Excluded Parties List System
Suspended and Debarred Businesses and Individuals Improperly Receive Federal Funds Gao ID: GAO-09-174 February 25, 2009To protect the government's interests, any agency can exclude (i.e., debar or suspend) parties from receiving federal contracts or assistance for a range of offenses. Exclusions of companies or individuals from federal contracts or other funding are listed in the Excluded Parties List System (EPLS), a Web-based system maintained by GSA. Recent allegations indicate that excluded parties have been able to receive federal contracts. As a result, GAO was asked (1) to determine whether these allegations could be substantiated and (2) to identify the key causes of any improper awards and other payments detected. GAO investigated parties that were excluded for offenses such as fraud, theft, and violations of federal statutes and received awards in excess of $1,000.
Businesses and individuals that have been excluded for egregious offenses ranging from national security violations to tax fraud are improperly receiving federal contracts and other funds. GAO developed cases on a number of these parties and found that they received funding for a number of reasons, including because agency officials failed to search EPLS or because their searches did not reveal the exclusions. GAO also identified businesses and individuals that were able to circumvent the terms of their exclusions by operating under different identities. GAO's cases include the following: (1)The Army debarred a German company after its president attempted to ship nuclear bomb parts to North Korea. As part of the debarment, Army stated that since the president "sold potential nuclear bomb making materials to a well-known enemy of the United States," there was a "compelling interest to discontinue any business with this morally bankrupt individual." However, Army told GAO it was legally obligated to continue the contract and paid the company over $4 million in fiscal 2006. In fact, the Army had several options for terminating the contract, but it is not clear if these options were considered. (2) The Navy suspended a company after one of its employees sabotaged repairs on an aircraft carrier by using nonconforming parts to replace fasteners on steam pipes. If these pipes had ruptured as a result of faulty fasteners, those aboard the carrier could have suffered lethal burns. Less than a month later, the Navy improperly awarded the company three new contracts because the contracting officer did not check EPLS. Most of the improper contracts and payments GAO identified can be attributed to ineffective management of the EPLS database or to control weaknesses at both excluding and procuring agencies. For example, GAO's work shows that entries may contain incomplete information, the database has insufficient search capabilities, and the points of contact for information about exclusions are incorrect. GAO also found several agencies that did not enter exclusions and others that did not check EPLS prior to making awards. Finally, GAO found that excluded parties were still listed on GSA's Federal Supply Schedule, which can result in agencies purchasing items from unscrupulous companies. To verify that no warnings exist to alert agencies that they are making purchases from excluded parties, GAO used its own purchase card to buy body armor worth over $3,000 from a company that had been debarred for falsifying tests related to the safety of its products.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-09-174, Excluded Parties List System: Suspended and Debarred Businesses and Individuals Improperly Receive Federal Funds
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
February 2009:
Excluded Parties List System:
Suspended and Debarred Businesses and Individuals Improperly Receive
Federal Funds:
GAO-09-174:
GAO Highlights:
Highlights of GAO-09-174, a report to congressional requesters.
Why GAO Did This Study:
To protect the government‘s interests, any agency can exclude (i.e.,
debar or suspend) parties from receiving federal contracts or
assistance for a range of offenses. Exclusions of companies or
individuals from federal contracts or other funding are listed in the
Excluded Parties List System (EPLS), a Web-based system maintained by
GSA.
Recent allegations indicate that excluded parties have been able to
receive federal contracts. As a result, GAO was asked (1) to determine
whether these allegations could be substantiated and (2) to identify
the key causes of any improper awards and other payments detected. GAO
investigated parties that were excluded for offenses such as fraud,
theft, and violations of federal statutes and received awards in excess
of $1,000.
What GAO Found:
Businesses and individuals that have been excluded for egregious
offenses ranging from national security violations to tax fraud are
improperly receiving federal contracts and other funds. GAO developed
cases on a number of these parties and found that they received funding
for a number of reasons, including because agency officials failed to
search EPLS or because their searches did not reveal the exclusions.
GAO also identified businesses and individuals that were able to
circumvent the terms of their exclusions by operating under different
identities. GAO‘s cases include the following:
* The Army debarred a German company after its president attempted to
ship nuclear bomb parts to North Korea. As part of the debarment, Army
stated that since the president ’sold potential nuclear bomb making
materials to a well-known enemy of the United States,“ there was a
’compelling interest to discontinue any business with this morally
bankrupt individual.“ However, Army told GAO it was legally obligated
to continue the contract and paid the company over $4 million in fiscal
2006. In fact, the Army had several options for terminating the
contract, but it is not clear if these options were considered.
* The Navy suspended a company after one of its employees sabotaged
repairs on an aircraft carrier by using nonconforming parts to replace
fasteners on steam pipes. If these pipes had ruptured as a result of
faulty fasteners, those aboard the carrier could have suffered lethal
burns. Less than a month later, the Navy improperly awarded the company
three new contracts because the contracting officer did not check EPLS.
Table: Additional Examples of Excluded Parties That Continued to
Receive Federal Funds:
Nature of work: Administrative services; Reason for exclusion:
Submission of inflated invoices to IRS; Case details: NASA awarded
company $450,000 because it did not search EPLS.
Nature of work: Computer services;
Reason for exclusion: Falsification of SEC filings; Case details: USDA
awarded company $120,000 when EPLS searches did not reveal the
suspension.
Nature of work: Electronics;
Reason for exclusion: Conviction for making fraudulent purchases using
stolen federal government credit cards; Case details: Debarred owner
created ’new“ company with a different name but the same address, to
obtain awards from the Defense Logistics Agency.
Source: GAO.
