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Watchdog: Follow the Money

Treasury investigators needed someone investigating them

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Watchdog,Treasury,Inspectors General,Waste and Fraud,Luke Rosiak,Follow the Money

Some of the watchdogs who are supposed to root out fraud in the Treasury Department themselves needed to be investigated, according to documents detailing layers of wrongdoing and cover-ups by agents of the Treasury's Office of the Inspector General.

The problems were so pervasive that an outside team had to be brought in from the Department of Labor, according to the documents that were obtained by the Washington Examiner under the federal Freedom of Information Act.

Among much else, the outside team concluded that as Treasury headed into the 2008 financial crisis, an abrasive management style risked crippling the department's Office of Inspector General and that the official reports it tendered to Congress were deeply flawed.

Wrongdoing by investigators at times led them to protect other wrongdoers. For example, when a U.S. Mint employee was reviewed for fraudulently claiming transit benefits, Treasury IG employees pressured the investigating agent into dropping the investigation because they had also fraudulently claimed transit benefits.


The dysfunctional environment of the Treasury’s investigative unit under Assistant Inspector General for Investigations Nick D. Swanstrom was detailed in a previously unreported 2008 review that was conducted by the Labor Department, an unusual move designed to sidestep further interference with investigations.

In addition, auditors brought in from another branch of the Treasury — because the agency's IG did not have an internal investigations arm — found that a high-ranking special agent used his government vehicle to make police-style traffic stops on the highway — which OIG special agents did not have authority to do — and then repeatedly lied about doing so.

The auditors, from the Treasury Inspector General for Tax Administration, found that the agent, Richard Ardis, “misused his position, misused his government assigned vehicle and made false and misleading statements.“

But Swanstrom and his second in command, a deputy assistant inspector general for investigations whose name was redacted, intervened and took it upon themselves to reinvestigate the case, ending by determining that Ardis "did not make a false statement or misuse his position." Ardis received only a 10-day suspension.

“It is clear that the only purpose of the re-investigation ... was to change the findings,” the Labor Department report said.

The Labor Department reviewers said Swanstrom ignored substantial contrary evidence in stating "that he was not sure that [Ardis] abused his authority, misused his [government vehicle] or made false and misleading statements."

Swanstrom defended his intervention in the case by saying that auditors couldn't prove Ardis lied about having police lights in his vehicle, even though they had seen the lights themselves, unless they had around-the-clock surveillance on the car.

Intervening in the traffic stop investigation was only one of a litany of alleged behaviors for which Swanstrom and the unnamed deputy came under fire.

Swanstrom's deputy kept transit subsidies provided by the government for its employees to commute to work, even though he had an underling pick him up from his house and drive him to and from work or drove a government-owned vehicle. He accumulated an excess of $700 in transit subsidy cards at one point.

Swanstrom also kept government transit subsidies without using it, according to the Labor Department review.

Three days after the deputy paid back the $700, Swanstrom gave him permission to save a U.S. Mint employee being investigated for similar parking fraud, which surprised the agent tasked with the investigation “because he had previously worked a similar case involving another U.S. Mint employee ... [who] was terminated,” DOL said.

The agent was especially surprised that the deputy intervened because the deputy assistant inspector general for investigations “had minimal involvement in the Employee Misconduct Branch and was involved primarily with the Financial Crimes Branch.”

Swanstrom, who previously headed criminal investigations for the Environmental Protection Agency, supervised Treasury investigations during the period the department oversaw the Bear Stearns collapse, Lehman Brothers bankruptcy, and Troubled Assets Relief Program administration. His deputy would have been in charge of scrutinizing bad bankers during a time when that was sorely needed.

But an aggressive management style by Swanstrom and his deputy hampered the ability of Treasury investigators to be effective, the Labor Department reviewers found.

“[W]ith the exception of a few people, most employees within [the Office of Investigations] are looking for other jobs outside of [Treasury] OIG because of the management practices,” they wrote.

