IRS severing ties with firm amid $500 million in questionable contracts

Thursday - 6/27/2013, 5:27am EDT

Jared Serbu, DoD reporter, Federal News Radio

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The Internal Revenue Service said Wednesday it is moving to cut ties with a favored software vendor after learning that one of the agency's top procurement officials had improper contact with the firm's owner, one of a handful of troubling revelations Congressional investigators have uncovered about the company.

The firm in question, Strong Castle, Inc., is at the center of separate investigations by the Treasury Inspector General for Tax Administration and the House Oversight and Government Reform Committee. Both have been probing allegations that the IRS' deputy director for IT acquisition, Greg Roseman, gave preferential treatment and inside information to Strong Castle's owner, who the committee called a longtime friend of Roseman.

Witnesses also claimed Strong Castle engaged in fraud to win its contracts, though evidence the investigations have publicly produced to date suggest the company's activities fell within at least the letter of the law, if not its intent.

The IRS told congressional investigators Monday that it was troubled by the allegations, but needed to keep at least one of its large contracts with Strong Castle because it provided a subscription for mission-critical IBM software. The agency's posture changed abruptly when the oversight committee revealed in a preliminary report on Tuesday that it had obtained records of hundreds of contacts between the two men's personal cell phones, including dozens of calls and text messages in the days leading up to one major IRS IT acquisition.

Rep. Tammy Duckworth, an Army veteran, questions Strong Castle, Inc., President and CEO Braulio Castillo, about his company's status as a service-disabled, veteran-owned small business.

"Let me be clear. These types of communications should not occur between a procurement employee and a contractor," Beth Tucker, the deputy IRS commissioner for operations support testified at a hearing Wednesday. "We expect all of our employees to act with professionalism and integrity."

Strong Castle had $500 million relationship with IRS

Tucker said the content of the text messages and emails, which revealed not just an overly-cozy relationship but also numerous homophobic slurs, prompted IRS officials to begin looking Tuesday for ways to terminate its relationship with Strong Castle, which, all-told, has a ceiling value of approximately $500 million.

She said Roseman should have disclosed the friendship and recused himself from any procurement decisions involving the company. Instead, he appears to have successfully concealed the friendship from his IRS coworkers.

"Mr. Roseman was repeatedly asked by his superiors if he had a personal relationship with Mr. Castillo and Strong Castle, and he denied it. I believe the detail that we saw in the report has raised considerable concern, and we're in the process of separating our relationship with Strong Castle," she said.

Roseman was also present at the hearing, but refused to testify and responded to all questions by invoking his Fifth Amendment right against self-incrimination.

Braulio Castillo, Strong Castle's president and CEO, did testify. And committee members say to his credit, he has fully cooperated with the investigation, taken part in hours of interviews and turned over large volumes of documents, emails and text messages.

He also says he and his wife, the company's owners, have done nothing wrong.

"We have never received any preferential treatment, and we have competed fairly for every contract we've ever received," he said. "We have made meaningful contributions to IRS missions and offered the government cost-effective solutions to very difficult problems."

Small Business Association revokes HUBZone certification

Notwithstanding Castillo's alleged insider knowledge of IRS procurements, the committee's investigation showed other agency officials were eager to award contracts to his company for other reasons: Strong Castle was certified as a both a service-disabled, veteran-owned small business and a HUBZone business, so making awards to the firm would let the IRS count procurement money it awarded to the firm against two of its annual high- priority contracting goals at once.

But the oversight committee found significant issues with both of those designations.

On the HUBZone question, the Small Business Administration did as well and revoked Strong Castle's certification last month.

To earn it in the first place, the company established its corporate headquarters in a small office in Washington's Chinatown, but Castillo acknowledged that none of the people managing the company's day-to-day operations actually worked there.

The only people who did, investigators found, were a group of students from Catholic University who also lived in economically disadvantaged areas that were also designated as HUBZones. Castillo recruited them by contacting the school's football coach, his former college roommate.