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A full-body scanner at a Chicago airport
Photograph by Ryan Lowry for TIME

They posed as travelers, packing fake bombs into suitcases and checking them at ticket counters in airports around the U.S. Then the team of covert inspectors from the Department of Homeland Security tracked the response of the Transportation Security Administration (TSA). In a few cases last year, the fake bombs slipped through TSA’s $1.38 million bag-scanning machines undetected. Worse, when the dummy explosives set off an alarm, the suitcases still made it past TSA screeners more than half the time, several people who have read the inspectors’ classified report tell TIME. Says one source familiar with the findings: “The performance is eye-opening and really, really poor.”

What makes these failures particularly troubling is that since 2008, TSA has spent more than $2 billion to improve the screening of checked baggage. How can a federal agency spend that much on such a critical component of aviation security and have so little to show for it? For starters, it helps to have no oversight and no accountability.

TSA spent all of that $2 billion through a little-known power that lets the agency ignore every rule and law controlling government spending, a TIME review of the agency’s records shows. The loophole, known as “other transaction” authority, can be used by only a handful of agencies. And those who know about it say it’s a recipe for disaster. “The mere fact that an agency opts into an other transaction agreement is almost a guarantee that it’s going to go wrong later,” says Steven Schooner, a George Washington University Law School professor who trains federal procurement officers.

This is a particularly dangerous moment for air security to work better in theory than in practice. U.S. intelligence has concluded that ISIS likely planted the bomb that brought down a Russian jet over the Sinai Peninsula on Oct. 31, killing all 224 people on board. Among the methods ISIS may have used to get the device on board, intelligence officials say: a suicide bomber carrying it onto the plane, an airport worker planting it there or someone hiding it in checked baggage. U.S. officials suspect the group may have recruited or converted followers with bombmaking skills from military forces or other extremist groups, like al-Qaeda, that have targeted Western airliners in the past.

If ISIS is expanding its threat to American travelers, TSA is still struggling to overcome 14 years of failures. Among the litany of errors in the year since the checked-baggage fiasco: TSA officials cleared 73 airport workers for access to restricted areas even though their names appear in the government’s database of those with suspected terrorist connections, and TSA officers helped smuggle drugs past security at airports in Los Angeles and San Francisco. In June, Homeland Security Inspector General John Roth found that TSA failed to catch threats at passenger checkpoints a staggering 96% of the time.

TSA’s leaders have accepted Roth’s findings and say they are working to improve performance. But a close look at TSA’s history shows the agency’s special powers are an underlying and intractable source of its problems. Created in the panicked days after 9/11, TSA won from Congress a blanket pass on many of the federal oversight and accountability rules that govern other agencies. The result, say longtime TSA watchers, is an agency with a disgruntled workforce, ineffective equipment and procedures that don’t provide safety. But Congress has its own reasons for leaving those powers in place.

Even the phrase other transaction authority is one of those Washington confections designed to make the curious look elsewhere. The loophole traces its roots to the Cold War, when the U.S. was racing to catch up with the Soviet Union after the launch of the world’s first satellite, Sputnik. In the Space Act of 1958, Congress gave NASA the power to “enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary in the conduct of its work.” Frustrated by government contract regulations that required everything from competitive sourcing to auditing, NASA’s top lawyer, Paul Dembling, noticed the rules never mentioned “other transactions.” So he turned Congress’s afterthought into a way to skirt oversight. NASA could simply cite the “other transaction,” and the federal government’s rule-free spending system was born.

For decades, only NASA got away with this ploy. Then in 1989, DARPA, the Pentagon lab that developed the Internet and GPS, convinced Congress it should have the same power. Soon enough, other agencies wanted the authority to skip every rule in the 2,000-page book of Federal Acquisition Regulation. By 2001, the rest of the Pentagon, as well as the FAA and the Department of Transportation, had it.

