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Cloudy With a Chance of Fraud: Federal Weatherization's Back

Don Amaro Madeira Islands, Portugal, upload by Herrick 17:17, 4 December 2007 <https://creativecommons.org/licenses/by/2.0>,
Photo by: Don Amaro


By Eric Felten, RealClearInvestigations
August 30, 2022

Alarm bells are sounding at the Department of Energy as the Biden administration has moved to triple the budget for the Weatherization Assistance Program, which provides low-income applicants with free home and apartment renovations, such as insulation, duct-sealing, new heating systems, and kitchen appliances. The last time the program was lavished with such a surge in funds, through President Obama’s 2009 stimulus bill, audits and investigations uncovered a pattern of fraud, embezzlement, shoddy work, inflated expenses for parts and materials, sketchy billing, kickbacks, and gimcrack construction.

Teri L. Donaldson, Inspector General: Sounded alarm about past abuses.DOE Office of the Inspector General

In a private meeting in February, the department’s inspector general, Teri L. Donaldson, warned Secretary of Energy Jennifer Granholm that the enormous new budget for the program – slated to grow to $1 billion a year from $315 million  – threatens to overwhelm the department’s ability to protect taxpayers’ money. In April, the inspector general made that warning public with a memo to Secretary Granholm cataloging the risks to the money being entrusted to the Department of Energy. Donaldson identified a history of problems with the program, noting that “few administrative remedies such as suspensions and debarments were made for the multitude of problems that occurred and were identified.”

Despite those problems, the program’s labyrinthine structure remains. Congress apportions weatherization funds to the Department of Energy. The department, then, distributes grants to the states; the states, in turn, disburse the monies to “community action agencies” [CAAs], organizations that administer, at the local level, various programs to aid the poor, including Head Start, “Community Services Block Grants,” and “SNAP Education & Training.”

Jennifer Granholm, Biden Energy Secretary: She's been warned.
Jennifer Granholm, Biden Energy Secretary: She's been warned.

The model used for the weatherization program illustrates how many federal anti-poverty programs operate. There are over a thousand community action agencies managing the local implementation of federal anti-poverty programs, and for many the weatherization program is their flagship. If there are problems with the management of weatherization, there are likely to be similar problems, if not worse, with the programs that are less visible.

For the weatherization program, CAAs collect applications from low-income residents and check that they meet eligibility conditions, including that an applicant’s income falls below 200% of the poverty line. People “who are most in need,” the DOE states, “are often moved to the top of this list.” Contractors bid for the weatherization work and are chosen and paid by local community action agencies to install insulation, plug holes in ductwork, repair or replace doors and windows, install programmable thermostats, and put in new furnaces, water heaters, and refrigerators.

But just like shoddy connections in a gas or water line, the many junctures where money changes hands can lead to leakage. Costs are supposed to be kept low by awarding contracts to the most competitively priced bids, but the DOE’s office of inspector general has found that low bids are often followed with “work scope changes” – extra parts or labor added on well after the bid, and even added to final bills. Work changes, the IG warns, tempt contractors to sidestep the cost controls of the competitive bidding process. An audit to test how Tennessee was handling and spending its share of Obama-era stimulus funding, for example, found local Community Action Agencies regularly approved work order changes – often after the job was done. It also found that “prices for smoke alarms, fire extinguishers, and thermostats ranged from about 120 percent to 200 percent over the average retail price.”

Other audits have found that CAAs have problems verifying who is and isn’t eligible for free weatherization. The community groups have also struggled to meet the demands of other rules such as competitive contracting and “proper accounting for funds.” Previous inspector general reports have chastised states and local agencies for “insufficient oversight.”

CNYCentral
A top method of local weatherization crime is "senior leadership fraud," aka embezzlement. CNYCentral (2018 report)

At the top of the IG’s list of threats to the weatherization program is “senior leadership fraud,” better known as embezzlement. Recent years have seen several cases of theft from program coffers.

Steven Lloyd Taylor, for example, was a manager at the Northwest Michigan Community Action Agency, where he was in charge of handing out money to weatherize low-income housing in nearly a dozen of the state’s counties. Taylor created a shell company and phonied-up invoices to his fictitious weatherization company. In a year and a half, Taylor stole $349,210. He bought, among other things, an 18.5-foot Seaswirl fishing boat. When he was sentenced at the end of 2019, Taylor was ordered to pay $431,828 in restitution – the amount he embezzled, plus the taxes he failed to pay on that money.

Randi Smith was chief fiscal officer of the New York State Weatherization Directors Association, a group representing WAP agencies in the state. She embezzled from the group for four years. It’s possible she might have done so for even longer if her son hadn’t gotten his hands on the checkbook too. Together they stole over $1 million. They pleaded guilty to the theft in 2018.

