Owner of Montana Construction Company Pleads Guilty to Employment Tax Fraud

A Great Falls, Montana, businessman pleaded guilty today to employment tax fraud, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Kurt G. Alme for the District of Montana.

According to court documents and statements made in court, Trennis Baer owned and operated Baer Construction based in Great Falls, Montana. Beginning in 2010 and continuing through 2018, Baer did not file quarterly employment tax returns, nor did he pay employment taxes withheld from his employees’ wages to the IRS. Baer did not meet these legal requirements, despite the fact the company’s outside accountant from at least 2013 on prepared the appropriate employment tax returns and calculated the employment taxes due. In addition to not complying with his employment tax obligations, Baer willfully did not file personal income tax returns for the years 2001 to 2006, 2008, and 2010 to 2018. The total tax loss to the IRS from Baer’s conduct is more than $1.5 million.

Chief U.S. District Judge Brian Morris scheduled sentencing for Jan. 28, 2021. At sentencing, Baer faces a maximum sentence of five years in prison. Baer also faces a period of supervised release, restitution, and monetary penalties.

Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Alme commended special agents of IRS-Criminal Investigation, who conducted the investigation, and Trial Attorneys Matthew Hoffman and Eric Taffet of the Tax Division, who are prosecuting the case.

Additional information about the Tax Division and its enforcement efforts may be found on the Division’s website.

