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June 27, 2013
IRS Ending Relationship With IT Contractor After Oversight Probe
by William Hoffman

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by William Hoffman

The IRS is taking steps to end its relationship with information technology contractor Strong Castle Inc. after accusations that the company's owner maintained an inappropriate relationship with an IRS procurement officer surfaced in a House Oversight and Government Reform Committee report, IRS Deputy Commissioner for Operations Support Beth Tucker told the committee June 26.

Gregory Roseman, the IRS procurement officer, declined to testify before the committee, invoking his Fifth Amendment right against self-incrimination. He was dismissed by the committee and left the hearing room minutes into the three-hour-plus proceedings.

Braulio Castillo, president and CEO of Strong Castle (formerly Signet Computers), denied any wrongdoing in his dealings with the IRS, though he admitted at one point that he had submitted false documents to the Small Business Administration, which led to his business being decertified from the agency's Historically Underutilized Business Zone (HUBZone) program. Strong Castle had stood to gain up to $500 million from IT-related business purchase agreements with the Service.

Oversight Committee Chair Darrell E. Issa, R-Calif., said there was no evidence to date that a crime had been committed, but "the fact that Mr. Castillo was able to successfully manipulate the system . . . to acquire contracts exposes staggering vulnerability in the IRS's acquisition process, and jeopardizes billions of taxpayer dollars."

New Information Raised IRS Doubts

"We are taking steps to separate the IRS from any ongoing business relationship with Strong Castle, subject to our need to safeguard our mission-critical resources," Tucker told the committee.

Tucker did not say how long the separation would take or what entity would replace Strong Castle.

Tucker told the committee on June 24 that Strong Castle's contracts were under review and no decision had been made. But after the committee report was released June 25, Tucker said that she met with her procurement executives and that she decided to move to end the contracts. "This new information is deeply troubling and it raises additional questions that [the Treasury Inspector General for Tax Administration] and the Internal Revenue Service must investigate," she said.

The Oversight Committee sent the IRS a letter in February raising questions about two IT business purchase agreements. One was for computer equipment with a potential value of $79 million, and the IRS made no purchases under it, Tucker said.

The second business purchase agreement, with a potential value of $266 million, was for licensing and product support of IBM software used throughout the IRS. Ninety-eight percent of the value of that contract would have gone to IBM, not Strong Castle, she said.

Castillo said his company had received about $1 million from the IRS to date. Strong Castle had revenue of about $8 million last year but posted a loss of around $140,000.

IRS Official 'Should Have Recused Himself'

Tucker described the personal relationship between Roseman and Castillo outlined in the committee report as inappropriate. "Mr. Roseman should have recused himself immediately from any involvement whatsoever and any IRS interactions with Strong Castle," she said.

Tucker said she reassigned Roseman to a non-supervisory position that did not involve awarding or administration of contracts after TIGTA informed her May 15 of inappropriate text messages exchanged by Roseman and Castillo.

Tucker said she based her decision to end the contracts with Strong Castle on the e-mail exchanges contained in the committee report, which she said the IRS hadn't seen before, and the fact that the new evidence contradicted Roseman's repeated denials of a relationship with Castillo.

At the hearing, Castillo described his relationship with Roseman as "friendly or friends."

It is not clear whether or where Roseman currently works at the IRS. Early in the hearing, Roseman acknowledged that his title had been IRS deputy director of enterprise networks and tier systems support. But he invoked his Fifth Amendment right when asked to whom he reports at the IRS, when he first heard of Strong Castle, and whether he currently works at the Service.

Procurement Policy Review to Come

Tucker said the IRS is doing a top-to-bottom review of procurement policies and procedures, including internal controls, business processes, and staffing practices. She said she has also asked Treasury to expand its routine assessments of IRS procurement systems to include a review of small business programs.

The IRS will also enhance employee ethics training, focusing on gift rules, conflicts of interest, impartiality, the appearance of impropriety, and misuse of official positions. She said she had not seen anything in the procurement arm of the agency to indicate inappropriate behavior on the part of any other of the arm's 400 employees.

Issa and others on the committee repeatedly said they believed Castillo "gamed the system" by, among other things, submitting false documents to the Small Business Administration, claiming veterans benefits for a foot injury he suffered playing football in prep school in 1984, and opening an office in a HUBZone but hiring mostly college students to do the work.

Castillo defended his business practices and said he had cooperated fully with the committee's investigation -- a point with which Issa agreed.

"It's not about Mr. Castillo, per se," Issa added. "He may not have broken a single rule. That's for others to determine under the law. But we were shocked to discover that we're scoring [HUBZone awards] as though we're doing a lot of good for disabled veterans, not for people who turned their ankle and had no problem for 27 years until it's time to conveniently become a disabled veteran."

Additional documents

  • Opening statement from House Oversight and Government Reform Committee ranking minority member Elijah E. Cummings, D-Md.
  • Testimony from IRS Deputy Commissioner for Operation Support Beth Tucker.
  • Testimony from Michael Chodos, Small Business Administration.
  • Testimony from Brad Flohr, Veterans Administration.
  • Testimony from William Sisk, General Services Administration.
  • Testimony from Strong Castle Inc. CEO Braulio Castillo.

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