Charles Grassley (R-Iowa) (photo by Ryan J. Reilly / Main Justice)

Ahead of an FBI oversight hearing next week, Sen. Chuck Grassley (R-Iowa) is asking FBI Director Robert Mueller for more information on the bureau’s latest attempt to modernize its computer system.

In a letter to Mueller dated Wednesday, Grassley wrote that the Sentinel project, which he called “little more than a fancy personnel management system,” appeared to be on the brink of failure.

The program would move the FBI’s criminal investigative records from paper to a computerized process. A stop-work order had been placed on both phases 3 and 4 of the Sentinel contract with Lockheed Martin.

“The FBI has been trying to get its computer system up to speed for a decade. It appears that the third iteration of a modern FBI computer system is about to fail,” Grassley wrote. “Hundreds of millions of dollars have been spent on a system that is little more than a fancy personnel management system. Taxpayers deserve an answer about the continued failure of the FBI and where the hundreds of millions of dollars went.”

FBI Director Robert Mueller (photo by Ryan J. Reilly / Main Justice).

FBI spokesman Christopher Allen said the partial stop-work order, issued on March 3, is not a complete shutdown of the Sentinel program. The order had been expanded to include the remainder of Phase 3, which would allow the contractor to focus on deploying Phase 2 by the fall of 2010, he said.

“Based on the delays associated with the completion of Phase 2, the FBI is assessing the current state of Sentinel and will engage industry subject matter experts in the evaluation of its strategy going forward,” Allen said in a statement. “This action is consistent with the phased contract approach that the FBI has used to develop its case management system. By design, the multi-phase contract allows the suspension of activities when the government believes it is in its best interest to do so.”

Allen said that the completion of phase 2 of the project would “provide new or enhanced capabilities including the creation of case documents online; the efficient flow of those documents electronically through submission, collaboration, vetting, and approval; the capability to search across all case-related information; and an easy-to-use interface.”

A March report (PDF) from the Justice Department’s Office of the Inspector General found that the cost of the Sentinel program was rising, the completion had been delayed several times and that the FBI did not have a schedule or cost estimate for the completion of the project.

Mueller said in April that delays in a massive overhaul of the bureau’s case management system were routine and he assured senators that the $305 million project would not become a boondoggle.

The full text of Grassley’s letter is reprinted below.

July 21, 2010

Via Electronic Communication

The Honorable Robert S. Mueller, III
Director
Federal Bureau of Investigation
935 Pennsylvania Avenue, N.W.
Washington, D.C. 20535

Dear Director Mueller:

On March 17, 2010, I wrote to you regarding the Federal Bureau of Investigation’s (FBI) new investigative case management system known as Sentinel.  That letter discussed the progress of Sentinel and the fact that the FBI had issued a stop-work order to the project’s primary contractor, Lockheed Martin Services, Inc. (“Lockheed”) to cease work on Phases 3 and 4 of Sentinel.  This stop-work order was verified at a March 25, 2010, staff briefing held by the FBI and Lockheed and was further detailed in a reply dated March 31, 2010.  In that letter, the FBI confirmed that it had issued a partial stop-work order and that, “Negotiations with [the] prime contractor, Lockheed Martin, are underway to adjust the project’s cost and schedule to reflect these actions.”

Recently, it was reported that the FBI has issued another stop-work order to Lockheed halting work on Phases 3 and 4 of Sentinel.  This stop-work order raises serious questions about the future role Lockheed will play as the primary contractor for Sentinel and may indicate that the negotiations on cost and schedule detailed in March were not successful.  I write today regarding this development and request information about the status of negotiations with Lockheed and any changes to the schedule and cost for Sentinel.

On March 25, 2010, my staff met with representatives of the FBI to discuss my serious concerns with the potential delays in completing Sentinel.  Specifically, I asked my staff to inquire about the timing for the completion of Sentinel and whether the FBI and Lockheed would be able to complete the project within the budget Congress authorized. Despite these serious questions, the briefing provided few concrete answers as to when Sentinel would be completed and how much the FBI anticipated the final project to cost.  These same concerns were raised by the Inspector General for the Department of Justice (DOJ/OIG) in an interim report on the status of the FBI’s implementation of Sentinel issued on March 31, 2010.