[End of table]
Most of the improper contracts and payments GAO identified can be
attributed to ineffective management of the EPLS database or to control
weaknesses at both excluding and procuring agencies. For example, GAO‘s
work shows that entries may contain incomplete information, the
database has insufficient search capabilities, and the points of
contact for information about exclusions are incorrect. GAO also found
several agencies that did not enter exclusions and others that did not
check EPLS prior to making awards. Finally, GAO found that excluded
parties were still listed on GSA‘s Federal Supply Schedule, which can
result in agencies purchasing items from unscrupulous companies. To
verify that no warnings exist to alert agencies that they are making
purchases from excluded parties, GAO used its own purchase card to buy
body armor worth over $3,000 from a company that had been debarred for
falsifying tests related to the safety of its products.
What GAO Recommends:
GAO recommends that GSA take actions to strengthen controls over EPLS,
including issuing guidance to agency officials on EPLS requirements,
ensuring that EPLS requires the entrance of contractor identification
numbers, and strengthening search functions. GSA agreed with these
recommendations and outlined several actions it has taken or plans to
take. However, the actions described do not achieve the intent of GAO‘s
recommendations. GSA simply restated its current policies instead of
agreeing to take steps to oversee the completeness of EPLS and ensure
that exclusions are properly enforced.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/products/GAO-09-174]. For more
information, contact Gregory Kutz at (202) 512-6722 or kutzg@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Excluded Parties Continue to Do Business with the Government:
Ineffective EPLS Management or Agency Control Weaknesses Lead to
Improper Awards and Other Payments:
Corrective Action Briefing and Referrals:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Additional Case Studies Show That Agencies Are Awarding
Funds to Excluded Parties:
Appendix III: Comments from the General Services Administration:
Tables:
Table 1: Case Studies Show That Agencies Are Awarding Funds to Excluded
Parties:
Table 2: Case Studies Show That Agencies Are Awarding Funds to Excluded
Parties:
Abbreviations:
CAGE: Commercial and Government Entity:
CO: Contracting Officer:
DLA: Defense Logistics Agency:
DOJ: Department of Justice:
DUNS: Data Universal Numbering System:
EIN: Employer Identification Number:
EPA: Environmental Protection Agency:
EPLS: Excluded Parties List System:
FAQ: Frequently Asked Questions:
FAR: Federal Acquisition Regulation:
FPDS-NG: Federal Procurement Data System-Next Generation:
GSA: General Services Administration:
HHS: Department of Health and Human Services:
IAE: Integrated Acquisition Environment:
IRS: Internal Revenue Service:
NASA: National Aeronautics and Space Administration:
SEC: Securities and Exchange Commission:
SSN: Social Security Number:
TIN: Taxpayer Identification Number:
USDA: United States Department of Agriculture:
VA: Department of Veterans Affairs:
[End of section]
United States Government Accountability Office: Washington, DC 20548:
February 25, 2009:
The Honorable Edolphus Towns:
Chairman:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable Henry A. Waxman:
House of Representatives:
Federal agencies are required to award contracts only to presently
responsible sources--those that are determined to be reliable,
dependable, and capable of performing required work. To protect the
government's interests, any agency can exclude, i.e., suspend or debar,
businesses or individuals from receiving contracts or assistance
[Footnote 1] for various reasons, such as a conviction of or indictment
for criminal or civil offense or a serious failure to perform to the
terms of a contract.[Footnote 2] Within 5 business days after a
suspension or debarment becomes effective, agencies must report all
excluded parties to the Excluded Parties List System (EPLS), a Web-
based system maintained by the General Services Administration (GSA).
[Footnote 3] Before awarding funds, contracting officers and other
agency officials are required to check EPLS to ensure that a
prospective vendor is not an excluded party.
GSA offers training for suspension and debarment officials and other
agency personnel only on EPLS system requirements. GSA has not issued
any additional guidance or best practices related to EPLS. According to
GSA, agencies are responsible for training suspension and debarment
officials and contracting officers about Federal Acquisition Regulation
(FAR) requirements related to exclusions and procurements. In addition,
GSA told us that the Federal Acquisition Institute offers training
courses on these issues.
In July 2005, GAO reported that the data in EPLS were insufficient to
enable agencies to determine with confidence that a prospective vendor
was not currently excluded.[Footnote 4] In response, GSA agreed to
modify EPLS's data requirements to include a mandatory provision that
agencies enter a Data Universal Numbering System (DUNS) number to
facilitate the identification of excluded contractors.[Footnote 5]
Despite this modification, recent allegations indicate that businesses
or individuals that have been excluded for egregious offenses have been
able to "resurface" under the same or a different business name or
identity in order to continue to receive federal contracts and other
funds. As a result, you asked us to (1) determine whether we could
substantiate these allegations and (2) identify the key causes of any
improper awards and other payments we detect.
To determine whether excluded individuals are receiving federal funds,
we first compared DUNS numbers appearing in EPLS with those appearing
in the Federal Procurement Data System-Next Generation (FPDS-NG) for
fiscal years 2006 and 2007. FPDS-NG is the central repository for
capturing information on federal procurement actions. Because not all
records within EPLS contain DUNS numbers, we also compared vendor
addresses available in EPLS with those in FPDS-NG. From the matches we
identified, we selected for further investigation parties that (1) were
excluded governmentwide for egregious offenses such as fraud, false
statements, theft, and violations of selected federal statutes and (2)
received new awards in excess of $1,000 during the period of suspension
or debarment. We reviewed agency documentation related to the exclusion
actions and the justifications for awards to confirm that these parties
had received improper awards and to identify the key causes of such
awards. We did not examine any federal award databases other than FPDS-
NG, nor did we examine whether excluded parties continued to receive
federal funds under subcontract arrangements or from grants, loans, or
subsidies. Our objective was not to determine, and we did not have data
to determine, the number of businesses and individuals in EPLS that
received new federal awards during their exclusions. However, the data
we obtained were sufficient to identify businesses and individuals for
further investigation. We prepared case studies on these parties if we
could confirm that they received improper awards during the period of
their exclusion. However, we did not conduct an exhaustive
investigation of these parties' business and financial transactions,
nor could we determine the total dollar value of improper awards they
received.
