allowed substantial sums of donations—including federal government grants—to be mismanaged by unaccountable sponsors.

Furthermore, the IRS’s failure to properly oversee tax-exempt groups puts all projects who find themselves under a non-compliant fiscal sponsor at risk of losing funding and shutting down. Either Congress or the IRS must define fiscal sponsorship and remove ambiguities that have allowed groups such as IHC, CCI, and HIH to exploit and defraud American taxpayers through fiscal sponsorship.

 

 

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04/16/2013

REPORT: CPPW: Putting Politics to Work

Final CPPW Report

CPPW Final Exhibits PDF

 

I.                  Executive Summary

 

Since 2009, Congress has appropriated $373 million to the Centers for Disease Control and Prevention (CDC) for the Communities Putting Prevention to Work (CPPW) program.  The goal of CPPW is to educate the public about obesity prevention and the dangers of tobacco use.  Despite this noble goal, Cause of Action’s (CoA) nineteen month-long investigation shows that at least seven communities that received CPPW funds violated federal law, as well as CDC guidelines, by using taxpayer dollars to lobby for higher taxes and new local laws.

Although Congress conducted hearings in 2011 to question the CDC’s oversight of the program and followed up with letters to Department of Health and Human Services (HHS) Secretary Kathleen Sebelius in 2012, these questions only addressed one potential violation in one community in South Carolina.  CoA found seven other potential violations of the CPPW program that have not been public until now, and learned that the CDC’s one recorded violation was worse than disclosed.

The CPPW program was intended for public education and job creation as part of the American Recovery and Reinvestment Act of 2009 (ARRA).  CoA’s investigation revealed that CPPW money went to support lobbyists and public relations companies who used taxpayer dollars to push laws and agendas that would lead to tax increases on tobacco and high calorie products – essentially transforming the CPPW program into a conduit for lobbying for higher taxes and bans on otherwise legal consumer products.

CoA uncovered evidence of seven different communities around the country using CPPW money to lobby in violation of federal law and CDC policy.  These warrant investigation, review, and accountability, especially in light of the $2 billion in annual funding scheduled for disbursement in 2015 under the 2010 Patient Protection and Affordable Care Act’s Community Transformation Grants program to fight obesity and tobacco use at the local, state, and federal level.  The HHS, the federal agency that oversees the CDC, is also the largest grant-issuing agency in the federal government.

The following report reveals how the CDC permitted and even encouraged CPPW grantees in Arizona, Alabama, Florida, Georgia, and California to violate federal law and use CPPW funds to lobby state and local governments.   Internal emails, applications to the CDC outlining plans for the funds, and meeting notes blatantly show systemic corruption and use of taxpayer dollars for lobbying.

CoA found that lobbying by CPPW grant recipients violates the following four laws and guidelines:

  1. The Anti-Lobbying Act prohibits the use of money appropriated by Congress to influence, “an official of any government, to favor, adopt, or oppose, by vote or otherwise, any legislation, law, ratification, policy, or appropriation.”
  2. The CDC issued additional guidance prohibiting CPPW funds from lobbying use.  Known as Additional Requirement 12 (AR-12) in the CDC’s guidelines, this rule “specifically [applies] to lobbying related to any proposed, pending, or future Federal, state, or local tax increase, or any proposed, pending, or future requirement or restriction on any legal consumer product.”
  3. In 2012, Congress included language in an appropriations bill to clarify that CPPW funds were prohibited from “any activity to advocate or promote any proposed, pending, or future Federal, State, or local tax increase, or any proposed, pending, or future requirement or restriction on any legal consumer product.”
  4. Office of Management and Budget Circular A-122 prohibits the use of federal funds to attempt to influence federal or state legislation through “communication with any member or employee of the Congress or State legislature” or “by preparing, distributing, or using publicity or propaganda, or by urging members of the general public or any segment thereof to contribute to or participate in any mass demonstration, march, rally, fundraising drive, lobbying campaign, or letter writing or telephone campaign.”

South Carolina: A Case Study in Corruption

In addition to the previously mentioned five states, the CPPW pattern of corruption can most easily be traced through the example of South Carolina.

Direct use of federal funds to lobby

As revealed by communications between local officials and the CDC, funds from a CPPW grant to the South Carolina Department of Health and Environmental Control (DHEC) were used to illegally lobby city council members in support of a pending local smoke-free ordinance, proof of direct illegal lobbying with CPPW funds.

Stealth lobbying by coalitions to avoid legal oversight

The Smoke Free Florence (SFF) coalition is a group of like-minded organizations that formed to lobby for the causes outlined in DHEC’s CPPW grant application, and yet, by design, the SFF evades regulations that apply to lobbyists.  Known as stealth lobbying, this approach is one way to avoid lobbying rules but still, in effect, conduct lobbying while receiving federal dollars.

CDC failure to properly oversee the use of grant funds

In its review of South Carolina’s grant application from Florence County, which includes a proposal to hire a coordinator “to promote comprehensive smoke-free policies/ordinances throughout the county,” the CDC failed to prohibit lobbying activity, and in fact sent a CDC grants officer to local community meetings where this officer announced that securing a comprehensive smoke-free ordinance was “the number one priority with the [SFF] initiative and 100% adoption will be the determining factor” of success.  While the CDC later reprimanded the South Carolina recipients for their misuse of funds, they largely ignored that meeting minutes were scrubbed to change the appearance of impropriety, raising other potential legal issues outside of improper lobbying.

This report evidences a complete failure of an HHS grant program to adhere to the law, use taxpayer dollars responsibly, or secure jobs it was intended to create.  What follows are numerous examples of counties and states across the country advocating, planning, and supporting legislation in direct violation of federal law and CDC guidelines.  The clock is ticking toward 2015, when $2 billion more will be allocated to similar programs.  This report only begins to document the extent of waste, fraud, and abuse within CPPW, as CoA is still awaiting copious amounts of documents from both the CDC and HHS Office of Inspector General.  The systemic pattern of misfeasance among grantees will end only when the CDC acts responsibly on behalf of the American taxpayers who have become the biggest losers in the government’s campaign to end obesity.

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