The DOJ/OIG’s report stated that he had, “serious concerns about the progress of the FBI’s Sentinel project.”  The DOJ/OIG further found that, “the FBI has had difficulty establishing and maintaining a strict cost and schedule for the Sentinel project.”  The DOJ/OIG added, “As of March 2010, the FBI does not have official cost or schedule estimates for completing Sentinel.”  Most notable, the DOJ/OIG stated, “While the FBI does not yet have official estimates, FBI officials have acknowledge that the project will cost more than its revised estimate of $451 million and will likely not be completed until 2011.”  I share these same concerns and question whether this latest development in extending the stop-work order is an indication that Sentinel is on track to join Virtual Case File in the list of failed IT procurements at the FBI.

Accordingly, I ask that you provide responses to the following requests for information and questions in advance of the Senate Judiciary Committee FBI Oversight hearing scheduled for July 28, 2010.

(1) Provide a copy of the latest contract modification that includes the stop-work order for Phase 3 and Phase 4.

(2) Provide a copy of all updated cost estimates and projections provided by Lockheed to the FBI as part of the negotiations to continue work on Phase 3 and Phase 4 of Sentinel following the March 2010 stop-work order.

(3) Provide a copy of all updated timelines related to the completion of Sentinel following the issuance of the stop-work order from March 2010.

(4) Provide a copy of any counter-offer from the FBI to Lockheed related the cost estimate for completing Sentinel.

(5) Provide a list of all performance bonuses paid to Lockheed over the course of the Sentinel program.  This list should include the date of the bonus, the amount of the bonus, and the reason the bonus was paid.

(6) Does Lockheed have a financial interest or relationship with any COTS vendors utilized on the Sentinel project?

(7) Provide a complete list of all instances where the FBI issued a modification to the contract, changes the requirements of the contract, or issued a change order.

(8) Provide a copy of the original contract consisting of NIH’s CIO-SP2i contract, the FBI Sentinel TORP C-2428 which includes all attachments (e.g., Statement of Work, Lockheed version 3.0, EVMS requirements, DD-254, etc), all three attachments, and the Memorandum of Agreement (MOA) that was executed on March 9, 2006 between the FBI and Lockheed.

(9) Provide a copy of all contract modifications issued from inception of the contract through the most recent stop-work order.

(10) Provide copies of all documentation that identifies written notifications of non-conforming products or services rejected, and other unsatisfactory contract performance from inception through the most recent contract stop work order.

(11) Provide copies of all Monthly Program Status Reports.

(12) Provide copies of documentation regarding any and all Contracting Officers Conferences from contract inception through the most recent stop work order.

(13)  Provide copies of all SF 1034s (Public Voucher for Purchases and Services Other Than Personal) prepared and submitted from contract inception through the most recent stop work order.

Given the current fiscal constraints on the federal budget, it is imperative that every taxpayer dollar is spent as effectively and efficiently as possible.  The FBI has spent nearly a decade trying to develop this computer system and the net cost of the current and failed projects is well over half a billion dollars.  Congress and the American people deserve a complete accounting of what is happening with Sentinel before any future taxpayer dollars should even be considered for this project.  I appreciate your prompt attention to this matter and look forward to your complete and full response in advance of the July 28, 2010, hearing so that we can discuss this in an informed manner during the public setting.

Sincerely,

Charles E. Grassley
United States Senator

The FBI plans to equip its agent with debit cards to pay expenses, like informant payments, and is exploring how to automate requests for telephone records and use voice recognition software so that agents can dictate their interview notes, according to FBI officials.

(iStock)

The changes are an effort to increase the efficiency and productivity of FBI agents as part of a strategic planning initiative by FBI Director Robert Mueller intended to help modernize how the bureau manages its resources.

“We’ve been looking at what takes people away from their investigative work,” David Schlendorf, acting Assistant Director of the FBI’s Resource Planning Office, said in an interview. “A lot of that is administrative work. We’ve been asking: What we can do to eliminate that? How can we make this more efficient?”

In discussions with agents in the field, FBI planners found that the procedure used to pay sources was slow and cumbersome. Under the system, once a source payment was approved, agents would obtain a paper check that they would cash at a bank in order pay sources. The FBI hopes to soon be able to instantly transfer money to the a debit card in the agent’s name, which they could use at a bank or ATM.

The bureau is also working with a software provider to license voice-to-text software so agents can dictate their notes after interviewing sources. The software can improve itself as it learns each agent’s voice.

“Many people can dictate faster than they can type, so we think that’s a great opportunity,” Schlendorf said.