We conducted our audit work and investigative work from December 2007
through November 2008. We conducted our audit work in accordance with
U.S. generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our objectives. We performed our investigative work in
accordance with standards prescribed by the President's Council on
Integrity and Efficiency. A detailed discussion of our scope and
methodology is presented in appendix 1.
Results in Brief:
We confirmed allegations that businesses and individuals that were
excluded for egregious offenses were continuing to improperly receive
federal contracts. Specifically, we developed case studies on
businesses and individuals that were awarded funds despite being
suspended or debarred for a variety of offenses, ranging from national
security violations to illegal dumping of chemicals to tax fraud. These
excluded parties received funding in part because agency officials
failed to search EPLS or because their searches did not reveal the
exclusions as a result of system deficiencies. We also identified
additional cases involving businesses and individuals that were able to
fraudulently circumvent the terms of their exclusions by operating
under different identities and one case where the Army chose to
continue doing business with an excluded party despite its debarment.
Examples of our cases include the following:
* In July 2005, the Department of the Army debarred a German company
and its president after the president violated German law and attempted
to ship dual use aluminum tubes, which can be used to develop nuclear
weapons, to North Korea. In the debarment decision, the Army stated
that because the president "sold potential nuclear bomb making
materials to a well-known enemy of the United States," there was a
"compelling interest to discontinue any business with this morally
bankrupt individual." Despite this debarment, the Army chose to
continue to award the company task orders and paid it over $4 million
during fiscal year 2006. Although the Army told us that it was legally
obligated to continue the contract with the company, there were in fact
several options available for termination. It is not clear if the Army
considered these options because the officials we spoke with were not
sure of the exact circumstances surrounding the decision and there was
no contemporaneous documentation related to the case.
* In April 2006, the Department of the Navy suspended a company after
one of its employees sabotaged repairs on an aircraft carrier by using
nonconforming parts to replace fasteners on steam pipes. If these pipes
had ruptured as a result of faulty fasteners, those aboard the carrier
could have suffered lethal burns. However, less than a month after the
suspension, the Navy awarded the same company three new contracts
because a contracting officer failed to check EPLS to verify the
company's eligibility.
* GSA suspended a construction company in September 2006 after its
president opened fraudulent GSA surplus-property-auction accounts using
fictitious Social Security numbers so that he could continue to do
business with GSA while his original account was in default for
nonpayment. The Department of the Interior attempted to check the
contractor's eligibility in EPLS prior to making several awards to the
company, but the exclusion was not revealed because GSA did not enter
the company into EPLS until October 2006, more than a month after the
suspension began.
* The Department of Health and Human Services (HHS) debarred an
individual in April 2003 for 5 years after he pleaded guilty to
Medicare fraud. Because HHS did not debar the individual's company, he
transferred ownership of the company to his wife in an attempt to
continue receiving Medicare reimbursements. After HHS objected to this
arrangement, he then sold the company to a neighbor. Two years later,
citing financial difficulties, the neighbor sold the business back to
the original owner's wife. The wife admitted to our investigators that
she then legally changed her last name to her maiden name to avoid
"difficulties" in using her husband's name. Using this scheme, the
couple received Medicare payments for the remaining 3 years of the
husband's debarment.
Most of the improper contracts and payments we identified can be
attributed to ineffective management of the EPLS database or to control
weaknesses at both excluding and procuring agencies. Our cases and
analyses of EPLS data demonstrate that no single agency is proactively
monitoring the content or function of the database and that agencies
are not consistently inputting timely or accurate data related to the
parties they exclude. Specifically, our work shows that EPLS entries
may contain incomplete information, the database has insufficient
search capabilities, and the listed points of contact for further
information about exclusions are incorrect. With regard to agency
control weaknesses, our investigation shows that (1) excluding agencies
ignored the DUNS number requirement, (2) agencies did not enter
exclusions within the required time frame, (3) contracting officers
failed to check EPLS prior to making awards or adding new work or
extensions to existing contracts, (4) agencies used automated
purchasing systems that do not interface with EPLS, and (5) agencies
made purchases from excluded parties that are listed on GSA's Federal
Supply Schedule. Although agencies are still required to check EPLS
prior to purchasing items through this program, the fact that excluded
parties are listed on the GSA Schedule can result in agencies
purchasing from unscrupulous companies that continue to pursue business
with the government notwithstanding the terms of their exclusions. To
verify that no warnings exist to alert agencies that they are making
purchases from excluded parties, we used our own GAO purchase card to
buy body armor worth over $3,000 through the Supply Schedule from a
company that had been debarred by the Department of the Air Force in
September 2007 for falsifying tests related to the safety of its
products.
On November 18, 2008, we held a corrective action briefing with the
agencies that are the subjects of our case studies. At the briefing,
GSA officials noted that most of the issues we had identified could be
solved through improved training, and the other agencies agreed. We
also referred all of our cases to the appropriate agency officials for
further action. In addition, we are recommending that the Administrator
of General Services take five actions to strengthen controls over EPLS
to improve the effectiveness of the suspension and debarment process.
Specifically, GSA should issue guidance to procurement officials on the
requirement to check EPLS prior to awarding contracts and to suspension
and debarment officials on the 5-day entry and contractor
identification number requirements. GSA should also ensure that the
EPLS database requires contractor identification numbers for all
actions entered into the system. In addition, GSA should strengthen
EPLS search capabilities and take steps to update and maintain EPLS
points of contact. Finally, GSA should place a warning on the Federal
Supply Schedule Web site indicating that prospective purchasers need to
check EPLS to determine whether vendors are excluded and should also
explore the feasibility of removing or identifying excluded entities
that are listed on the Schedule.
