Dispute that resulted in firing involved stimulus money

ALSO: See UPDATE below; Grassley protests, demands information, including any role of First Lady

NEW: House Republicans raise questions about Walpin firing



AND: Will Democrats cover up the AmeriCorps Mess?

AND: First Democrat questions Obama over AmeriCorps IG firing

The White House's decision to fire AmeriCorps inspector general Gerald Walpin came amid politically-charged tensions inside the Corporation for National and Community Service, the organization that runs AmeriCorps. Top executives at the Corporation, Walpin explained in an hour-long interview Saturday, were unhappy with his investigation into the misuse of AmeriCorps funds by Kevin Johnson, the former NBA star who is now mayor of Sacramento, California and a prominent supporter of President Obama. Walpin's investigation also sparked conflict with the acting U.S. attorney in Sacramento amid fears that the probe -- which could have resulted in Johnson being barred from ever winning another federal grant -- might stand in the way of the city receiving its part of billions of dollars in federal stimulus money. After weeks of standoff, Walpin, whose position as inspector general is supposed to be protected from influence by political appointees and the White House, was fired.

Walpin learned his fate Wednesday night. He was driving to an event in upstate New York when he received a call from Norman Eisen, the Special Counsel to the President for Ethics and Government Reform. "He said, 'Mr. Walpin, the president wants me to tell you that he really appreciates your service, but it's time to move on,'" Walpin recalls. "Eisen said, 'You can either resign, or I'll tell you that we'll have to terminate you.'"

At that moment, Walpin says, he had finished not only a report on the Sacramento probe but also an investigation into extensive misuse of AmeriCorps money by the City University of New York, which is AmeriCorps' biggest program. Walpin says he told Eisen that, given those two investigations, neither of which was well-received by top Corporation management, the timing of his firing seemed "very interesting." According to Walpin, Eisen said it was "pure coincidence." When Walpin asked for some time to consider what to do, Eisen gave him one hour. "Then he called back in 45 minutes and asked for my response," Walpin recalls.

The method of Walpin's firing could be a violation of the 2008 Inspectors General Reform Act, which requires the president to give Congress 30 days' notice, plus an explanation of cause, before firing an inspector general. Then-Sen. Barack Obama was a co-sponsor of that legislation. In the case of Walpin, Eisen's efforts to force Walpin to resign could be seen as an effort to push Walpin out of his job so that the White House would not have to go through the 30-day process or give a reason for its action. When Walpin refused to quit, the White House informed Congress and began the 30-day countdown.

Eisen's phone call came after months of increasing conflict inside the Corporation for National and Community Service. "We issued two reports that the management of the Corporation and the board of directors didn’t like, because they criticized what the board was doing," Walpin recalls. There is no question that Walpin discovered misuse of federal money in Kevin Johnson's program, known as St. HOPE, and at City University of New York. But as a result of those investigations, relations between Walpin and top executives became frosty, and he says they cut him out of Corporation business that should normally include the inspector general.

The heart of the matter is a dispute that began last year over Walpin's recommendation that Johnson and St. HOPE be barred from receiving and using federal grant money. The process is known as "suspension and debarment," meaning that Johnson would be suspended from receiving federal funds under any current arrangement and might ultimately be barred from receiving any such funds in the future. "The whole purpose of suspension and debarment," Walpin says, "is to say that somebody who was involved in the misuse of government funds in the past should not be trusted with federal funds in the future."

In the course of his investigation, Walpin found Johnson and St. HOPE had failed to use the federal money they received for the purposes specified in the grant and had also used federally-funded AmeriCorps staff for, among other things, "driving [Johnson] to personal appointments, washing his car, and running personal errands." Walpin came to the conclusion that Johnson and St. HOPE should be subject to suspension and debarment. But it was not Walpin's decision to make; there is another official at the Corporation whose job it is to make that call. In September 2008, after reviewing Walpin's evidence, the official decided to order a suspension, with the distinct possibility that it would lead to a permanent debarment.

That was during the Sacramento mayoral campaign, and the suspension quickly became a matter of controversy. Johnson's critics raised the possibility that, as mayor, the suspension would mean the city could not receive federal funds. Johnson dismissed the matter. "That's absurd," he told the Sacramento Bee. "As mayor, I'm going to go out there and shake down as many resources as I can for Sacramento."

But the issue did not go away after Johnson defeated the incumbent mayor and took office. It became far more pressing in late January, when Congress passed the $787 billion stimulus bill and Sacramento officials hoped that millions of federal dollars would soon arrive. Johnson's suspension seemed like an insurmountable obstacle to getting all that money. On March 21, the Sacramento Bee reported that, "The city of Sacramento likely is barred from getting federal money -- including tens of millions the city is expecting from the new stimulus package -- because Mayor Kevin Johnson is on a list of individuals forbidden from receiving federal funds, according to a leading attorney the city commissioned to look into the issue." The issue was explosive. What if there were all that federal money raining down and Sacramento couldn't get any because its mayor had been found to have misused federal money in the past?

