Con artists exploit the Recovery Act

Hundreds of thousands of Americans have been ripped off by con artists promising free government funds through the Recovery Act, a top federal watchdog testified during a congressional oversight hearing on Thursday.

Jon Leibowitz, chairman of the Federal Trade Commission, told the Senate Homeland Security and Governmental Affairs Committee that scammers have become more brazen during the economic downturn, targeting consumers with fraudulent guarantees of federal grants that could be used to pay bills or to travel the globe.

"Typical of hucksters chasing consumer dollars, some Web sites even used the image of President Obama and Vice President Biden to add legitimacy to their misrepresentations," Leibowitz said. "Many of these schemes require consumers to pay substantial amounts of money in a fruitless attempt to obtain a much larger grant. Others simply ask consumers to provide personal information, or send a very small payment to get information on how to get free government grant money."

FTC recently launched Operation Short Change, a law enforcement sweep targeting schemes that prey on financially distressed consumers. One con "guarantees" participants will receive a check of $25,000 or more, but in reality lures people into purchasing a grant-writing book or related coaching services. Another enrolls consumers in a "negative option continuity program," in which the target is subject to recurring monthly charges of $100 for a supposed one-time service.

The commission has shut down these operations and referred several for criminal prosecution. But Leibowitz acknowledged other scams will take their place in what he described as a "whack-a-mole problem."

In total, at least 270,000 Americans have been duped out of roughly $30 million in the four schemes highlighted by FTC, Leibowitz said.

Members of the committee were outraged at the commission's findings and vowed to provide FTC with additional tools and resources to catch and punish offenders.

"These people are pond scum and should go to jail," said Sen. Claire McCaskill, D-Mo. "Nothing is more effective than throwing cuffs on them."

Sen. Susan Collins, R-Maine, said bogus mailings have been sent to her constituents, including one that "pre-approves" recipients for a program that will eliminate up to 50 percent of their credit card debt.

"These crooks are smart and opportunistic," Collins said. "They exploit these tough economic times to lure Americans into scams that look and sound legitimate."

FTC is not alone in targeting stimulus scam artists. The Government Accountability Office has established a Recovery Act hot line for tipsters who believe money is not being spent appropriately. To date, the watchdog has received roughly 80 credible calls, including eight that are being investigated and 12 others in which an inquiry is pending, according to J. Christopher Mihm, managing director of strategic issues for GAO.

The Recovery Accountability and Transparency Board also has forwarded more than 100 stimulus contracts to inspectors general for review. Board chairman Earl Devaney said the issues range from incidents of administrative oversight to "awards that may raise more serious questions."

But, Devaney noted that his job is not to weigh in on the worthiness of spending choices. "Such decisions are the result of political and policy determinations made by multiple layers of watchful individuals," he said. "Instead, when the board focuses on waste in the spending of Recovery funds, we will be looking at the incurring of unnecessary costs due to ineffective practices or controls."

The board's other primary responsibility -- establishing a revamped Recovery.gov Web site that can track and display all stimulus spending -- appears to be on schedule.

The new site, which is being developed by a contractor, could be ready by Oct. 5, according to Devaney. The reporting deadline is Oct. 10. Citizen focus groups and stakeholders nationwide are testing the site, he said.

Meanwhile, more than 19,000 state and local governments, contractors, universities, nonprofits and other organizations that have received stimulus grants, contracts or loans of more than $25,000 have registered at FederalReporting.gov, a Web site that will collect governmentwide data on stimulus spending. The data then will be displayed on Recovery.gov.

To date, more than 30,000 Recovery Act projects have been approved and nearly $234 billion in overall spending has been obligated, said Robert Nabors II, deputy director of the Office of Management and Budget. Agencies have paid out nearly $94 billion, he said.

Committee chairman Sen. Joseph Lieberman, I-Conn., asked if more could be done to accelerate spending: "Can we speed up the process so that more citizens feel the positive effects that we intended more quickly, while, of course, ensuring that taxpayer money is not wasted?"

Nabors said OMB was committed to "removing unnecessary bureaucratic hurdles" on the state and federal levels to increase the pace of spending.

The administration also is deploying on-site support teams to many of the largest state governments to help them manage the administrative workload associated with the reporting deadline, Nabors said. OMB has conducted seven webinars and more than 20 training sessions to assist Recovery recipients.

"Our intent is for this increased level of communication to facilitate a smoother process for states as they prepare for the reporting deadline," he said.

But, not all committee members were satisfied with the management of stimulus funds. Sen. Tom Coburn, R-Okla., cited a recent Government Executive article that found more than half of all Recovery contracts have been issued through cost-plus vehicles, which the administration has repeatedly described as risky and prone to abuse.

Nabors described the situation as an "anomaly" because of the high number of Energy Department research-and-development contracts issued in the early months of Recovery Act implementation.