The report found one employee said he had “worked in the federal government for over 24 years and has never been subjected to such demeaning comments.”

Another said that “her morale, on a 10-point scale, was below a zero,” according to the Labor Department.

Swanstrom did not respond to an Examiner request for comment sent to his email address — which begins with the phrase "TreasuryGMan” — but on his LinkedIn profile, he wrote that he retired in 2009.

Even as oversight of misconduct by banks was compromised by turmoil in the Treasury Office of Inspector General, congressional oversight of the office was also impeded.

The DOL report said the summary that the Treasury Office of Inspector General provided to the Congress detailing its activities bore little resemblance to reality because it purchased a computer program for tracking cases that could not perform basic tasks.

“The statistics submitted to Congress in DOT-OIG's [semi-annual report] are inaccurate,” the Labor Department reviewers said. "These statistics included arrests, indictments, convictions and monetary recoveries."

An assistant special agent in charge told them that "the entelliTrak system is incapable of tracking statistics and reports as it was designed to do and as a result, that statistics in DOT-OIG's Semiannual Report to Congress had to be 'fabricated.' "

The agent "explained that the method he used was unscientific and inaccurate but was the only method he could use."

The former supervisor of the cybercrimes branch said that "since the initial purchase of the system, it has never been able to produce the reports it was designed to produce."

An agent pointed to Hurricane Katrina fraud statistics as an example of the OIG's inability to keep up with accurate data.

Treasury paid nearly $500,000 for the computer application described as “very basic” under a no-compete contract because entellitrak’s creator, MicroPact, was a minority-owned business.

Treasury employees agreed that the tool was unhelpful and seriously impeded their work, but the department paid MicroPact $2.7 million in 2012 and more than $4 million in 2013.

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Previously this week:

Treasury investigator led life of lies, government dependence

Top Treasury employees swindled thousands of dollars, in-the-know bosses did nothing

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Editor's note: The Washington Examiner received the following letter to the editor in response to this story:

I am disappointed that the March 7, 2014, Washington Examiner article titled “Treasury investigators needed someone investigating them,” failed to reflect that the current management and criminal investigators in the Treasury Office of Inspector General had nothing to do with the previous misconduct reported. As the misconduct cited occurred over 6 years ago, the author could have pointed out that the past misconduct by a few is not indicative of the current OIG investigative staff. To the contrary, the article leaves open to the readers' speculation: Does this type of conduct still exist? Is it condoned by senior OIG officials? Are the personnel referred to in the article still employed by the OIG? The answer to all three of these legitimate speculations is, “NO.”

The current Treasury Inspector General, Eric M. Thorson, took office in August 2008. Mr. Thorson was appointed to his position in large part due to the dysfunction that existed in the OIG at that time. In short, he was tasked with addressing the many serious issues facing the OIG’s investigative office, to include senior investigative management officials who were themselves under investigation for various instances of serious misconduct.

Beginning in August 2008 and continuing through 2009, under the leadership of Mr. Thorson the allegations of misconduct were addressed and resolved — those responsible were held accountable and an entirely new management team was put in place. The OIG’s investigative mission and mandate have since been expanded, resulting in hundreds of significant investigations bringing to justice those persons who commit fraud against the Treasury Department’s programs and operations. Moreover, the morale of the investigative staff has never been better, and for the past 4 years our attrition rate in the investigations’ office has been near zero. In 2009, an entirely new, federal-government-developed and low-cost case tracking system was adopted, a system that is so effective that it has entirely replaced paper case files.

The OIG’s investigative office that now exists is one of impassioned, professional criminal investigators who are enthusiastic about their mission and the positive impact this office has on the Treasury Department. Given that the OIG’s reputation is outstanding within the Treasury Department and in the Inspector General and Federal law enforcement communities, it is regrettable that the article ended without an epilogue or update informing the reader that the problems in the OIG’s Office of Investigations were aggressively addressed, and ended almost 6 years ago.

John L. Phillips

Assistant inspector general for investigations

Treasury Office of Inspector General

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