In written comments on a draft of this report, GSA agreed with all five
of our recommendations. As part of its response, GSA outlined actions
it plans to take or has taken that are designed to address our
recommendations. However, most of the actions described do not achieve
the intent of these recommendations. In several instances, GSA simply
restated its current policies and procedures instead of agreeing to
take steps to oversee the completeness of EPLS and ensure that
exclusions are properly enforced. Based on our investigation, if GSA is
not more proactive in its management of the system, suspended and
debarred companies will continue to improperly receive millions of
taxpayer dollars. See the Agency Comments and Our Evaluation section of
this report for a more detailed discussion of GSA's comments. We have
reprinted GSA's written comments in appendix III.
Background:
GSA operates EPLS through funds obtained from 24 federal agencies
[Footnote 6] in support of the Integrated Acquisition Environment
(IAE), a bundle of services established to streamline the federal
government acquisition process.[Footnote 7] Agencies are required to
report excluded parties by entering information directly into the EPLS
database within 5 working days after the exclusion becomes effective.
When a business is excluded, the action extends to all its divisions
and organizational units, as well as specifically named affiliates.
Affiliates may include businesses with interlocking management, shared
facilities, and equipment; new businesses with the same ownership and
employees as previously excluded businesses; and common interests among
family members.
The Federal Acquisition Regulation (FAR) includes a list of the
information to be entered in EPLS, such as the individual's or
business's name and address, a code signifying the cause of the
exclusion, the length of the exclusion, the name of the agency taking
the action, and the contractor identification number, if applicable.
With regard to the latter, for firms the FAR requires entrance of a
DUNS number--a unique nine-digit identification number assigned by Dun
& Bradstreet, Inc. If available and disclosure is authorized, excluding
agencies should also enter an employer identification number (EIN),
other taxpayer identification number (TIN), or a Social Security number
(SSN) if excluding an individual. Department of Defense agencies may
also enter a Commercial and Government Entity (CAGE) code, a unique
identifier assigned by the department.
Before awarding contracts or making purchases from GSA's Federal Supply
Schedule, contracting officers and other agency officials are required
to check EPLS to ensure that a prospective vendor is not an excluded
party. Generally, excluded parties may complete their performance on
preexisting contracts. However, agencies must check EPLS prior to
making any modifications that add new work or extend the period of
performance, unless a waiver is granted by the head of the agency.
Excluded Parties Continue to Do Business with the Government:
Businesses and individuals that have been excluded for egregious
offenses are continuing to receive federal contracts and other funds.
We developed case studies on several of these excluded parties and
found that they continued to receive contracts and other federal
payments in part because agency officials failed to search EPLS or
because their searches did not reveal that the entity was excluded as a
result of system deficiencies. In other cases, these searches did not
reveal exclusions because the excluded businesses and individuals were
fraudulently operating under different identities. We also identified
one case where the Army chose to continue doing business with an
excluded party despite its debarment. Table 1 highlights 15 of the case
studies we developed. More detailed information on 10 of these cases
follows the table. An additional 10 cases are listed in appendix II.
Table 1: Case Studies Show That Agencies Are Awarding Funds to Excluded
Parties:
Case: 1;
Nature of work: Chemical products;
Excluding agency and reason for exclusion:
* GSA, May 2007;
* Conspiring to defraud the government;
Case details:
* Company sold over $1,000,000 in chemicals to various federal
agencies, including GSA, during its debarment;
* EPLS searches did not reveal the company was debarred because GSA did
not list any unique identifying information for the company in EPLS
until we notified it of the discrepancy in May 2008.
Case: 2;
Nature of work: Cable television;
Excluding agency and reason for exclusion:
* Navy, July 2003;
* Conviction for a massive tax fraud scheme;
Case details:
* The Navy made two awards to the company during FY 2006 and FY 2007
totaling $230,000 because the contracting officer (CO) used an
incorrect name to search EPLS.
Case: 3;
Nature of work: Mechanical parts;
Excluding agency and reason for exclusion:
* Defense Logistics Agency (DLA), February 2005;
* Delivery of noncompliant parts for use in military vehicles;
Case details:
* Per a DLA investigation conducted in summer 2007, during its
debarment the company sold over $1,000,000 in parts to various federal
agencies, including the Air Force, the Army, the Navy, and GSA, among
others;
* The Air Force purchased $2,000 of these parts because it used
incorrect punctuation in an EPLS search. We do not have documentation
explaining why other agencies made awards to this company.
Case: 4;
Nature of work: Computer services;
Excluding agency and reason for exclusion:
* GSA, August 2006;
* Conviction for falsification of records related to Securities and
Exchange Commission (SEC) filings;
Case details:
* The U.S. Department of Agriculture (USDA) awarded the company
$120,000 in September 2006 when EPLS searches by name and DUNS did not
reveal the suspension because the CO used incorrect punctuation in the
company's name.
Case: 5;
Nature of work: Construction;
Excluding agency and reason for exclusion:
* GSA, September 2006;
* Use of fictitious SSNs to open fraudulent GSA auctions accounts;
Case details:
* Interior made seven awards to the company totaling $230,000 during
2007;
* Five of these awards were made because the CO failed to query EPLS;
* For two awards, an EPLS query did not reveal the suspension because
GSA failed to enter the data in a timely manner.
Case: 6;
Nature of work: Cleaning supplies;
Excluding agency and reason for exclusion:
* GSA, March 2007;
* Conviction for illegally dumping chemicals into city sewers;
Case details:
* The Department of Veterans Affairs (VA) made a $1,500 purchase from
the company during August 2007. VA did not check EPLS because it
assumed the company was eligible based on its listing on the Federal
Supply Schedule.
Case: 7;
Nature of work: Engineering;
Excluding agency and reason for exclusion:
* Navy, April 2006;
* Deliberate replacement of inspected parts with nonconforming parts
during a repair of a naval vessel;
Case details:
* Within a month of debarring the company, the Navy awarded contracts
totaling $110,000 without checking EPLS;
* The Navy also made a $4,000 award following an EPLS search in which
the company's name was misspelled.
