Administration says contracting fraud loophole was mistake

Instead, the officials said, they have removed the loophole an exemption for overseas projects from proposed rules that would force contractors to report misuse of taxpayer dollars to the Justice Department.

The loophole "was a drafting error, and we now have a draft proposed rule without that language in it," said David Drabkin, acting chief acquisition officer for the General Services Administration.

Testifying before a House Oversight and Government Reform subcommittee, Drabkin added: "We did not knowingly, thinkingly put in the exception. We have taken that exception out in the proposed rule. It got no real thought, it wasn't examined, it wasn't raised and it never went anywhere."

Democrats on the panel sounded dubious that the administration could ensure similar mistakes aren't made in the future.

"We cannot just sit back and ignore the problems," said Rep. Edolphus Towns, D-N.Y., who chaired the hearing. "To say legislation is not necessary, I can't quite accept that with the kind of money that's being spent."

At issue was a proposed rule that is aimed at curbing fraud in government contracts that cost taxpayers more than $400 billion annually. The government has spent more than $102 billion since 2003 on contracts in Iraq and Afghanistan alone.

The rule would penalize businesses that fail to report internal evidence of fraud in contract work.

The Justice Department said Tuesday it has charged 46 people in investigations over the past several years into kickbacks, bribes and other abuses of government-funded contracts in Iraq, Afghanistan and Kuwait.

The loophole, first reported by The Associated Press, was quietly added months after the Justice Department signed off on the proposal. It exempted overseas contracts from complying with the crackdown, alarming prosecutors, inspectors general and Democrats and Republicans alike in Congress.