The FBI is also working to streamline the process of acquiring and serving administrative subpoenas on telephone companies and internet service providers. The FBI said the plan would minimize the administrative burden on our agents and help prevent inadvertent over-disclosure by providers.

The FBI said the technology would maintain controls to prevent abuses, though any changes would likely face critical scrutiny by civil liberties groups. “We have to make sure we only get what’s appropriate,” Schlendorf said.

Other changes are also in the works. The FBI is developing a new system for placing agents in specialized career paths, in areas like counterterrorism, counterintelligence, and cybercrime. Schlendorf described the new structure as having some features in common with the military’s career development system. He said plans envision that agents would periodic breaks during their careers to obtain specialized training.

The efficiency measures are a result of Mueller’s attempts to improve how resources are managed within the bureau. Cutting down on administrative burdens is one of the initiatives on the director’s list, which usually contains about 10 to 12 items each year.

A recent audit of the FBI by the Justice Department’s Inspector General found that overall it was doing a good job of managing personnel resources.

Strategic Map More Than A Paperweight, Says FBI

Several years ago, the FBI began using a color-coded strategy map to track the bureau’s progress in meeting its broader goals. The map replaced the typical narrative strategic plan, the type of document often often dismissed by rank and file government employees as little more than office coffee table décor. The strategy map, said Schlendorf, “is a living [document] and it has to evolve as threats evolve, as risks evolve, and as what is asked of us by DOJ, the White House or [Director of National Intelligence] evolves.”

Recently, bureau officials decided they will also issue a narrative strategic plan, in addition to the map, to educate employees and the public about its mission and goals, said Schlendorf, who joined the FBI in 2003 and was named head of the FBI’s resource planning office in May.

“We’ve decided, though, that we do need something as part of our communication effort with our employees, but also with the American public, that does put together…. what is the FBI’s strategy to combat terrorism, foreign intelligence threats, criminal efforts, etc.,” Schlendorf said.

He expects the plan, which the office is working on this year, to be about 30 to 50 pages. There is not a legal requirement that the FBI have a strategic plan. A previous, narrative-style plan began in fiscal year 2004 and ended in fiscal 2009.

In addition, Schlendorf said that the FBI was also trying to use its strategic planning to be able to adapt more quickly to changing priorities.

“We wanted to go from a world where the budget drove the strategy, and the budget process basically told you what you were going to focus on because what you got money for is what you did, to reverse that so that strategy drives the budget we put together, whether it’s for future year requests or through the current year budget we’re executing against,” Schlendorf said.

The FBI’s strategic framework map is reprinted below.

Timothy P. Murphy (FBI)

A new agent has taken over the FBI’s no. 2 spot, at least on a temporary basis. 

Associate Deputy Director Timothy P. Murphy, the no. 3 official at the FBI, has taken over the Deputy Director spot on an acting basis, Paul Bressen, an FBI spokesman, confirmed Monday. He replaces former Deputy FBI Director John Pistole, who was confirmed to head the Transportation Security Administration last week.

Bressen said a permanent replacement had not yet been named. Murphy is the leading candidate to replace Pistole on a permanent basis.

The website Tickle The Wire first reported that Murphy took over the position on an acting basis.

Additional reporting by David Johnston.

Murphy’s FBI bio is reprinted below:

Timothy P. Murphy began his career with the FBI when he entered on duty as a special agent in September 1988.

As a more than 20-year veteran of the FBI, he has worked a number of investigative matters, including counterterrorism and organized crime/drugs. He has served as a pilot in the aviation program and within the special operations, technical operations, undercover operations, and surveillance programs. He has held a number of supervisory and leadership positions at FBI Headquarters in Washington, D.C. and in the field, including special agent in charge (SAC) of the Cincinnati Division, and he was a member of the Director’s SAC Advisory Committee.

Mr. Murphy has served as a special assistant to Director Mueller. In this position, Mr. Murphy provided counsel to the Director on a variety of policy, budget, and administrative matters. He also assisted in the preparation for the Director’s events and meetings, domestic and international travel, and ensured the resolution of day to day issues.

Mr. Murphy has also served as the assistant director/chief financial officer at FBI Headquarters. In this position, Mr. Murphy was responsible for formulating and executing the FBI’s then-$6.2 billion budget.

In January 2008, Mr. Murphy was appointed associate deputy director. In this position, Mr. Murphy oversees the management of the FBI’s personnel, budget, administration, and infrastructure.