Case: 8;
Nature of work: Electronics;
Excluding agency and reason for exclusion:
* DLA, May 2006;
* Use of insider information to bid on federal contracts;
Case details:
* The Air Force awarded the company $50,000 in 2007 after incorrectly
searching for the company's DUNS using EPLS's name search function.
Case: 9;
Nature of work: Administrative services;
Excluding agency and reason for exclusion:
* Treasury, March 2004;
* Submission of inflated invoices to the Internal Revenue Service (IRS)
for payment;
Case details:
* The National Aeronautics and Space Administration (NASA) awarded the
company $450,000 in 2006 on the basis of an EPLS query performed in
2003, before the company was debarred.
Case: 10;
Nature of work: Prosthetics;
Excluding agency and reason for exclusion:
* GSA, November 2006;
* Violation of antifraud provisions of federal securities laws;
Case details:
* GSA did not enter the company in EPLS until after the suspension had
terminated. VA made $1,000 in purchases from the company in November
2006, having no way to know that the company was ineligible.
Case: 11;
Nature of work: Electronics;
Excluding agency and reason for exclusion:
* Navy, October 2005;
* Conviction for stealing federal purchase card numbers to make
fraudulent purchases totaling over $125,000;
Case details:
* DLA made a $2,500 purchase from the company in December 2005 through
an automated purchasing system that does not interface with EPLS;
* Debarred owner created a "new" company to receive an additional
$30,000 in 2006 and 2007 from DLA by using a slightly altered name and
a new DUNS and CAGE code. Federal contractor databases list the
convicted company president as the point of contact for both companies.
The contact phone number, addresses, and banking information were also
identical.
Case: 12;
Nature of work: Medical equipment;
Excluding agency and reason for exclusion:
* HHS, April 2003;
* Conviction for wire and Medicare fraud;
Case details:
* After a series of ownership transfers, the owner's wife operated her
debarred husband's company under her maiden name. This scheme allowed
the company to continue to receive Medicare disbursements for 3 years
until her husband's debarment terminated.
Case: 13;
Nature of work: Aircraft adhesives;
Excluding agency and reason for exclusion:
* GSA, November 2006;
* Wire fraud and use of noncompliant parts;
Case details:
* GSA entered into an administrative agreement with the owner that
allowed him to continue to do business with the government as long as
he removed himself from daily operations. In reality, the owner
maintained control of the company using anonymous e-mail accounts and
untraceable prepaid cell phones.
Case: 14;
Nature of work: Military spare parts;
Excluding agency and reason for exclusion:
* DLA, December 2005;
* Conviction for false statements;
Case details:
* The Navy and the Air Force made purchases totaling $3,000 during FY
2006 in part because they used incorrect punctuation in EPLS searches.
Case: 15;
Nature of work: Manufacturing;
Excluding agency and reason for exclusion:
* Army, July 2005;
* Conviction in Germany for attempting to smuggle nuclear reactor parts
into North Korea;
Case details:
* The Army awarded the company over $4 million during FY 2006;
* The Army told us it was legally obligated to continue the contract.
However, there were in fact several options for termination. It is not
clear whether the Army considered those options.
Source: GAO.
Notes: Dollar amounts are rounded. An additional 10 cases, numbered 16
to 25, are listed in appendix II.
[End of table]
Case 1: GSA debarred this company and its principals in May 2007 for
conspiring to defraud the government by affixing false manufacturing
labels on chemicals they were selling to GSA. In addition,
investigators from the Environmental Protection Agency (EPA) and the
Drug Enforcement Agency learned this company was selling an ozone-
depleting chemical to a company that in turn sold the chemical to
individuals for the illegal production of methamphetamines. Despite its
debarment, the company has since received over $1 million in awards
from four different federal agencies; the majority of these awards were
made by USDA and GSA. USDA officials told us that they were exercising
an option year on a previously existing contract with the company and
that their internal procedures did not require them to conduct an EPLS
search prior to awarding the company $700,000 associated with the
option. However, the officials were mistaken: the FAR states that
options will not be exercised with debarred parties unless the head of
an agency makes a determination that the agency should continue the
contract.[Footnote 8]
Furthermore, when we asked GSA officials why they were doing business
with a company they had recently debarred, they told us that it was not
the same company. Specifically, they told us that they had checked EPLS
and found that the company that they were currently doing business with
had a different address than the company they originally debarred, even
though both shared the same name. But when we examined records
associated with the debarment, we were able to confirm that it was in
fact the same company. GSA's debarring official had mistakenly entered
the company's attorney's address into EPLS instead of its business
address. After we notified GSA, they corrected the entry in May 2008.
However, because of the incorrect address and lack of DUNS, agencies
that conducted EPLS searches related to this company prior to May 2008
would have been unable to determine that it was debarred. According to
one of the company's principals, they continued to accept federal funds
during the debarment because agencies continued to place orders on
existing contracts; the principals did not feel obligated to point out
that the agencies were in error.
Case 2: In 2003 and 2004, the Navy debarred this company, its 20
subsidiaries, and several of its executives (including its comptroller,
treasurer, and president/co-owner) in conjunction with a massive tax
fraud scheme. Specifically, the company pleaded guilty in November 2002
of conspiring to defraud the Department of Defense through falsified
cost claims and money laundering related to its business of providing
cable television service to U.S. military installations. Prior to this
plea, the company president/co-owner fled to New Zealand via Canada and
Barbados under a Grenadian passport obtained in the name of a deceased
former neighbor. He was apprehended by Australian police in 2002 while
attempting to obtain a Canadian visa in Sydney and was extradited 4
years later. He was eventually convicted of tax evasion, false claims,
and mail fraud and was sentenced to 108 months imprisonment and ordered
to pay a $4 million fine.
During 2006 and 2007, the Navy lifted the debarments from the parent
company and 11 of the company's subsidiaries because the company's
president and other executives agreed to remove themselves from office.