As this was happening, the matter was also under consideration by the local U.S. attorney's office after Walpin referred the matter to the office for a criminal inquiry. Since January of this year, the office has been headed by an acting U.S. attorney, Lawrence Brown, a career prosecutor who took over after the departure of the previous, Bush-appointed U.S. attorney. The office decided not to pursue criminal charges against Johnson, but also entered into settlement talks with Johnson and St. HOPE. What resulted was, according to Walpin, highly unusual.

Settlement talks would normally cover the issue of whether Johnson would be required to give the misused federal funds back to the government. But amid the frenzy surrounding the possible denial of federal stimulus funds, Brown wanted to negotiate not only some sort of repayment scheme but also an end to Johnson's suspension. Walpin learned about that during a March telephone conversation with Brown. "He said he wanted to settle," Walpin recalls, "and he said that lifting the suspension had to be part of it because that was the 800-pound gorilla in the way of a settlement."

Walpin was adamantly opposed to a lifting of the suspension; after all, he had recommended that Johnson not only be suspended but be barred for receiving future federal funds. Walpin says that after that, he was cut out of the settlement talks; Brown worked directly with top officials of the Corporation, who seemed eager to work out a deal in a case involving a high-profile Obama supporter and lots of stimulus money. (The Corporation is now headed by Alan Solomont, a philanthropist and Democratic fundraiser appointed by President Obama.)

Together, Brown and the top Corporation brass negotiated a deal. Johnson and St. HOPE would pay back about half of the $850,000 in AmeriCorps grant money it had received, and the suspension against Johnson would be lifted.

Walpin was very unhappy. First of all, he said it was a terrible deal for the U.S. government, because St. HOPE was essentially insolvent and would never pay the money back. Second, he felt lifting Johnson's suspension would dilute the effectiveness of future investigations; why should grant recipients worry about their misconduct if any sanctions can be so easily lifted? In the end, Johnson was not suspended, not debarred, and was probably not going to pay the vast majority of the money back.

Walpin told the Corporation's board of directors of his opinion. He told other officials. And he sent a report to Congress. "I was bringing Congress in to try to get its assistance in putting a spotlight on this," he says.

Walpin's actions undoubtedly angered top officials at the Corporation, and most likely at the White House as well. It would not be long before he was summarily dismissed. But he has no regrets. Whatever happens, he wrote recently, he is proud that he "refused to go along with the U.S. attorney's office and the Corporation in bowing to the media and political pressure that resulted in this hasty settlement, contrary to the interests of the United States government."

For background on the Walpin firing, read my earlier story here.



UPDATE: Grassley protests, demands information, including any role of First Lady

Iowa Republican Sen. Charles Grassley, a longtime champion of inspectors general, has sent a letter to Alan Solomont, head of the Corporation for National and Community Service, which oversees AmeriCorps. Describing Walpin's work as "legitimate" and "meritorious," Grassley expressed concern that Walpin was fired in part for complaining to Congress about interference in the St. HOPE probe by the top management of the Corporation. "I am very concerned about the appearance that the IG’s communication with my office about this matter may have contributed to his removal," Grassley wrote to Solomont. "Inspectors General have a statutory duty to report to Congress. Intimidation or retaliation against those who freely communicate their concerns to Members of the House and Senate cannot be tolerated. This is especially true when such concerns are as legitimate and meritorious as Mr. Walpin’s appear to be."

Saying that "it is vital that Congress obtain a full understanding of the role that you and your colleagues at [the Corporation] played in these matters," Grassley asked Solomont to provide all records, email, documents, and other communications relating to Walpin's firing. He specifically asked for Corporation records involving contacts with the U.S. attorney's office, the White House, and the Office of the First Lady. "No records related to these matters shall be destroyed or otherwise made inaccessible to Congress," Grassley wrote. For the full text of Grassley's letter, see below.

Dear Mr. Solomont:

As a senior member of the United States Senate and as the Ranking Member of the Senate Committee on Finance (Committee), it is my duty under the Constitution to conduct oversight into the actions of the executive branch, including the activities of the Corporation for National and Community Service (Corporation). In this capacity, I must ensure that the Corporation properly fulfills its mission of addressing a critical community need as the nation’s largest grantor supporting service and volunteering organization, as well as maintaining adequate accountability of millions of dollars in Federal funds.