Prior to entering the FBI, Mr. Murphy worked in the private sector and as a police officer in Michigan. He graduated from Ferris State University in 1983 with a Bachelor of Science degree in criminal justice.

Janice Fedarcyk (FBI)

Janice Fedarcyk has been named assistant director in charge of the FBI’s New York Division, FBI Director Robert Mueller announced Friday. Fedarcyk is the first woman to head the high-profile New York office.

She replaces Joseph Demarest, who in May was named Assistant Director of the International Operations Division at FBI headquarters. Demarest was placed on temporary assignment to FBI headquarters while the Office of Professional Responsibility conducted an investigation into statements he made about a relationship he allegedly had with a subordinate in the New York office.

Since 2007, Fedarcyk has headed the FBI’s Philadelphia Division, which was recently involved with the indictment against American-born alleged extremist “Jihad Jane.”

Mueller said in a statement that Fedarcyk is well-prepared to lead the FBI’s largest office.

“Jan Fedarcyk brings both a strong national security and criminal investigative background from her current assignment as head of the Philadelphia Division and from her work at FBI Headquarters, where she managed terrorist financing investigations, served at the National Counterterrorism Center, and oversaw investigations of online exploitation of children,” Mueller said.

Fedarcyk has been with the FBI since 1987. She started in the Los Angeles Division and has served at FBI headquarters, the Baltimore Division and most recently in Philadelphia. Her experience in counterterrorism includes her work as the FBI’s representative to the National Counterterrorism Center, Directorate of Strategic Operational Planning and as special agent in charge of the Counterterrorism Division of the Los Angeles Division.

Demarest had been brought in by Mueller in late 2008 to improve the relationship between the New York City Police Department and the FBI.

The NYPD did not immediately respond to a request for comment on Fedarcyk’s appointment.

Kelly told reporters at a news conference in early May that the work between the FBI and NYPD had been “seamless” and that the two organizations were “working extremely well together.”

UPDATED:

Richard Kolko, a spokesman for the FBI’s New York Division, said Fedarcyk would take over in early August and was notified of her appointment late yesterday.

“Although she has not yet had the time to reach out to NYPD, she very much looks forward to continuing to build on the extremely strong relationship the FBI has with NYPD,” Kolko said.

The FBI’s full release on Fedarcyk’s appointment is below.

Director Robert S. Mueller, III has named Janice Fedarcyk as assistant director in charge of the FBI’s New York Division. Ms. Fedarcyk is currently serving as special agent in charge (SAC) of the Philadelphia Division.

“Jan Fedarcyk brings both a strong national security and criminal investigative background from her current assignment as head of the Philadelphia Division and from her work at FBI Headquarters, where she managed terrorist financing investigations, served at the National Counterterrorism Center, and oversaw investigations of online exploitation of children,” said Director Mueller. “She is well prepared to lead our largest office.”

Ms. Fedarcyk entered on duty as a special agent of the FBI in 1987. Upon completion of training at the FBI Academy in Quantico, Virginia, she was assigned to the Los Angeles Division, where she investigated organized crime, drugs, money laundering, and gang matters. In November 1996, Ms. Fedarcyk was promoted to FBI Headquarters (FBIHQ), where she coordinated FBI response to domestic and international crises and special events. In 1998, Ms. Fedarcyk was selected as the first FBI liaison assigned to the National Center for Missing and Exploited Children. She transferred to the Baltimore Division in 1999, where she supervised an Innocent Images National Initiative squad investigating the online exploitation of children.

In 2001, Ms. Fedarcyk returned to FBIHQ as an assistant inspector team leader in the Inspection Division. In 2003, she was selected as the assistant section chief of the Terrorist Financing Operations Section within the Counterterrorism Division. Her subsequent promotion to assistant special agent in charge (ASAC) in the FBI’s Critical Incident Response Group, National Center for the Analysis of Violent Crime, included oversight of FBI components that furnished behavioral analysis and consultation on a variety of investigative matters.

Ms. Fedarcyk was promoted to serve as the FBI’s representative to the National Counterterrorism Center, Directorate of Strategic Operational Planning in March 2005. She was instrumental in leading the development of a classified national strategic operational plan in the war on terrorism. In September 2006, she was a group recipient of a Meritorious Unit Citation presented by the Director of the National Counterterrorism Center for contributions to the Interagency Counterterrorism Strategic Planning Community. In January 2006, Ms. Fedarcyk was promoted to the position of inspector at FBIHQ.