However, the remaining 11 subsidiaries continued to be debarred in part
because the company was unable to provide the Navy with evidence that
the former president and other executives had actually resigned from
day-to-day operations. Despite the subsidiaries' ongoing debarred
status, the Navy awarded $230,000 to 2 of these 11 debarred
subsidiaries during 2006 and 2007. About $225,000 of this total was
awarded because the Navy searched EPLS using a variation of the company
name that was not listed as debarred.
Although the parent company continues to be the sole provider of cable
for numerous military bases throughout the world, the Navy remains
concerned about doing business with the company in part because of its
continued relationship with the former president. Specifically, prior
to departure from office, the president gifted his 50 percent ownership
interest in the company to his wife; she was never debarred but was
previously suspended for 5 months beginning October 2006. Currently,
she is president and CEO and has assumed management of the corporate
staff. As of March 5, 2007, the debarred former president was serving
the first 6 months of his sentence under house arrest.
Case 4: GSA suspended this computer services company in August 2006
after a conviction for falsification of books and records used for
required SEC filings. USDA awarded the company $120,000 in September
2006. Although USDA procurement staff searched for the correct company
in EPLS, they left out a comma when spelling the name, and the
suspension did not appear.
Case 5: In September 2006, GSA suspended this construction company and
its president after the president was found to have used fictitious
Social Security numbers to open multiple GSA auction accounts to bid on
surplus property. These fraudulent accounts allowed him to continue to
bid on property from GSA while his primary account was in default for
nonpayment. Despite this suspension, Interior made seven awards in 2007
to the company totaling over $230,000. For five of these awards,
Interior was unable to provide evidence that EPLS was checked prior to
the award. The remaining two awards were both made within a month of
the suspension. Because GSA had failed to enter the suspension
information into EPLS in a timely manner, Interior was unaware of the
company's ineligibility. Specifically, GSA did not enter the company
into EPLS for more than a month after its suspension, even though the
FAR requires agencies to report excluded parties within 5 working days
after the exclusion becomes effective.
Case 6: This cleaning supply manufacturer was convicted for illegally
discharging chemicals into a city sewer system. GSA suspended the
company in March 2007. Prior to its suspension, the company had been
approved as a GSA Supply Schedule vendor through July 2011. Although
agencies are required to check EPLS prior to making purchases through
the supply schedule, VA officials assumed that the company was eligible
based on its Supply Schedule listing and purchased $1,500 of cleaning
products in August 2007.
Case 7: The Navy initially contracted with this engineering company to
replace 500 "brittle fasteners" on steam pipes on the aircraft carrier
U.S.S. John F. Kennedy in February 2006. Subsequently, Navy personnel
conducted ongoing inspections of the replacements to verify that they
had been properly changed. The Navy suspended the company in April 2006
when it found that one of the company's employees was replacing the
correct fasteners he had recently installed with nonconforming parts
after those initially installed had already passed inspection. The
employee used this scheme because he had underestimated the number of
fasteners he needed to complete the replacement work. According to
documents provided by Navy officials, if these pipes had ruptured as a
result of faulty fasteners, those aboard the carrier could have
suffered lethal burns. Despite these actions, the Navy made three
awards worth a total of $110,000 to the company within a month of the
suspension because COs did not check EPLS to verify the company's
eligibility. The Navy awarded the company an additional $4,000 when
another CO misspelled the company's name in an EPLS search.[Footnote 9]
Case 9: Treasury suspended this administrative services company in
March 2004 for inflating costs on invoices submitted to the IRS. Prior
to this suspension, during September 2003, NASA issued a contract to
the company for training logistics support services. In a memorandum
describing this award decision, NASA made specific reference to ongoing
litigation related to cost inflation on IRS invoices, but noted that at
that time "neither the IRS, nor the DOJ has initiated suspension or
debarment actions." Even though NASA had knowledge of the case, it
failed to check EPLS for a change in contractor eligibility prior to
making modifications to the company's contract in 2006, as required by
the FAR. Instead NASA simply relied on its original 2003 EPLS check
when increasing the contract's value, in excess of the minimum contract
value, by $450,000.
Case 11: The CEO of this electronics company was convicted in June 2004
of making fraudulent purchases with government purchase card
information that he stole from Navy officials who were making purchases
from his company. The Navy debarred the CEO and his company in October
2005. However, DLA's automated purchasing system, which does not
interface with EPLS, placed an order with the company during its
debarment for $3,000 worth of electrical components. In addition, the
CEO created a "new" company using a slightly altered business name,
different DUNS numbers, and CAGE codes--the three primary unique
identifiers used to locate a firm within EPLS.[Footnote 10] He was then
able to receive an additional $30,000 in awards during 2006 and 2007
from DLA. Our investigation also revealed that this second company
shares the same address, phone number, and bank account with the
debarred company.
Case 12: This case involves a debarred individual who used a series of
ownership changes to allow his durable medical equipment company to
continue to receive reimbursements from Medicare. In April 2003, HHS
debarred the owner for 5 years after he pleaded guilty to wire fraud
and Medicare fraud related to a scheme in which he used his company to
sell medically unnecessary incontinence kits to nursing homes. Because
HHS did not debar the individual's company, he transferred ownership of
the company to his wife in an attempt to continue receiving Medicare
reimbursements. HHS objected to this transfer and threatened to debar
the entire company unless another owner could be found. The couple then
sold the business to a neighbor. After 2 years, citing financial
difficulties, the neighbor defaulted on her obligations and returned
the business to the original owner's wife.
After the wife reassumed control of the company, she legally changed
her last name back to her maiden name, even though she was still
married to the original owner. She admitted to our investigators that
she did so to avoid "difficulties" in conducting business using the
same name as a convicted criminal. She also transferred the full assets
of her husband's former company to a preexisting durable medical
equipment company that she also owned and changed the name under which
the company would do business. The couple told us, and the Medicare
program confirmed, that the business continued to receive
reimbursements from Medicare for the remainder of the husband's
debarment. The husband's debarment terminated in April 2008, and he has
returned to running the original company's day-to-day operations.
