Harding had come under fire over work by his private security firm, Harding Security Associates, in Iraq in 2004. Congressional staff learned prior to his confirmation hearing that the Defense Contract Audit Agency found the company overbilled the government for interrogation work in Iraq.
The finding resulted in Harding Security Associates repaying the government $2 million.
Also, earlier this week, Sen. Susan Collins, R-Maine, told CongressDaily she was awaiting reports from five separate inspector general investigations into Harding's activities when he was on active duty. None of the reports have been made public.
Obama's previous nominee to lead TSA, Erroll Southers, a former FBI agent, also withdrew his name from consideration amid controversy.
White House spokesman Nick Shapiro told the New York Times in a statement: "The president is disappointed in this outcome but remains confident in the solid team of professionals at TSA."
TSA has been without a permanent head for more than one year.