Shortly after, in February 2007, she was named SAC of the Counterterrorism Division of the Los Angeles Division. In this division, she oversaw executive management, supervisory and investigative personnel, and the associated investigative programs to which they were assigned.

Federal agents have arrested nearly 500 suspects as part of a crackdown on mortgage fraud, the Justice Department announced Thursday, the same day the FBI reported a dramatic rise in the number of mortgage fraud cases.

Operation Stolen Dreams, organized by President Barack Obama’s Financial Fraud Enforcement Task Force, is the largest ever effort brought to bear in confronting mortgage fraud, Justice Department officials said. The operation started on March 1 and involved 1,215 criminal defendants across the country, with 485 suspects arrested and as much as $2.3 billion in losses. Civil actions have resulted in the recovery of more than $147 million, the department said.

Unlike prior efforts aimed at mortgage fraud, Justice Department officials said Operation Stolen Dreams focused on civil enforcement in conjunction with federal criminal cases. Civil actions would allow the government to recover money for victims and increase cooperation with state and local partners, DOJ officials said.

Attorney General Eric Holder at a news conference on Thursday (photo by Ryan J. Reilly / Main Justice).

Attorney General Eric Holder and FBI Director Robert Mueller announced the results of the mortgage fraud security sweep at a news conference at Department of Justice headquarters alongside representatives from the Housing and Urban Development; the Federal Trade Commission; the U.S. Secret Service; the Internal Revenue Service; the Department of the Treasury; the U.S. Postal Inspection Service and a representative of states attorneys general.

“The breadth of the fraud is truly astonishing, which is why we launched an unmatched effort to fight it,” Holder said. “We know that mortgage fraud ruins lives, destroys families and devastates whole communities, so attacking the problem from every possible angle is vital. These schemes are despicable, they are dangerous to our economy and they will not be tolerated.”

Holder said the Justice Department had requested $18.4 million increase in its fiscal year 2011 budget to fight mortgage fraud.

Mueller said that while counterterrorism remains the top priority of the FBI, mortgage fraud is a focus today.

FBI Director Robert Mueller (photo by Ryan J. Reilly / Main Justice).

“We always have to prioritize, and we’ve prioritized, but I’m satisfied that we are addressing mortgage fraud with adequate resources,” Mueller said.

Mueller said the FBI still has a number of ongoing investigations into the financial crisis, but declined to give the number of cases still open.

Although the Justice Department has investigated and charged several mortgage lending companies for their part in the financial crisis, the department has not charged anyone associated with the Wall Street banks that packaged the mortgages into securities, The Washington Post reported.

The FBI report, released Thursday, found a 71 percent increase in the number of mortgage fraud cases pending in fiscal year 2009.

Details of the sweep emerged the day after the Justice Department announced the indictment of a former private mortgage lending company chairman who allegedly perpetrated a $1.9 billion fraud that lead to the collapse of one of the 50 largest banks in the U.S.

Attorney General Eric Holder said Thursday the Justice Department is working to fix problems identified in a recent Inspector General report that found the DOJ is unprepared to respond to an attack on the U.S. using  weapons of mass destruction.

FBI Director Robert Mueller and Attorney General Eric Holder at a news conference on Thursday (photo by Ryan J. Reilly / Main Justice).

“I looked at the report that was prepared by the Inspector General, and I was concerned about the issues that were raised there,” Holder told reporters at a news conference on an unrelated issue Thursday.

“I’ve asked the Deputy Attorney General, Gary Grindler, to look at that will all due speed and he has put together a group that is looking at the problems that were identified by the Inspector General and we will be dealing with them very quickly,” Holder said.

Holder did not answer a question on why he thought the Justice Department had overlooked the issue.

According to the Inspector General’s report, the FBI’s Washington branch was the only field office with a written plan and checklist for a WMD attack. Some officials in the Washington D.C. capital region field offices of the Bureau of Alcohol, Tobacco, Firearms and Explosives, the Drug Enforcement Administration and the U.S. Marshals Service weren’t even aware that ATF had been designated the lead agency to plan the DOJ’s WMD reponse, the report said.

One Justice Department official told the Office of the Inspector General that DOJ was “totally unprepared” and said that if there was a WMD attack, “everybody would be winging it.”

