Crony Capitalism at the IRS

The taxpayer-dollar spigot is open.

gty_internal_revenue_service_building_irs_thg_130515_wgAn information technology (IT) company used its connections to land approximately $500 million in government contracts with the Internal Revenue Service (IRS) over the period of a year and half, even though the company had less than $1 million in total revenue prior to the awarding of these contracts, according to a new House Committee on Oversight and Government Affairs report.

The name of the company is Strong Castle and it is the subject of an investigation by the House Committee on Oversight and Government Affairs, completed in June 2013. According to the report, a cozy relationship between the company’s Chief Executive Officer, Braulio Castillo, and an official with the Internal Revenue Service named Greg Roseman led Strong Castle to receive lucrative contracts the company didn’t earn.

The committee’s report found that Strong Castle had been in business less than two years total before the company began bidding on hundreds of millions in lucrative IT contracts with the IRS.

The CEO of Strong Castle, Braulio Castillo, has been friends for more than two decades with Greg Roseman, an IRS manager whose position puts him in the middle of the process for approving IRS IT contracts. Roseman used his position to get Strong Castle approved for about $500 million in contracts, even though there were more experienced competitors with lower bids.

Worst of all, Castillo fraudulently claimed he had an old war injury in order to qualify for special contracts earmarked specifically for wounded veteran small business owners. The grants were part of a program called the Service-Disabled Veteran-Owned Small Business (SDVOSB) program. Castillo claimed he sustained a foot injury while he attended U.S. Military Academy Preparatory School (USMAPS) in 1984. Castillo did attend USMAPS but it was only for one year, and this would be the only so-called military service that Castillo had, the committee found.

Furthermore, on one occasion Castillo claimed he sustained the foot injury playing football, while on a subsequent occasion he claimed it was during an “orienteering” session.

Roseman took the Fifth Amendment when he testified on the matter in front of the House Oversight and Government Affairs Committee in June 2013.

Deputy Commissioner of the IRS, Beth Tucker, also testified in front of the House Oversight and Government Affairs Committee and defended the IRS in its process of choosing IT vendors:

IRS Procurement follows not only bureau policies and procedures in the acquisition process, but also rules established by the Department of the Treasury (Treasury) and the Federal Acquisition Regulation (FAR). The IRS uses a number of different acquisition approaches and contract types to fulfill its requirements, including Blanket Purchase Agreements (BPAs), which may be established under any General Services Administration (GSA) contract. As a purchasing option, GSA Schedules are an efficient and convenient acquisition approach. Using a GSA contract allows ordering activities to benefit from additional price discounts, expanded opportunities for contractors, elimination of redundant effort by utilizing a single contracting vehicle that fulfills complex or ongoing needs, reduction of administrative time and paperwork, expanded business opportunities for underrepresented groups and help for procuring agencies in reaching various contracting goals.

Strong Castle didn’t respond to an email from Front Page Magazine for comment for this story. According to the House Oversight and Government Affairs Committee, weaknesses in the procurement process for IRS IT contracting subject taxpayers to billions of dollars in waste and abuse.

This latest report comes on the heels of a separate investigation by Front Page Magazine into another information technology company, Client Network Services, Inc. (CNSI). In the case of CNSI, that company used a similarly cozy relationship with the state of Louisiana to also secure a contract worth more than $100 million. In that case, Governor Bobby Jindal canceled this contract after it came to light that the relationship between one of his officials, Bruce Greenstein, and CNSI was the subject of a federal investigation.

As a result of ObamaCare, IT companies like CNSI will be in line to bid on tens of billions of government contracts in order to upgrade Medicare and Medicaid IT systems, a requirement of the health care law.

The investigation into the relationship between the Obama administration and the IT industry by Front Page Magazine is only beginning to unfold, however all the evidence uncovered so far shows that classic crony capitalist relationships are afoot.

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