Case 13: GSA debarred the owner of this aircraft adhesives company in
November 2006 after he was convicted of wire fraud related to a scheme
in which he conspired with his subcontractor to fraudulently change
expiration dates on adhesives sold to the Navy. The adhesives he sold
to the Navy were 5 years out of date. As part of the debarment, GSA
entered into an administrative compliance agreement with the owner that
allowed his company to continue do business with the federal
government. This agreement was based in part on the owner's assertion
that he had voluntarily built a "firewall" between himself and the day-
to-day operations of his company. However, our investigation revealed
that the owner misled GSA and was in reality still continuing to run
the company through an intermediary by using anonymous e-mail accounts
and untraceable prepaid cell phones. Specifically, the intermediary,
who was supposedly in charge of daily operations, told us that he e-
mailed all transactions and communications to the debarred owner for
review. This information included contracts, government orders, and
orders from suppliers. In addition, the intermediary told us that he
provided the owner with daily updates on company operations using the
prepaid cell phones. In order to prevent detection, the intermediary
drove miles away from the company every day at lunch to place the
calls. Using this scheme, the owner was able to continue to run the
company, receiving $700,000 in improper payments since the
administrative compliance agreement went into effect.
Case 15: The Army decided to pay this company millions of dollars even
though it had debarred the company and its president for attempting to
illegally sell nuclear bomb parts to North Korea. Although the Army had
several options for terminating its contract with the company, it is
not clear if the Army considered these options because the officials we
spoke with were not sure of the exact circumstances surrounding the
decision.
In March 2003, the U.S. Army Contracting Command for Europe awarded a
German company a contract with two 1-year options to provide "civilian
on the battlefield" actors to participate in training exercises. These
actors were not required to have any specialized skills, other than
speaking some English. In July 2005, the Army debarred the company and
its president based on the president's 2004 attempt to illegally ship
dual use aluminum tubes, which can be used to develop nuclear bombs, to
North Korea. German customs authorities had twice denied the president
a license to ship the aluminum tubes to North Korea, once in 2002 and
again in 2003, and specifically told him that the tubes were likely to
be used for the "North Korean nuclear program." Despite this warning,
the president attempted to smuggle the aluminum tubes to southeast Asia
aboard a French vessel and misled German authorities by telling them
that the tubes had been returned to a vendor in the United Kingdom.
Germany subsequently convicted the president under the German Federal
Foreign Trade Act and the Federal Weapons of War Control Act. In its
decision to debar the company, Army officials stated that because the
president "sold potential nuclear bomb making materials to a well-known
enemy of the United States," the United States has "a compelling
interest to discontinue any business with this morally bankrupt
individual" and that continuing to do business with the company would
be "irresponsible." The contractor notified the Command of the proposed
debarment in May 2005, but the Command decided that the action did not
prohibit it from continuing to do business with the company.
Ultimately, the Army paid the company in excess of $4 million
throughout fiscal year 2006.[Footnote 11]
One potential avenue for termination that the Army could have
considered relates to a contractual provision that stated "contractors
performing services in the Federal Republic of Germany shall comply
with German law—. Compliance with this clause and German law is a
material contract requirement. Noncompliance by the Contractor or
Subcontractor at any tier shall be grounds for issuing a negative past
performance evaluation and terminating this contract, task order, or
delivery order for default." Even though the company violated the
German Federal Foreign Trade Act and the Federal Weapons of War Control
Act, the Army Command officials we spoke with did not indicate that
this option had been considered.
Moreover, the Command officials told us that the Army was "legally
obligated" to continue the contract based on the provision in the FAR
that specifies that "agencies may continue contracts or subcontracts in
existence at the time the contractor was debarred, suspended, or
proposed for debarment unless the agency head directs otherwise."
However, although this provision does grant the Army the authority to
continue the contract, it does not obligate the Army to do so. In fact,
the FAR permits the federal government to terminate contracts for
convenience and for default, depending on the circumstances. Although
the Command officials we spoke with told us that both these options had
been considered, when we asked for more detailed information, they told
us that they were not involved in the decision-making process and were
not sure of the exact circumstances surrounding the decision. In
addition, there was no contemporaneous documentation to support the
decision. Thus, the Command continued to pay the company millions of
dollars, even though the Army had determined that doing business with
the company would be "irresponsible."
Ineffective EPLS Management or Agency Control Weaknesses Lead to
Improper Awards and Other Payments:
Most of the improper awards and payments we identified can be
attributed to ineffective management of the EPLS database or to control
weaknesses at both excluding and procuring agencies. For example, our
cases and analyses of EPLS data show that EPLS entries may lack DUNS
numbers, the database had insufficient search capabilities, and that a
number of the listed points of contact for further information about
exclusions were incorrect. Although we did not conduct a comprehensive
review of each agency's controls, our cases studies also show that
excluding agencies failed to enter information into EPLS in a timely
manner and that procuring agencies failed to check EPLS prior to making
awards, including purchases from the GSA Schedule. To illustrate the
latter issue, we used our own purchase card to buy body armor worth
over $3,000 off the Supply Schedule from a company that had been
debarred for falsifying tests related to the safety of its products.