In a May 25 letter to Inspector General Glenn Fine, Associate Deputy Attorney General James A. Baker said that the Department of Justice “should do more in order to formally and centrally coordinate emergency response activities of all appropriate Department components.” Baker wrote that the department would create a clearer and more formal system to ensure emergency response functions were up to date and would name an individual from the Office of the Deputy Attorney General to coordinate the preparedness effort.

Click here to read the full Inspector General report.

Joe Palazzolo contributed to this report.

The J. Edgar Hoover FBI Building (photo by Ryan J. Reilly / Main Justice).

The Washington Post reported Sunday that the FBI considered relocating its Washington D. C.-headquarters to a site in Greenbelt, Md.

Bureau officials have said for years that they wanted some day to relocate from the crumbling J. Edgar Hoover Building, but the Post report was the first to detail specific efforts by the FBI to look for an alternative to its Pennsylvania Avenue property.

The proposal surfaced in court documents in a lawsuit filed by a Maryland real estate developer against the Washington Metropolitan Area Transit Authority. The development company, Greenbelt Ventures, described meetings between FBI and WMATA officials about a possible relocation.

Federal Bureau of Investigation Headquarters (FBI)

FBI spokesman Bill Carter told the Post the agency considered moving its headquarters before the economic downturn hit. Carter said the FBI looked at multiple sites, but plans have stalled since the downturn. Carter did not confirm that Greenbelt was one of the possibilities.

The FBI’s headquarters occupies a large block of prime real estate in the District of Columbia’s downtown at the edge of a bustling tourism and restaurant area. Bureau officials have talked in general terms about financing the project in part by selling off the headquarters’ real estate.

Top FBI managers, including Director Robert Mueller, occupy spacious offices on the seventh floor of the headquarters building. Their quarters face across the street to the Justice Department’s main office, which at one time housed the FBI.

Bureau officials have looked enviously at the CIA’s wooded campus, across the Potomac River in nearby McLean, Va.,  particularly in years since the Sept. 11 attacks, when an out of town location seemed to offer increased security along with greater privacy and space to grow, as the bureau expands in staff and budget. Officials also worry about the exposure of the building to potential attacks.

The FBI building was planned in the twilight of the Hoover era, but was never finished to the architect’s ambitious specifications. For example, the concrete structure was to be sheathed in stone, but Congress balked at appropriating funds for such amenities after the post-Watergate revelations of FBI abuses.

As a result, the water damaged concrete face of the building is deteriorating rapidly. It is now widely regarded as one of the less appealing buildings that line Pennsylvania Avenue, one of the country’s most celebrated streets, on which incoming presidents parade after being sworn in on Inauguration Day.

The interior of the FBI building is also run down, and extensive remodeling has created blind corridors and closed off sections that have been in place for years.  The once-popular FBI visitors’ tour has long been shut down, and the fingerprint identification units have moved out. The forensic laboratory was transferred several years ago to the bureau’s Quantico campus, but some have worried about lingering environmental hazards.

Large interior spaces at FBI headquarters have been gutted over the years to accommodate the bureau’s changing role. For example, bureau officials carried out extensive renovations in the 1990s to make room for the rapidly expanding Strategic Information Operations Center, which coordinates the FBI’s global intelligence and investigative efforts.

Read the Washington Post’s full story from Sunday here.

Additional reporting by David Johnston.

FBI Director Robert Mueller said Thursday that delays in a massive overhaul of the bureau’s case management system were routine and he assured senators that the $305 million project would not become a boondoggle.

FBI Director Robert Mueller (file photo by Ryan J. Reilly / Main Justice)

Mueller’s decision to suspend work on portions of the program, known as Sentinel, was based on third-party reviews that uncovered “coding defects,” he told members of a Senate Appropriations subcommittee with jurisdiction over the FBI budget.

The revelation last month of delays in the project’s second of four phases recalled the collapse of an earlier incarnation of the case management system, at a cost of about $100 million.

“Is this just a normal delay … or are we on the way to boondoggle?” asked Sen. Barbara Mikulski (D-Md.), chairwoman of the Commerce, Justice and science Appropriations Subcommittee.

Mueller described the setback as “minor” and said bumps were to be expected in a project of this magnitude. The phased approach, he added, has allowed the bureau to take advantage of the upgrades as they are completed and to monitor the project more closely.