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    As of October 2020, 3 years since the hurricanes destroyed much of Puerto Rico's electricity grid, neither the Federal Emergency Management Agency (FEMA) nor the Department of Housing and Urban Development (HUD) had approved long-term grid recovery projects in Puerto Rico. In 2019, GAO made four recommendations to FEMA and HUD to address identified challenges in rebuilding the electricity grid in Puerto Rico. As of October 2020, FEMA had fully implemented one recommendation and partially implemented two others, while HUD had not implemented its recommendation. Specifically, FEMA established an interagency agreement with the Department of Energy (DOE) to clarify how the agencies would consult on recovery efforts. FEMA had taken actions to partially implement recommendations on improving coordination among federal and local agencies and providing information on industry standards. However, further steps are needed, including finalizing guidance on FEMA's process for approving funding for projects. Regarding HUD, it has not addressed GAO's recommendation to establish time frames and requirements for available funding. Damaged Power Lines in Puerto Rico in November 2017 after Hurricane Maria Until HUD and FEMA implement GAO's recommendations, uncertainty will linger about how and when federal funding for long-term grid recovery will proceed. In particular, it is uncertain how available funding sources will support measures to enhance grid resilience to hurricanes, such as smart grid technology. FEMA officials told GAO that additional funding sources could be used for resilience measures but that this would not be determined until specific projects are submitted to FEMA for approval. Moreover, although FEMA finalized a $10 billion cost estimate for grid repairs in September 2020, several steps remain before FEMA approves funding for projects—a process officials said they were drafting. HUD funding could supplement FEMA funding but, as discussed above, HUD has yet to establish conditions for using these funds and has not established time frames and a plan for issuing this information. According to HUD officials, they plan to publish requirements in the first quarter of fiscal year 2021, but this depends on other factors, such as input from other federal agencies. Further delays in publishing the conditions could contribute to delays in Puerto Rico's ability to initiate grid recovery projects. In 2017, Hurricanes Irma and Maria damaged Puerto Rico's electricity grid, causing the longest blackout in U.S. history. It took roughly 11 months after the hurricanes for power to be restored to all of the customers with structures deemed safe for power restoration. Since electricity service has been restored, local entities have undertaken the longer-term task of more fully repairing and rebuilding the grid. GAO reported in 2019 on challenges hindering progress in rebuilding the grid and recommended that FEMA and HUD take actions to address these challenges. This report examines the status of efforts to support long-term grid recovery in Puerto Rico, including actions taken by FEMA and HUD to implement GAO's 2019 recommendations. For this report, GAO assessed agency actions; reviewed relevant reports, regulations, policies, and documents; and interviewed federal and local officials. GAO previously made three recommendations to FEMA and one to HUD to provide needed information and improve coordination to support grid recovery. Both agencies disagreed with GAO's characterization of their progress made addressing these prior recommendations. GAO continues to believe additional actions are needed to fully implement these recommendations. For more information, contact Frank Rusco at (202) 512-3841 or ruscof@gao.gov.
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  • Conflict Minerals: Actions Needed to Assess Progress Addressing Armed Groups’ Exploitation of Minerals
    In U.S GAO News
    The Securities and Exchange Commission (SEC) disclosure rule broadly requires that certain companies submit a filing that describes their efforts to conduct a reasonable country-of-origin inquiry (RCOI), and depending on the preliminary determination, perform due diligence to determine the source and chain of custody of their conflict minerals—gold and specific ores for tantalum, tin, and tungsten. After conducting RCOI, an estimated 50 percent of companies filing in 2019 reported preliminary determinations as to whether the conflict minerals came from the Democratic Republic of the Congo (DRC) or adjoining countries (covered countries) or from scrap or recycled sources. The percentage of companies able to make such preliminary determinations increased significantly between 2014 and 2015, and has since leveled off, as shown below. Source of Conflict Minerals in Products as Determined by Companies' Reasonable Country-of-Origin Inquiries, Reporting Years 2014-2019 However, fewer companies reported such determinations after conducting due diligence. In 2019, an estimated 85 percent of companies made preliminary determinations that required them to then perform due diligence. Of those companies, an estimated 17 percent determined that the minerals came from covered countries—a significantly lower percentage of companies making that determination than the 37 percent reported in 2017 or the 35 percent in 2018. Since 2014, companies have noted various challenges they face in making such determinations; however, SEC staff told GAO that they did not know what factors contributed to the decrease in 2019. We will examine this issue during our future review. While the Department of State (State) and U.S. Agency for International Development (USAID) have implemented the U.S. conflict minerals strategy since 2011, they have not established performance indicators for all of the strategic objectives. For example, they have no such indicators for the objectives of strengthening regional and international efforts and promoting due diligence and responsible trade through public outreach. Without performance indicators, the agencies cannot comprehensively assess their progress toward achieving these objectives or the overall goal of addressing armed groups' exploitation of conflict minerals. Armed groups in eastern DRC continue to commit severe human rights abuses and to profit from the exploitation of “conflict minerals,” according to State. Provisions in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act required, among other things, that State, USAID, and the SEC take certain actions to promote peace and security. In 2011, State created the U.S. conflict minerals strategy in consultation with USAID to address armed groups' exploitation of conflict minerals. In 2012, the SEC also promulgated regulations containing disclosure and reporting requirements for companies that use conflict minerals from covered countries. The act also included a provision for GAO to annually assess, among other things, the SEC regulations' effectiveness in promoting peace and security. In this report, GAO examines, among other things, how companies responded to the SEC conflict minerals disclosure rule when filing in 2019 and the extent to which State and USAID assessed progress toward the U.S. conflict minerals strategy's objectives and goal. GAO analyzed a generalizable sample of SEC filings, reviewed documents, and interviewed U.S. officials State, in consultation with USAID, should develop performance indicators for assessing progress toward the strategic objectives and goal of the U.S. conflict minerals strategy. State and USAID concurred with GAO's recommendation. For more information, contact Kimberly M. Gianopoulos at (202) 512-8612 or gianopoulosk@gao.gov.
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  • Areas with High Poverty: Changing How the 10-20-30 Funding Formula Is Applied Could Increase Impact in Persistent-Poverty Counties
    In U.S GAO News
    What GAO Found Some federal agencies have been statutorily required to use the “10-20-30 formula” when allocating funding for certain programs. That is, agencies must allocate at least 10 percent of designated funds to counties with poverty rates of at least 20 percent over the last 30 years (persistent-poverty counties). However, GAO found the formula has not always increased the proportion of funding awarded to those counties. The Department of Commerce's Economic Development Administration (EDA) and Department of the Treasury's Community Development Financial Institutions (CDFI) Fund both awarded at least 10 percent of designated funds to persistent-poverty counties in fiscal years 2017–2020, but generally had done so before 2017. Most of their programs subject to the formula already were required to target funds to economically distressed areas. The Department of Agriculture's (USDA) Rural Development awarded less than 10 percent of designated funds to persistent-poverty counties in at least one fiscal year for six out of 10 appropriations accounts. Rural Development set aside 10 percent of designated funds for use in those counties, which officials said met the statutory requirement to allocate these funds. Officials said some programs had not received a sufficient number of applications from these counties to meet the threshold because the programs are not well-suited to areas with severe poverty. For example, it may not be financially prudent for local governments in persistent-poverty counties to participate in a loan program to finance community facilities if the governments cannot service the debt. The purpose of the 10-20-30 formula—to increase the proportion of funding awarded to persistent-poverty counties—could be better achieved by focusing its application on programs that do not already target such areas and which can provide meaningful assistance to economically distressed communities. The three agencies GAO reviewed used different datasets and methodologies to identify persistent-poverty counties for the 10-20-30 formula. Appropriations laws for 2017–2020 required the agencies to use data from different years and sources, some outdated, to identify the counties. EDA also used a methodology that identified more than 100 additional persistent-poverty counties, than the other two agencies. Requiring each agency to identify persistent-poverty counties in this way is inefficient, and the inconsistency limits the ability to compare targeted funding across agencies. Using a uniform list of persistent-poverty counties, updated each year, would reduce administrative costs and facilitate assessments of the formula's impact across agencies. Such a measure also could help ensure more consistent investment in areas with current poverty rates of at least 20 percent. USDA's Economic Research Service has the technical capabilities to produce such a list and officials said that doing so each year would not be resource intensive because the agency already publishes other related work using the same data. Why GAO Did This Study Since 2009, the 10-20-30 formula has been applied to appropriations for certain federal programs and accounts. This includes programs and accounts administered by USDA's Rural Development, Treasury's CDFI Fund, and Commerce's EDA that averaged more than $10 billion in each fiscal year from 2017 to 2020. GAO was asked to review certain issues related to the 10-20-30 formula. This report examines (1) the proportion of funds subject to the 10-20-30 formula that these agencies awarded in persistent-poverty counties in 2017–2020 and the effects on funding levels to these areas, and (2) how agencies identify persistent-poverty counties. GAO analyzed agency budget and administrative data for fiscal years 2017—2020. GAO also reviewed documentation, such as program descriptions and funding notices, and interviewed agency officials.
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    The Federal Deposit Insurance Corporation (FDIC) has designed policies to address the risk of regulatory capture by reducing the potential benefit to industry of capturing the examination process, reducing avenues of inducement, and promoting a culture of independence and public service (see figure). Framework for Reducing Risk and Minimizing Consequences of Regulatory Capture FDIC has several policies for documenting bank examination decisions that help promote transparent decision-making and assign responsibility for decisions. Such policies are likely to help reduce benefits to industry of capturing the examination process. However, GAO found that some examinations were not implemented consistent with FDIC policies and that gaps in FDIC policies limited their effectiveness. For example, GAO found that managers sometimes did not clearly document how they concluded that banks had addressed recommendations. By improving adherence to agency policies, FDIC management could better address threats to capture in the examination process. GAO found that FDIC has policies to address potential conflicts of interest that could help block or reduce avenues of inducement. For example, FDIC has post-employment conflict-of-interest policies designed to prevent former employees from exerting undue influence on FDIC and to reduce industry's ability to induce current FDIC employees with prospective employment arrangements. One such policy requires the agency to review the workpapers of examiners-in-charge who accept employment with banks they examined in the prior 18 months. However, FDIC has not fully implemented a process for identifying when to review the workpapers of departing examiners to assess whether independence has been compromised. In particular, FDIC does not have a process for collecting information about departing employees' future employment. By revising its examiner-departure processes, the agency could better identify when to initiate workpaper reviews. FDIC has identified regulatory capture as a risk as part of its enterprise risk management process. The agency has documented 11 mitigation strategies that could help address that risk. Identified mitigation strategies include rotating examiners-in-charge, national examination training, and ethics requirements. FDIC supervises about 3,300 financial institutions to evaluate their safety and soundness. Some analyses by academic researchers have identified regulatory capture in supervision as one potential factor contributing to the 2007–2009 financial crisis. Regulatory capture is defined as a regulator acting in the interest of the regulated industry rather than in the public interest. GAO was asked to review regulatory capture in financial regulation. This report examines FDIC's (1) processes for encouraging transparency and accountability in the bank examination process, (2) processes to minimize potential conflicts of interest among examination staff, and (3) agency-wide efforts to address the risks of regulatory capture and compromised independence. GAO reviewed FDIC's policies and enterprise risk management framework, analyzed bank examination workpapers, and interviewed supervisory staff. GAO is making four recommendations to FDIC related to managing the risk of regulatory capture, including improving documentation of banks' progress at addressing FDIC recommendations and revising examiner-departure processes. FDIC neither agreed nor disagreed with these recommendations, but described actions it would take in response to them. FDIC's actions, if fully implemented, would address two of the four recommendations. For more information, contact Michael Clements at (202) 512-8678 or clementsm@gao.gov.
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