The weatherization program was launched in 1976 and has been managed by the Office of Energy Efficiency and Renewable Energy, an agency within the Department of Energy. Now the Weatherization Assistance Program, together with a grab bag of other new offices, such as the Local Government Energy Program and the Energy Futures Grant, are being housed in a new bureaucracy, the Office of State and Community Energy Programs. SCEP – in best Washington fashion, the new office is already being referred to by its initials – promises to “expand the weatherization provider network to assist low-income families with home energy retrofits.”

Weatherization Assistance program
The program's guidelines show administrators are aware of the risks of shady business. WAP

For all those grand plans, the department’s inspector general seems as if she would be happy if the State and Community Energy Programs merely managed to keep participants in the weatherization game from robbing the government blind. Issues with billing proved to be “pervasive,” the IG said in her report.

So too problems with quality control: Audits found as much as a third of projects to be unacceptable because of “substandard workmanship,” slipshod contracting such as “improperly installed kitchen exhaust ductwork…creating a potential fire hazard,” heating systems emitting dangerous levels of carbon monoxide, and “alarming” numbers of gas leaks.

And that’s the work that got done. On 10 of the 15 houses examined in Illinois as part of the inspector general’s accounting of how the Obama-era funds were spent, auditors found contractors had billed for work that wasn’t done.

Connected Family Members, Friends

Favoritism was another problem. Auditors found it was common for friends and family of community action agency employees to jump to the front of the weatherization queue. An audit of the program in West Virginia found that relatives of the staff waited less than three months, on average, for weatherizing to begin; for low-income clients without connections to people working at the agency, the wait was nearly two years.

Supporters of the weatherization program point out that most of the cases of fraud, waste, and abuse the IG cites are a decade old. But they are also the most recent reviews of the program and IG Donaldson’s recent warning indicates that her office still considers them relevant – that the problems that plagued the anti-poverty program a dozen years ago persist.

Projects now require the sign-off of a “Quality Control Inspector who was not involved in the job.”DOE's National Renewable Energy Laboratory
Projects now require the sign-off of a “Quality Control Inspector who was not involved in the job.” DOE's National Renewable Energy Laboratory

If the Department of Energy finds the inspector general’s special report an unwanted or unwarranted intrusion, the department is doing its best not to show it. “DOE has worked closely with the IG in the past and is continuing to do so, including working with DOE’s IG to gain insight on past issues,” a Department of Energy spokesperson told RealClearInvestigations. “DOE is acutely aware of the lessons learned from past funding efforts and the IG’s compilation of previous areas of concern is very helpful as we design our funding programs.” Acting on the IG’s advice, the spokesperson said the DOE is “providing additional fraud training to recipients.”

A research fellow at the conservative Heritage Foundation, Katie Tubb, made a case in congressional testimony for the IG’s concerns: “The last time Congress authorized such a huge influx of taxpayer spending,” she stated to the Senate Committee on Banking, Housing, and Urban Affairs in May, “the federal government and state partners struggled to maintain the program’s integrity or responsibly use taxpayer resources.”

But David Bradley, CEO of the National Community Action Foundation, which lobbies Capitol Hill for community action agencies, told RCI that the IG’s focus on the problems of the recent past was welcome: “I’m not opposed to anyone raising flags,” he said. “That’s what IGs do.”

Bradley acknowledges that a dozen years ago the weatherization program wasn’t ready for the massive increase in spending under Obama’s stimulus plan. Also, he said, because no Republican had supported the Act, any problems that arose with spending under the Obama-era program became scandalous illustrations of the law’s failure rather than issues to be corrected.

Bradley says that inspectors hired by community action agencies are doing a better job of identifying problems and requiring they be fixed. Projects now require the sign-off of a “Quality Control Inspector who was not involved in the job.” There are also extra inspections of randomly chosen weatherized homes.

President Biden and DOE Secretary Granholm are confident more money is the answer, notwithstanding the problems that increased funding has brought the weatherization program in the past. In a joint statement in March, Biden and Granholm declared that the funds provided by the new infrastructure law “will transform the WAP program by expanding weatherization services to ten times current funding levels.”

Does that risk, however, putting the program at 10 times the risk of fraud?

The success or failure of the weatherization program “is worth following,” according to Bradley. “Weatherization always had a spotlight on it, and it will again.”

If the inspector general’s cautionary report is ignored, the massive influx of money into the Weatherization Assistance Program may produce a massive outflow of wasted tax dollars.

“We’ve got to be on our A-game,” Bradley told RCI. “We just have to prove them wrong.”

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