Government waste, corruption, and, yes, every
tech geek's favorite whipping boy, Apple, Inc. (AAPL) were all complicit in a sad tale of bureaucratic waste,
according to the results of a probe by U.S. Security and Exchange Commission (SEC) Inspector General
I. Apple Sells the Government on an Expensive
In its effort to grow its business and achieve
greater profitability, Apple in recent years has looked to expand outside its
mastered realm of consumer electronics and enter into
the world of business solutions.
Under the leadership of Christopher Cox, the SEC
chair appointed by former President George W. Bush, the agency looked to
aggressively expand its high tech presence, in an effort to avoid the data
backup and storage woes that embarrassed it during the financial crisis.
The agency was ensorcelled by a particularly
enigmatic Apple salesman who assured them that his company could provide them
with the most competitive, best performing systems.
By 2008, according to the probe documents obtained
by a Reuters Freedom of Information Act (FOIA)
filing, the agency had fallen head over heels for Apple. It gave the
company blanket authorization to make a number of large purchases, which
federal regulations state should have been thoroughly reviewed and approved
first. In addition to skipping reviews and approvals on the purchases,
the SEC also improperly shared confidential financial information with Apple.
But Apple was not alone. It jumped on the
opportunity to promote a data storage solutions provider, Cloverleaf
Communications, with which it had close ties. The SEC had never done
business with Cloverleaf, but convinced by that same Apple salesman, blindly
entered a no-bid contract with the service provider.
Again, these actions were in gross violation of
federal contracting procedures, but the agency ignored that, convinced it would
see great results.
II. Poor Quality, Budget Overflows
Mr. Kotz writes that when the SEC eventually tried
to test its newly acquired hardware and services, it was beset by
"bugs" in the installation and setup process. According the
report, the project "quickly went downhill from there."
Despite all the money it spent, the agency
reportedly was met with little sympathy from Apple ("You're
installing it wrong", perhaps?) and Cloverleaf's new owners Dot Hill
Frustrated, SEC employees looked to bring up the
issues to their supervisor, hoping for solutions. According to the report
the supervisor ordered them "this information doesn't leave this
room" and then stormed out of the room.
Two years later and under the new leadership of
SEC Chairwoman Mary Schapiro, an Obama appointee, Mr. Kotz began digging up the
details of what went wrong. He estimates that the failed project cost
U.S. taxpayers at least $1M USD, much of which went directly into the coffers
of Apple and Cloverleaf.
Mr. Kotz writes that the SEC's actions seem
particular foolish given that Cloverleaf was "more expensive than other,
better-known and less risky alternatives."
SEC spokesman John Nester released a subdued
statement, commenting that the agency agrees with Mr. Kotz’s findings and is
promising to improve. He commented, "[The SEC is] taking steps
to improve our policies and controls over purchases of information technology
solutions, including pre-purchase review by management's technology and
business oversight committees."
Apple and Dot Hill both have refused to comment on
their payout at the expense of U.S. taxpayers.
III. Bad Timing
While the waste seems large by an individual's
standards, the dollar figures seem small compared to Apple's
billion dollar profits or the government's billions in spending. However,
while the carelessness may have cost a mere fraction of a percent of the
government budget, it's troublesome because it's indicative of broader issues.
The SEC also reportedly may have lost money on a bid
to rent 900,000 square feet of office space after it failed to secure the
necessary Congressional funding.
The SEC Investigator General plans to make his
findings public shortly, including other examples of SEC waste.
Reportedly, Congressional Republicans are looking
to use the probe as ammunition to try to starve the SEC of funding; making cuts
to its budget.
The real reason behind the desire to make those
cuts appears to be the desire to kill the Dodd-Frank financial overhaul law, a
financial bill that passed in the wake of the recent recession.
Implementing the oversight needed to enforce the
new law would be relatively expensive. The SEC is requesting $222M USD, a
16 percent increase to $1.407B USD for the fiscal 2012 that begins October 1.