Recovery Act May Be Stimulus For Fraud and Waste

Brian A. Shactman|CNBC Reporter

With so much focus on job creation, there is a huge elephant in the Recovery Act room: fraud and waste.

Stimulus Scorecard

In 2010, that might change.

"Just as it's going to take time for us to see how many jobs are created, it's going to take time for us to see how much fraud or waste was involved in the stimulus package," said Michael Grabell of ProPublica, the journalistic non-profit that tracks Recovery Act spending.

According to the Association of Certified Fraud Examiners, organizations lose seven percent of annual revenues to fraud. If you apply that metric to the Recovery Act, that's $55 billion dollars.

"We are going to hear a lot more stories about waste," Grabell said. "And we're going to hear a lot more stories about people who support those projects."

Fraud, Waste & Stimulus

The government is not shying away from what might lie ahead. According to the Recovery Board, which oversees Recovery Act spending, nearly 100 cases were referred to various Inspectors General. Fourteen have been accepted for review.

"Criminal investigations take time, often up to two years, so it is difficult to predict when prosecutions will be brought," said Earl Devaney, Chairman of the Recovery Board.

Confronting the problems is part of the effort to be transparent and make sure recipients are accountable.

However, it is not shielding the Recover Act from critics.

Senators Tom Coburn (R-OK) and John McCain (R-AZ) recently released a report, detailing 100 projects that they claim exemplify wasteful spending.

Here are a few highlights:

  • No. 9: Nearly $1 million for a cruise company to buy surveillance equipment.
  • No. 30: More than $230,000 for exit polling in Africa.
  • No. 42: $1.3 million just to make the highway signs touting Recovery Act projects.

Of course, these are not the type of cases the Recovery Board is forwarding for criminal investigations. But they do give a sense of the rhetorical battle that will ensue in 2010.

As for those potential criminal cases, we will learn more—and about more of them—in the next few months.