An issue was recently brought to my attention by the Office of Inspector General (OIG), which concerns the misuse of Federal grant funding by St. HOPE Academy, a grantee of the Corporation. The investigation conducted by the OIG found evidence of the misuse of $850,000 of Federal grant funds provided to St. HOPE Academy from 2004 to 2007. It was reported that this particular investigation was contentious. Furthermore, according to some recent reports this investigation may have been a contributing factor in the decision to remove Inspector General Gerald Walpin. I am very concerned about the appearance that the IG’s communication with my office about this matter may have contributed to his removal. Inspectors General have a statutory duty to report to Congress. Intimidation or retaliation against those who freely communicate their concerns to Members of the House and Senate cannot be tolerated. This is especially true when such concerns are as legitimate and meritorious as Mr. Walpin’s appear to be.

In September 2008, after reviewing the facts that the OIG investigation presented, the Corporation’s Debarment and Suspension Official (Official) determined that the grantee’s two principals, Kevin Johnson and Dana Gonzalez were responsible for six acts of diverting grant funds to non-grant purposes, and found that “immediate action is necessary to protect the public interest.” In total about $850,000 was misused.

As a result, the OIG requested that the Official suspend all future Federal grant funding to both St. HOPE Academy and Kevin Johnson and Dana Gonzales individually. The Official ultimately suspended St. HOPE Academy and its principals “from participating in Federal procurement and non procurement programs and activities.” None of the respondents exercised their right to submit facts objecting to the suspension.

On April 9, 2009, a settlement lifting the suspension was executed by the Corporation’s General Counsel (GC), the designated Corporation Official, and the United States Attorney for the Eastern District of California (USAO). For reasons that I do not yet understand, the OIG was excluded from this proceeding and the settlement lifting the suspension, was done in complete disregard of the OIG’s findings, as well as the previous determination of wrong doing identified in the Notice of Suspension. Perhaps the settlement agreement was reached without any input from the OIG, because less than half of what was misused by the Corporation grantees is being returned to the taxpayer and the OIG would not have agreed to this arrangement. In fact, an argument can be made that not even half of the misused funds is being returned, because the settlement does not require that payment in full be made. Rather the settlement places the grantees on a type of payment plan that will occur over a decade; to date less than 10% of the misused money has been recovered.

Not only did the evidence demonstrate that Johnson, Gonzalez, and St. HOPE misused about $850,000 in Federal grant funds, but they also acknowledged that they did not document the expenditures as required. And yet, Mr. Johnson continues to have access to Federal funds through the city of Sacramento, primarily because the settlement agreement ignored the Suspension and Debarment procedures {(2C.F.R §§180.700(b), 180.800 (a)(4),(b)} that the Federal Government put into place in order to prevent such grant misuse. These procedures are intended to protect Federal agencies by making the grantee’s accountable for the misuse of Federal funds under their control. Based upon the documents in my possession, it seems that the facts of this investigation were substantially disregarded and the blatant waste of federal taxpayer dollars were handled with little more than a slap on the wrist. In the St. HOPE matter, Mr. Johnson, rather than paying for legitimate expenses under the program, he used the AmeriCorps members, paid for with taxpayers’ hard-earned money, to engage in school-board political activities, run personal errands, and wash his car. Now, and because of the favorable settlement, Mr. Johnson can have access to millions of taxpayer dollars as the mayor of Sacramento.

After conducting the investigation into the grant fund misuse and then referring the case to the USAO, the OIG was excluded during the settlement arrangement. The OIG subsequently objected to the settlement arrangement by the USAO for obvious reasons. Moreover, according to documents in my possession, St. HOPE Board members ignored a Federal subpoena and erased Mr. Johnson’s emails during the course of investigation. This was discovered after Mr. Johnson’s replacement as Executive Director of St. HOPE, Rick Maya, resigned on the same date of the Settlement Agreement because of various improprieties and potential obstruction of justice issues by St. HOPE Board Members.

In light of the removal of the Inspector General, it is vital that Congress obtain a full understanding of the role that you and your colleagues at CNCS played in these matters. Accordingly, please provide any and all records, email, memoranda, documents, communications, or other information, whether in draft or final form, related to:

1) the performance of Gerald Walpin as Inspector General;

2) the removal of Gerald Walpin as the Inspector General;

3) contacts with the United States Attorney’s Office;

4) contacts with officials in the Executive Office of the President;

5) contacts with officials in the Office of the First Lady;

6) St. HOPE Academy;

7) Kevin Johnson;

8) or CUNY.

No records related to these matters shall be destroyed or otherwise made inaccessible to Congress. Subsequent to the production of the documents requested above, I request that you provide a detailed briefing to my staff regarding what steps you are taking to ensure that funds are not similarly misused in the future.

Thank you in advance for your prompt attention to this matter. We look forward to hearing from you by no later than June 19, 2009…

Sincerely,



Charles E. Grassley

Ranking Member

Committee on Finance

-Byron York