The terrorist attacks of 9/11 presented an urgent challenge to the government’s spending system. No one had built an agency from scratch during a national emergency since World War II. In creating the TSA, Congress gave it just one year to have a system in place for screening all passengers and bags at every U.S. airport. “It was an impossible task,” says Sam Whitehorn, one of the Senate staffers who wrote the bipartisan act that created TSA on Nov. 19, 2001. “So we made sure they had all the authority that they needed to act quickly.”

Other transaction authority was just one of the powers given to TSA at its inception. To get screeners into airports quickly, TSA also got a pass on federal hiring rules. By November 2002, nearly 60,000 federal workers were screening every passenger at every commercial airport in the country. And by the end of that year, TSA was running every suitcase through electronic screening machines. Even agency critics say the turnaround was impressive. Without such flexibility, says Michael Jackson, then deputy head of the Department of Transportation, “we would not have been able to accomplish what we did.”

But the speed came at a cost. A federal audit found TSA used its hiring-rules exemption to hold recruitment sessions for would-be screeners in places like Telluride and resorts in the Florida Keys and the U.S. Virgin Islands, adding more than $300 million to its startup costs. In 2004, TSA used its superpowers to spend $30 million on 207 passenger scanners known as “puffer” machines because they blew jets of air over travelers and sniffed the eddies for traces of explosive materials. The machines didn’t work in the field, and the Government Accountability Office found TSA failed to do testing that would have been required under normal federal rules.

TSA’s special powers may have been critical for the agency’s launch, but they soon became hard to justify. In 2006, the Senate unanimously voted to strip TSA’s use of another power, the Acquisition Management System, but the provision disappeared before President George W. Bush signed the bill. It was finally axed the next year, but amid the claims of reform, few noticed the lawmakers had left TSA’s more powerful procurement exemption, other transaction authority, in place. A staffer involved in the law’s passage says doing so wasn’t an oversight but rather a “half-step” result of negotiation.

In 2008, TSA’s superpowers briefly became a presidential campaign issue. Wooing unions that opposed TSA’s hiring exemptions, then candidate Barack Obama promised, “As President, I will make sure that the documented waste and mismanagement at TSA is subject to the same rules regarding contracting as other federal agencies.” But when Obama did become President, he set in motion TSA’s most aggressive use of superpowers yet.

In 2009, with the Great Recession looming and lawmakers in a hurry to spend, Congress gave TSA $1 billion to optimize checked-baggage inspection. Over the next three years, TSA used its special spending power to pay 29 airports more than $700 million to streamline clunky screening processes in departure terminals. That often meant creating elaborate conveyor systems in the bowels of airports where checked bags would be scanned and suspect ones diverted for inspection in specially equipped rooms. TSA told the airports it would pay for 90% of all renovations to accommodate the changes; the result was glittering new terminals from Baltimore to Honolulu.

When the stimulus funds ran out, TSA stayed in the business of subsidizing airports. The agency collects $5.60 from travelers for every U.S.-based trip. In fiscal year 2013, TSA used those fees to underwrite $800 million worth of other transaction agreements to speed checked-baggage inspection, including $24 million for Chicago’s O’Hare and $25 million for A.B. Won Pat airport in Guam. In a 2012 review of the program, the Government Accountability Office found it was boosting airports’ bottom lines and that TSA could save $300 million if it cut its contribution from 90% to 75%.

Big-ticket items aren’t the only expenses TSA is paying for outside the government’s system for oversight and accountability. The agency funds canine teams, armed guards, janitors and electricity at airports using its rule-free powers. In 2011, New Yorkers who lived near shuttle stops to Kennedy airport complained to Senator Chuck Schumer that TSA agents were taking up parking spots. In January 2014, TSA signed an other transaction agreement to pay JFK $1.5 million a year for parking.

Some particularly unusual TSA practices are now under scrutiny. In January 2014, TSA began paying the American Public Transportation Association (APTA) $1.5 million a year via other transaction authority for a series of publications on terrorist threats to surface transportation that it circulates to lawmakers and government officials. The lobbyists in turn have spent $3 million since then influencing the bill that funds TSA, a review of lobbying disclosure forms shows. TSA’s payments to APTA don’t violate the federal Anti-Lobbying Act, which criminalizes the use of federal funds to lobby members of government, because the Justice Department has interpreted the law to apply only to grassroots campaigns. But the newsletter “is obviously lobbying,” says Craig Holman of the watchdog group Public Citizen, and “is a violation of the spirit of the act.”