In this instance, Mueller said, the last segment of the second phase “did not meet our expectations.”

The technical problems could lead to more than $30 million in cost overruns in the program, which is contracted to Lockheed Martin, reported The New York Times. Mueller acknowledged the delay would push the date of completion into 2011.

The bureau’s efforts to upgrade its technology have raised larger questions about its agility in national security and traditional law enforcement matters. Mueller told Mikulski the bureau had made vast gains since the Sept. 11, 2001, terrorist attacks, when many agents could not send or receive e-mail messages.

For instance, Mueller said, the bureau now uses more than 26,000 Blackberry devices.

Republicans and Democrats who sit on the House Judiciary Committee reached a rare moment of agreement on Wednesday — members of both parties expressed outrage about violations of the law by the FBI described in a Justice Department report earlier this year.

FBI General Counsel Valerie Caproni and Justice Department Inspector General Glenn A. Fine (photo by Ryan J. Reilly).

A Justice Department Inspector General report first released in January concluded that the FBI went around the requirements of the Electronic Communications Privacy Act and internal guidelines to obtain phone records for several years under the guise of emergencies, via the use of so-called “exigent letters.”

The FBI obtained so-called “toll-booth” phone records through requests by e-mail, post-it notes, by telephone and by what the FBI referred to as “sneak peeks” — all informal approaches that the inspector general found were improper.

According to the report (PDF), telephone companies stationed employees in FBI offices who felt they were part of the FBI team and were too comfortable with one another. Phone company employees stationed within the Communications Analysis Unit attended office happy hours, were given FBI e-mail accounts — and one phone company employee created a shared folder named “Team USA.”

FBI General Counsel Valerie Caproni said Wednesday at a hearing before the Judiciary panel’s subcommittee on the Constitution, civil rights and civil liberties that the report served as “a wake up call.”

Rep. F. James Sensenbrenner (R-Wis.) was one of the primary authors of the original Patriot Act in 2001. (photo by Ryan J. Reilly / Main Justice)

Rep. F. James Sensenbrenner (R-Wis.) said he was frustrated by the FBI’s actions, which he said showed the agency wanted to get around the restrictions that Congress put in place under the Patriot Act. Sensenbrenner said it was especially frustrating because as the author of the Patriot Act, he worked closely with the FBI to ensure the agency had all the tools it needed and has taken a lot of criticism from Democrats over the law.

“I came to this whole issue as your friends and I feel betrayed,” said Sensenbrenner. ”I don’t think you’re getting the message.”

Exigent letters were never approved by Congress, said both Republicans and Democrats, calling “exigent letters” a term that the FBI invented.

Sensenbrenner said he was concerned about this type of evasion and insisted on requiring, by law, annual Inspector General reports because he ”was afraid of having the fox guard the chicken coop down the street was going to end up with activities that were going to end up embarrassing the government.”

“Every time we tried to patch up a hole in what the FBI was doing you figured out how to put another hole in the dike, and this little Dutch boy has only got 10 fingers to put in the dike,” said Sensenbrenner.

Caproni noted that the FBI’s informal access to telephone records ended three and a half years ago. She said the FBI has implemented procedures to make sure that it doesn’t happen again.

“I’ve gotten the message and I’ve gotten the message for several years,” said Caproni. ”This was a massive failure beyond our control.”

“I am outraged that somebody in the FBI would invent the term [exigent] letters,” said Rep. John Conyers (D-Mich.). “It’s not in the Patriot Act.” He called for further investigation, and said there may be grounds for the removal of Caproni.

Inspector General Glenn A. Fine said he believed that the FBI was taking his recommendations seriously. He said that he had no indication that FBI Director Robert Mueller knew about the violations until the Inspector General investigation surfaced.

Caproni said that her office was aware of the problem but said nothing was done because the attorney in charge of oversight for that section wasn’t aware of scope of the problem.

“This is actually a much more complicated issue than I think some would like to recognize,” said Caproni.

Placing phone company employees within FBI offices, said Caproni, “had huge benefits in terms of the speed, had an extreme downside in that it broke own our controls.”

UPDATED:

“It has become painfully clear that unchecked Patriot Act power will inevitably lead to abuse, and National Security Letters are a poignant example,” Laura W. Murphy, director of the American Civil Liberties Washington Legislative Office, said in a statement. To ensure that our privacy and free speech rights are protected, there must be clear oversight and strict guidelines tied to their use. Innocent Americans have been swept into investigations and recipients have been barred from speaking about it publicly.”

