June 25 (Bloomberg) -- A small technology contractor that won more than $500 million in Internal Revenue Service awards in less than a year had a “cozy” relationship with an agency official, according to a congressional staff report.
Greg Roseman, an IRS deputy director, may have “influenced the selection process” to benefit his friend, Braulio Castillo, president of Washington-based Strong Castle Inc., according to the House committee document. The two exchanged frequent phone calls and text messages, the report shows.
The Committee on Oversight and Government Reform, led by Representative Darrell Issa, a California Republican, is investigating how the small business, formed in late 2011, managed to attract so much contract business. The panel plans to hold a hearing tomorrow.
“What has led to the huge discrepancy between the potential for $500 million in contracts with the IRS alone and the mere $465,780 awarded by all other federal government agencies?” the report’s authors asked. “The difference is that the IRS -- where Strong Castle received well over 99 percent of its 2012 revenues -- employs Castillo’s long-time friend, Greg Roseman, who oversaw each and every contract awarded to Strong Castle by the IRS in 2012.”
The IRS has referred the matter to a Treasury Department inspector general, the agency said in a statement today.
“We remain committed to ensuring that our procurement of goods and services follows all agency and federal regulations and is done efficiently, effectively and with the highest ethical standards,” the agency said in its statement.
Strong Castle describes itself as a provider of “IT infrastructure and solutions for many federal customers.”
“Throughout our work with the IRS, we have never received any improper preferential treatment, and have competed fairly for every contract that we have received,” said Castillo in a statement provided by Caren Auchman at public relations firm Fleishman-Hillard. “We are confident that the record will ultimately show that our company has committed no wrongdoing.”
The company was eligible for contracts that had been set aside for disabled veterans and for small businesses in economically disadvantaged communities. Castillo had suffered a foot injury in 1984 at the U.S. Military Academy Preparatory School, which he attended for a year, according to the report.
As he sought to join the Department of Veterans Affairs’ set-aside program, Castillo described his disability in an e-mail to a VA examiner, the House report shows.
His injuries were “crosses that I bear due to my service to our great country,” he said. “I would do it again to protect this great country.”
Castillo had no other connection to the military, and his injury did not prevent him from playing softball or college football, congressional investigators said.
The business owner also rented an office in Washington’s Chinatown neighborhood to qualify for contracts benefiting small businesses in the disadvantaged communities, even though he and his wife -- the firm’s top two executives at the time -- lived and worked in the “wealthy Virginia suburbs,” according to the report.
Castillo used the head football coach at Catholic University of America, his college roommate, to recruit student employees. When he learned two of the students didn’t live in the area required for the contracts, he gave them a choice: move or leave.
His company was recently cut from the set-aside program because it provided “inaccurate, unreliable, and misleading information” to the Small Business Administration, according to the report.
Castillo met Roseman in 2003. The two frequently exchanged phone calls and text messages, some of which contained homophobic slurs.
About the time Castillo was forming Strong Castle, Roseman sent a text message to his friend in December 2011, the document shows. “Congrats on new company. U will be fortune 500 in no time,” Roseman wrote.
None of the IRS officials interviewed by investigators “reported any knowledge” of the relationship between Castillo and Roseman or that Roseman had “any inappropriate influence” on contracting decisions, according to a congressional staff memo sent to committee Democrats.
“The case of Strong Castle and its cozy relationship with the IRS is but one example of a deeply flawed procurement process in the federal government,” according to the report.
The IRS has been surrounded by controversy since May 10, when the agency disclosed that it had subjected Tea Party groups applying for tax-exempt status to tougher scrutiny. Six congressional committees have opened inquiries and the Justice Department is pursuing a criminal probe. President Barack Obama installed a new temporary commissioner, Danny Werfel, last month.
Issa’s committee has been interviewing IRS employees involved in that effort. Issa held a June 6 hearing on IRS spending on conferences, including a $4.1 million event in Anaheim, California, that included a Star Trek parody video.
The witness list for tomorrow’s House hearing includes Roseman and Beth Tucker, an IRS deputy commissioner, who oversees the agency’s back-office operations, is scheduled to testify tomorrow.
Roseman has been reassigned and isn’t overseeing procurement, according to the Democratic staff memo. His attorney told the committee that he will invoke his constitutional right not to testify at the hearing.
Though he’s subpoenaed to testify, Roseman was advised by his counsel to not attend, according to a June 25 letter from Issa to Roseman’s attorney.
“Today, the IRS cannot look taxpayers in the eye and truthfully say they are protecting their contributions to government,” Issa in a statement. “By inappropriately using a personal relationship and abusing a provision designed to help disadvantaged businesses, the IRS and Strong Castle have made a mockery of fair and open competition for government contracts.”
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