Finding waste, fraud and abuse in TSA’s off-the-books spending is difficult because “the methods or mechanisms used to track contractor performance and results also do not apply,” says the Congressional Research Service. And TSA makes public scrutiny even harder by labeling much of its work secret or sensitive: last January, DHS Inspector General Roth publicly accused TSA of using its authority to classify spending audits to prevent their release to the public. In the unclassified summary of his checked-baggage report, Roth said there had been no improvement in TSA’s ability to find bombs in bags since 2009.

A broader look at TSA’s missteps reveals a pattern: expansive use of special powers in the years since 9/11, followed by failure to deliver on its core mission. Take the TSA’s exemption from federal hiring rules for transportation security officers (TSOs), the people in blue shirts and black pants who staff the screening stations. Thanks to that exemption, the agency can advertise entry-level TSO jobs for as little as $28,000 a year, which is below the federal poverty level for a family of five. And that pay doesn’t grant the job security of many other government employees. In 2014, 165 TSOs were terminated for medical conditions including arthritis, asthma, cancer, depression and posttraumatic stress disorder, according to TSA records obtained by TIME. While headquarters officials might be reassigned for those medical conditions, the TSOs are fired outright.

It will surprise few then that TSA agents have among the worst morale and highest turnover of government employees. That contributes to poor performance by screeners who spend hours staring at monitors to spot bombs and weapons that rarely come. Over the past year, Roth ran covert tests at passenger checkpoints and found TSA was missing 96% of threats there. Sometimes the agency’s full-body scanners missed the threats, several sources familiar with the classified report tell TIME. But often it was the screeners themselves making a mistake or using faulty procedures.

TSA’s new leader, Peter Neffenger, defends the screeners, saying most are dedicated and “have said yes to a very challenging, critically important job.” Confirmed in June, he is requiring all officers to receive basic training at the agency’s boot camp in Georgia in an effort to improve TSO performance and boost focus and morale. He says he is reviewing the agency’s use of superpowers but seems more interested in refining them than giving them up. The issue, he says, is “How do I train people and make them feel connected to the national mission?”

Even if Neffenger finds the agency’s special powers are doing more harm than good, though, Congress has its own reasons to keep them in place: they help keep the money flowing from taxpayers and campaign contributors. Republicans argue that screener woes show that the TSA workforce should be privatized and have created a limited option for airports to do so. Democrats say the answer is unionization, and TSA has allowed limited steps in that direction. Neither position will win outright, but the ongoing battle has benefits. For the 2014 election cycle, campaign donations from the transportation industry and labor groups to members of the House committees with oversight of the TSA totaled over $10 million. In the Senate, the donations neared $16 million.

Congress is nonetheless eager to give the impression it wants reform. Last year both chambers unanimously passed the Transportation Security Acquisition Reform Act. Its author, Republican Richard Hudson of North Carolina, said it would “root out the waste … and increase safety by ensuring that the most effective, cost-efficient security tools are implemented.” It was quickly signed into law by Obama. But the measure pushes TSA to spend more, not less, in coming years.

After the Russian jet bombing, Neffenger and DHS Secretary Jeh Johnson ordered “a series of interim, precautionary enhancements to aviation security” at some Middle Eastern airports. After Roth’s report on passenger checkpoints in June, they announced similarly unspecified security enhancements at domestic airports. A close look at what TSA is doing, rather than what it is saying, is not reassuring. Documents obtained by TIME show TSA intends to spend $51 million on new full-body scanners even though it has failed to show the machines will catch threats better than the old ones. And the Acquisition Reform Act of 2014 left TSA’s other transaction authority in place. So far in 2015, the agency has used that power to sign agreements worth $85 million. By 2020, the agency plans to spend $330 million on new checked-bag scanning systems for airports across the country.


This appears in the December 14, 2015 issue of TIME.

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