Ineffective Management of EPLS:
As described below, our cases and analysis of EPLS data demonstrate
that no single agency is proactively monitoring the content or function
of the database:
EPLS Contains Incomplete Information: As of July 2007, GSA updated EPLS
to prevent excluding agencies from completing an entry without entering
a DUNS number. This modification, which was made in response to an
earlier GAO recommendation[Footnote 12], was intended to enable
agencies to determine with confidence that a prospective vendor was not
currently excluded. However, during our initial analysis of the 437
firms entered into EPLS between June 29, 2007, and January 23, 2008, we
found that 38--9 percent---did not have any information listed in the
DUNS field. According to GSA, agencies may have been able to complete
these entries without a DUNS number because they were modifications of
existing records. For example, if an agency suspended a company prior
to July 2007 and then updated that entry in September 2007 to reflect
that the company had subsequently been debarred, the agency would not
be required to enter a DUNS number. This discrepancy means that only
new exclusions entered after the July 2007 effective date require a
DUNS number in order to complete an EPLS entry. Without this unique
identification information, agencies are forced to rely on name and
address matches, making it extremely difficult to definitively identify
an excluded party.
EPLS Search Functions Are Inadequate: When agency staff query EPLS by
name or address to verify vendor eligibility, there is no guarantee
that a search will reveal a suspension or debarment action. For
example, we identified agencies that conducted "exact name" EPLS
searches but still awarded contracts to an excluded party. [Footnote
13] These agencies did not use correct spelling or punctuation in their
searches. Unlike other search engines, an exact name search in EPLS
must literally be exact in terms of spelling and punctuation or an
excluded party will not be revealed. For example, a party listed as
"Company XYZ, Inc." in EPLS would not be identified if an agency left
out the comma in the name and instead conducted a search for "Company
XYZ Inc." Other agencies we identified provided proof that they
conducted searches by DUNS numbers but their searches similarly did not
reveal any exclusions, even though the companies the agencies were
looking for were listed in EPLS with DUNS numbers. We cannot determine
why these searches failed.
EPLS Agency Points of Contact Are Incorrect: The EPLS Web site lists
points of contact for further information regarding specific exclusion
actions. This directory covers 59 agencies and lists 78 different
individuals. Overall, we were unable to contact suspension and
debarment personnel at 15--about 25 percent--of the agencies with
listed points of contact. For example, we initially found that 19 of
the phone numbers listed were disconnected or otherwise nonfunctioning.
In addition, we found that 6 points of contact were incorrect. In one
instance, the individual listed had been retired for 5 years. These
inaccuracies increase the likelihood that agency staff will be unable
to confirm actions with the excluding agency.
Excluding and Procuring Agency Control Weaknesses:
We identified the following excluding and procuring agency control
weaknesses:
Excluding Agencies Do Not Always Enter DUNS Numbers: As previously
indicated, we found that 38 of the 437 EPLS entries agencies made
between June 29, 2007, and January 23, 2008, lacked an entry in the
DUNS field. We also found that for 81 additional firms entered into
EPLS during the same period, the excluding agency entered a DUNS number
of "000000000" or some other nonidentifying information. Therefore, 119
firms in total--27 percent--lacked an identifiable DUNS number.
Incorrect DUNS numbers prevent contracting officers and other agency
officials from readily identifying debarred or suspended parties when
making awards.
Agencies Did Not Enter Exclusions in a Timely Manner: The FAR mandates
that agencies enter all required information regarding debarment and
suspension actions into EPLS within 5 working days after the action
becomes effective.[Footnote 14] However, our case examples identified
several instances in which agencies failed to do so. For instance, VA
made a purchase from a vendor while the vendor was in the midst of a 1-
month suspension for a violation of the antifraud provisions of federal
securities laws. Because GSA, the suspending agency, did not enter the
action into EPLS until several days after the suspension had been
lifted, VA had no mechanism to identify the suspension and thus
proceeded with the purchase from the suspended vendor.
Contracting Officers Did Not Check EPLS: The FAR requires contracting
officers to check that proposed vendors are not listed in EPLS.
[Footnote 15] In six of our case studies, we found that procurement
staff made no effort to query EPLS to determine vendor eligibility
prior to awarding an initial contract or modifying an existing contract
to extend the period of performance or increase the scope of work,
resulting in 14 awards to ineligible parties.
Automated Purchasing Systems May Not Interface with EPLS: Some agencies
use automated systems to process routine purchasing transactions. In
this situation, agencies still have a responsibility to verify
contractor eligibility before making a purchase. However, unless the
automated system is able to interface directly with EPLS, it is
possible for the system to unintentionally make purchases from excluded
parties. For example, 90 percent of DLA's annual purchases go through
an automated system, which does not interface with EPLS. We identified
four instances where DLA contracted with and made payments to excluded
parties as a result of using this system.[Footnote 16]
Excluded Parties Remain Listed on the GSA Schedule: Under the Federal
Supply Schedule program, GSA establishes long-term governmentwide
contracts with commercial firms to provide access to over 11 million
commercial supplies and services that can be ordered directly from the
contractors or through an on-line shopping and ordering system. GSA
requires new vendors to demonstrate that they are responsible and to
certify that they are currently eligible for federal contracts. On its
Web site, GSA states that the Schedule is a "reliable and proven one-
stop online resource" and "offers the most comprehensive selection of
approved products and services from GSA contracts." However, vendors
are not removed from the Schedule if they become debarred or suspended.
The FAR specifically prohibits agencies from making a Supply Schedule
purchase from an excluded contractor. Nonetheless, these GSA Schedule
listings can result in agencies purchasing items from unscrupulous
vendors. For example, in one of our cases, an agency incorrectly
assumed that GSA was responsible for ensuring the ongoing eligibility
of vendors listed on the Supply Schedule and thus did not check EPLS
before it made purchases from a company that illegally dumped chemicals
into city sewers. To verify that no warnings exist to alert agencies
that they are making purchases from excluded parties, we used our own
GAO purchase card to acquire body armor worth over $3,000 from a Supply
Schedule company that had been debarred for falsifying tests related to
the safety of its products. Nothing in the purchase process indicated
that the company was ineligible to do business with the government and
the company did not inform us of its excluded status.
Corrective Action Briefing and Referrals:
On November 18, 2008, we held a corrective action briefing for agencies
that were the subjects of our case studies. