Chart shows number of voluntary reports of internal fraud and abuse by government contractors; 1c x 3 3/8 inches; 46.5 mm x 85.7 mm

A multibillion-dollar loophole that would have let contractors escape reporting abuse of taxpayer dollars spent abroad is being closed.

The loophole was quietly inserted last fall into Justice Department plans to crack down on government contract fraud and waste. It exempted overseas contracts, however, despite more than $102 billion spent on taxpayer-funded projects in Iraq and Afghanistan alone since 2003.

First reported earlier this year by The Associated Press, the loophole infuriated prosecutors, Congress and inspectors general across the Bush administration. Lawmakers ordered it closed as part of a $162 billion war-spending plan. It was signed into law this week by President Bush.

"It was such an egregious and flagrant disregard of taxpayer rights that you can't imagine that it wouldn't be changed immediately," Rep. Peter Welch, D-Vt., said in an interview Thursday. "Because it's such an embarrassment."

Welch wrote the House bill to close the loophole that eventually was included in the war funding.

Under the new law, the government has until the end of the year to eliminate the loophole. That will force all contractors to report internal evidence of fraud or abuse of public dollars to the Justice Department or face being disqualified from receiving future funding.

Contractors largely have resisted the new rules, saying it could cost them millions of dollars in internal auditing expenses that likely would be passed on to consumers.

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