“Not only that, report after report from the FBI’s own Inspector General illustrates the blatant and systemic abuse of national security letters,” she continued. “Congress has less than a year before it must address the Patriot Act again. NSL reform must be made a priority this year instead of being kicked further down the road.”

In late 2008, a turf battle between the Federal Bureau of Investigation and the New York City Police Department was brewing. Overlap in counterterrorism work had always been a source of tension between the local cops and the feds. But the situation reached a boiling point when the contents of tense letters between then-Attorney General Michael Mukasey and NYPD Commissioner Ray Kelly on warrants for domestic electronic monitoring of terrorism suspects were published in The New York Times.

To improve that relationship, FBI Director Robert Mueller brought former FBI agent Joe Demarest back to the bureau from his brief stint in the private sector to head the FBI’s New York Division. Just five months later, in May 2009, both federal and New York officials said the relationship had improved.

Now the man who brought about that change has been reassigned to FBI headquarters in Washington, awaiting the results of an investigation into statements he made about his relationship with a colleague. Several outlets have reported that relationship was with Teresa Carlson, an FBI intelligence official who previously headed the white collar section of the New York office’s Criminal Division and was recently promoted to a position in Washington.

Joseph Demarest (Getty)

The FBI is publicly saying that Demarest is working on a project in D.C., former Newsday reporter Len Levitt wrote in the Huffington Post. FBI spokesman Richard Kolko said that Demarest was helping to develop a computerized crime strategy program, something called Strategy Performance Sessions, or ‘COMPSTAT LITE,’ reported Levitt.

The investigation by the FBI’s Office of Professional Responsibility into Demarest’s statements about the relationship has been going on for months, according to those familiar with the situation.

The investigation is focused on Demarest’s statements about the relationship, rather than the relationship itself. Internal FBI guidelines do not ban personal relationships, but do require recusal in career decision such as bonuses, which are usually decided by a board, according to a former federal official. Levitt reported that it was not clear how much influence Demarest had over Carlson’s career, but there was always at least a level of management between the two.

Mueller’s choice of Demarest to head the New York office upset many rank-and-file FBI agents, who felt that Mueller had gone outside the chain of command by bringing on a former agent who left for a lucrative position in the private sector.

In early 2008, Demarest had been seen as the odds-on favorite to take over the New York office, even working with Mueller on a top-secret project. But Demarest reportedly did not want to be assigned to FBI headquarters in D.C. — considered a must in order to climb the ladder — and announced his retirement to become the head of international security for Goldman Sachs.

The move was especially surprising because Demarest left at age 48, only months shy of 50 when he would have been eligible for a full pension for life.

After less than a year at Goldman, Mueller lured Demarest back to the FBI, believing he could improve the bureau’s relationship with what some FBI agents called the “renegades” in the NYPD counter-terrorism unit.

Within the FBI, “there was a lot of concern over the fact that he had left and then came back,” one former federal official said. “There were a lot of people who wanted the job, and bringing back someone who had quit certainly ruffled a lot of feathers.”

Several former federal law enforcement officials said the complaint that sparked the investigation into Demarest could have originated with someone who felt passed over for the position as New York City’s top G-Man.

“It very well could be sour grapes, that somebody had a beef,” one official said.

Others pointed out that many in the FBI disliked Demarest’s management style.

“The New York office is celebrating Demarest’s demise because he bullied subordinates but let the New York Police Department bully the bureau,” a retired senior FBI official told The New York Daily News.

Demarest and Kelly share a lot in common. They’re both fitness enthusiasts, sharp dressers and have a military bearing, according to a NPR profile when Demarest was tapped in 2008. Under Demarest’s leadership, the relationship between the FBI and NYPD has reportedly improved.

Seeking peace, FBI officials downplayed NYPD’s mistake of contacting an informant who tipped off now admitted terrorist Najibullah Zazi about the FBI’s ongoing investigation, nearly derailing it altogether.

NYPD officials reassigned personnel because of the mistake — an unusual admission of the error — and the controversy over the lapse flared up for only a couple of days.

One federal law enforcement official said that Demarest had made “significant inroads” in improving the FBI’s rapport with the NYPD, an impressive achievement, as changing the dynamic between the two agencies was like trying to “turn an aircraft carrier around,” he said.

Joe Palazzolo contributed to this article.