Reporting from Washington — The U.S. government Wednesday took the unusual step of banning an American firm from being awarded new federal contracts due to evidence of "serious corporate misconduct" uncovered in an investigation of the company's work on aid programs in Pakistan and Afghanistan.
The move by the U.S. Agency for International Development, or USAID, to suspend the Academy for Educational Development, or AED, a Washington-based nonprofit corporation that does extensive federal contracting, highlights longstanding concerns about the way the United States delivers foreign aid through a network of American contractors that some critics deride as "Beltway Bandits."
AED has 65 contracts and grant agreements with USAID worth $640 million, according to agency spokesman Lars Anderson.
The suspension prevents AED from winning new contracts with any federal agency, Anderson said. USAID is now examining whether to seek debarment of the company, a step which would mean the loss of all its federal contracts.
USAID's inspector general declined to release details of the alleged wrongdoing by AED, citing an ongoing investigation. But in a recently published report to Congress, the office noted that USAID "terminated a 5-year, $150 million cooperative agreement after [investigators] found evidence of fraud" relating to the purchase of household kits obtained by AED in Pakistan's tribal areas.
The investigation revealed evidence of collusion between vendors and AED, resulting in overpayment for certain goods, the report said. The investigation also discovered that AED had inappropriately hired relatives of a person hired by USAID to oversee the program.
AED's interim CEO, George Ingram, confirmed in a statement "an active, ongoing investigation" of the firm related to programs in Pakistan and Afghanistan.
The firm "has made significant steps toward strengthening its project-oversight processes … and is undertaking a full scale structural and procedural review to institute further organizational oversight and internal controls," the statement said.
Ingram is a former deputy assistant administrator of USAID.
USAID once sent thousands of government employees abroad but now distributes aid mainly through American companies. Following two decades of staff cuts, it has become a "check writing agency," in the words of Sen. Patrick J. Leahy (D-Vt.), who chairs a committee that oversees its work.
In Afghanistan and Pakistan, where aid is considered an important factor in battling the Taliban insurgencies, the Obama administration has been pushing to distribute funds directly through the governments and local organizations.
Contractors and their political allies in Washington have opposed that approach, warning, among other things, that money would be lost to corruption.
The money at stake is significant: The U.S. has pledged $7.5 billion in civilian aid to Pakistan, while the U.S. awarded $17.7 billion in contracts for Afghanistan reconstruction from 2007 to 2009, a recent audit found.
AED is among a group of large USAID contractors that are organized as tax-exempt public charities. A 2007 report, by a commission appointed by the president and Congress to examine foreign aid, concluded that some nonprofit USAID grant recipients "are so dependent on the agency that their private character is in doubt."