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Grassley Looking Into Citibank’s Million-Dollar ‘Clunkers’ Deal

Chuck Grassley (IA), the senior Republican on the Senate Finance Committee, today asked the U.S. DOT to answer a question Streetsblog Capitol Hill first wondered about months ago: How did Citibank, the beleaguered recipient of a $45 billion government bailout, snag a contract to administer the Obama administration's "cash for clunkers" program?

090127_grassley_coller.jpgSen. Chuck Grassley (R-IA) (Photo: Politico)

In a letter to Transportation Secretary Ray LaHood, Grassley asked for a complete rundown of the process used to select Citibank -- which had to ramp up staffing to process "clunkers" claims after delays in reimbursement frustrated auto dealers -- as well as four other contractors who worked with the U.S. DOT.

The Iowa senator, known in Washington for his high-profile inquiries into government waste, painted a picture of all-consuming haste within the administration to promote auto sales, with fraud-protection concerns falling by the wayside.

"Cash for Clunkers was set up very quickly, and there hasn’t been
an accounting of the administrative costs of the program," Grassley said in a statement released by his office. "My concern is the waste, fraud and abuse that may have
resulted from the vulnerabilities that can come with such a quick start."

Grassley made contact with the U.S. DOT after his aides spoke with the agency's independent inspector general (IG) about the handling of the $3 billion, taxpayer-funded "clunkers" rebates, according to today's letter. Although the IG "pointed out many additional ['clunkers'] program vulnerabilities," the senator wrote, "I am concerned that the DOT may not have fully complied with [the recommendations]."

Late Update: A U.S. DOT spokeswoman replied to Grassley's letter, defending the department's protections against fraud and abuse:

The overwhelming consumerresponse to [the 'clunkers' program] required the DOT to rapidly expand capacity in orderto process more than 670,000 dealer transactions made in less thanthirty days. Throughout the life of the program, the DOT took measuresto prevent fraud, waste and abuse. While there was no time to allowvendors to competitively bid for the processing work, those selectedreceived contracts based on other recent competitively bid governmentcontracts for similar work.

The DOT has spent $77 million so far on administrating the "clunkers" program, less than the $100 million that was set aside for such purposes. The legislation implementing the "clunkers" rebates required the government to set up its system within 30 days.

Even Later Update: Rep. Bruce Braley (D-IA) responded to Grassley's letter with a strong defense of the auto-buying program's economic and environmental value (both of which have been disputed by economists):

“’Cashfor Clunkers’ was a wildly successful program that strengthened the economy,reduced our dependence on foreign oil and most importantly, helped middle classfamilies save money,” Braley said. “Hundreds of thousands of people tookadvantage of the program, strengthening small businesses around the country andgiving a strong and sudden much-needed boost to the economy in Iowa.

Check out Grassley's full letter after the jump.

Dear Secretary LaHood:

Recently, my staff spoke with the Office of the Inspector General (OIG) to discuss the “Cash for Clunkers” program. As Ranking Member of the Committee on Finance (Committee), it is my constitutional duty to conduct oversight into the actions of the Executive Branch, including the activities of the Department of Transportation (DOT).

The Consumer Assistance to Recycle and Save Act of 2009 (CARS/Program) was passed as part of the Supplemental Appropriations Act of 2009 that was introduced in Congress on May 12, 2009 and signed into law on June 24, 2009. In essence, CARS was intended to help consumers pay for new, more fuel efficient cars or trucks from a participating dealer when they traded in less fuel efficient vehicles. This legislation originally provided for $1 billion for auto dealers and on August 7, 2009 the President and Congress appropriated an additional $2 billion for CARS.

Pursuant to the legislation, the DOT had only 30 days after the date the legislation was enacted into law to engage contractors and stand up the Program before the first rebates were issued. It is my understanding that the original legislation provided $50 million to cover the costs of these contracts, but no specific funding provision for the contractors was included with the additional $2 billion that was provided for the Program. To date the Administration has not provided an accurate accounting of the administrative costs related to the Cash for Clunkers program and I believe that the American taxpayer deserves more information, not less, and that information needs to come sooner rather than later.

A. Contracting

In addition to auditing the individual transactions of the Cash for Clunkers program, I am interested in the corporations and executive branch agencies that received contracts from the DOT to process thousands of transactions generated by CARS. It seems to me that the Administration chose an inherently risky approach to developing and implementing the Cash for Clunkers program and spent millions to get it up and running in record time with little regard for proper oversight and accountability; thus creating an environment ripe for waste, fraud and abuse.

It is my further understanding that the DOT contracted with the following corporations/agencies to support either directly or indirectly the Cash for Clunkers program:

· Citibank, N.A.;

· Vangent;

· Affiliated Computer Services (ACS);

· the Internal Revenue Service (IRS); and the

· Federal Aviation Administration (FAA) in Oklahoma City, OK.

In light of this, I have the following questions about the contractors and the contract(s) they received pursuant to CARS. For each question throughout this letter, please respond by first repeating the enumerated question followed by the appropriate answer:

1) Please confirm that the list above is complete and if not please provide a complete list of the contractors and executive branch agencies that received funds to assist in the implementation of the Cash for Clunkers program?

2) Please set forth how much each of these contractors received to date and the anticipated total that they will receive once the books are closed on CARS?

3) What type of contract did the contractors receive? (e.g. time and material contracts, fixed price contracts, cost and cost plus contracts, or all others contracts)

4) Please explain whether or not other types of contracting vehicles were considered and what was the reasoning for choosing one type of contract over another?

5) Please describe in detail the process used to select the corporations/agencies identified in the response to question 1 above?

6) What, if any, bonuses were (are being) paid to the contractors upon completion of their respective contracts?

B. Vulnerabilities to the CARS IT System

The CARS legislation also included a provision requiring the Secretary of Transportation to consult with the OIG to “establish and provide for the enforcement of measures to prevent and penalize fraud.” It is my understanding that the OIG pointed out a number of possible vulnerabilities, especially with the IT system, which experienced

significant problems in the Cash for Clunkers program. In light of this please respond to the following questions:

1) What was the overall effect of the IT disruptions on the implementation of the program?

2) Please provide documentation of the DOT’s IT vulnerability and testing recommendations.

3) Please describe in detail the criteria the DOT used to determine allowed costs versus disallowed costs for the IT system?

C. OIG Recommendations and Related Implementation

Furthermore, it is my understanding that the OIG made a number of recommendations and pointed out many additional program vulnerabilities. However, I am concerned that the DOT may not have fully complied with the OIG consultative provision as the CARS program was being implemented. Therefore I would like clarification of the role the OIG played and the actions taken by the DOT to respond to those recommendations.

1) What vulnerabilities were identified for the DOT by the OIG?

2) At what point in the process did the DOT ask for this information from the OIG and how was it requested?

3) How were the OIG concerns and recommendations incorporated into the Cash for Clunkers program as it was being implemented? Please be specific.

In cooperating with the Committee’s review, no documents, records, data or information related to these matters shall be destroyed, modified, removed or otherwise made inaccessible to the Committee.

Accordingly, please provide the requested information regarding the Cash for Clunkers contractors and the OIG recommendations electronically in PDF format to by no later than January 25, 2010. Your prompt attention to this request is greatly appreciated and should you have any questions, please contact Janet Drew or Brian Downey of my staff at (202) 224-4515.


Charles E. Grassley

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