US Suspends Largest Private Contractor in Iraq and Afghanistan for Massive Fraud

By Scott Higham and Steven Rich, The Washington Post

27 January 15

he U.S. Agency for International Development announced Monday that it has suspended one of its largest nonprofit contractors from federal work after investigators found “serious misconduct” in the nonprofit’s performance and management of taxpayer money.

For years, International Relief and Development, headquartered in Arlington, Va., served as one of USAID’s key contractors, undertaking ambitious humanitarian projects in some of the most dangerous places in the world.

The suspension comes after months of internal USAID reviews of IRD’s performance in the field and reports from the agency’s inspector general that the nonprofit allegedly mischarged millions of dollars in overhead costs. The Special Inspector General for Afghanistan Reconstruction and the FBI are also investigating the organization.

“The Agency’s review revealed serious misconduct in IRD’s performance, management, internal controls and present responsibility,” USAID said in a statement Monday. “USAID has a zero tolerance policy for mismanagement of American taxpayer funds and will take every measure at our disposal to recover these funds.”

Since 2007, USAID has awarded more than $2.4 billion in contracts and cooperative agreements to IRD, much of it to fund stabilization and community-development projects in Iraq and Afghanistan. Several of those projects have been the subjects of investigations following allegations of waste and fraud.

IRD also has been criticized for providing lavish salaries and millions in bonuses to its employees, including the husband-and-wife team who ran the organization, as well as their family members. Many of the allegations were contained in a Washington Post investigation published last May.

The suspension takes effect immediately, blocking IRD from new federal contracts. The nonprofit will be permitted to complete projects that are underway.

“It is what it is, and we have to deal with it,” said Roger Ervin, who took over IRD as president six weeks ago. “I take this as an opportunity to make some changes, and many of them are already underway. I think we can show in short order that we can demonstrate that we are a good service provider for USAID, and I think we can address this pretty quickly.”

Ervin said he and other senior managers are restructuring the organization and cooperating with USAID and federal investigators. “The only way we’re going to satisfy the government is to be as transparent as possible,” he said.

Earlier this month, Sen. Bob Corker (R-Tenn.), chairman of the Senate Foreign Relations Committee, sent a letter to USAID questioning why IRD and another contractor continued to receive federal work in the face of the allegations.

“It is difficult to understand why USAID continues to put U.S. tax dollars and national security objectives at risk by doing business with organizations that consistently fail to meet their obligations and engage in potentially illegal and unethical activities,” Corker wrote to USAID Administrator Rajiv Shah.

A Post analysis of federal tax forms and contracting data shows that IRD has relied on USAID for much of its funding.

Between 2007 and 2013, IRD reported revenue of a little more than $3 billion — 76 percent of it coming from USAID. At the height of its involvement in Iraq and Afghanistan, in 2010, IRD reported $706 million in revenue, 83 percent of it from USAID.

Of the more than $2.4 billion in USAID funding that IRD has received since 2007, 82 percent has gone toward projects in Iraq and Afghanistan. Those projects were designed to rebuild war-wrecked cities and towns and construct vast networks of roads.

But the projects were difficult to execute in the field, and workers said in interviews with The Post that vast sums of money were being squandered.

IRD was founded in 1998 by Arthur B. Keys, an ordained minister, and his wife, Jasna Basaric-Keys, who is from Bosnia-Herzegovina. As the nonprofit won more federal work, salaries and bonuses at IRD began to soar.

Together, Keys and his wife earned more than $5.9 million in compensation between 2008 and 2012. Their daughter and Basaric-Keys’s brother received more than $1.3 million during that time.

In 2013, Keys was slated to receive $690,000 in compensation, plus a $900,000 contribution to his retirement account. His wife, chief of IRD’s operations, received $1.1 million in compensation, which included a $289,273 bonus.

But new managers and board members at IRD balked at the size of the payouts and demanded that the couple surrender a significant portion of the money. Aware that USAID was considering suspending IRD, the new mangers tried to reform the organization and rein in excessive compensation.

“We reviewed the totality of the compensation package, and we were not comfortable with the numbers,” said Steve Bartlett, a former congressman from Texas who joined IRD’s board last summer. “We thought it was inappropriate.”

After months of negotiations, Keys and his wife returned or forfeited $1.7 million in retirement pay and bonuses, according to the nonprofit’s 2013 tax return. Keys relinquished his claim to $590,625 in retirement money that had been set aside for him in 2012. He also forfeited $320,710 due to be deposited in his retirement account last year.

Keys’s wife returned $176,318 of a $289,273 bonus she received in 2013. She also returned $496,211 in a retirement account and $120,313 out of $121,065 in “other compensation” she collected from the nonprofit.

Keys declined to say why he and his wife agreed to forfeit the money.

“I don’t believe I can talk about that,” he said in a brief interview last week.

IRD officials declined to say how much money the nonprofit paid Keys and his wife in 2014 before they retired at the end of last summer. They said those figures will be reported to the IRS this year.

Bartlett said that the couple was “compensated for the work they did” and that “they were not provided with any bonuses.”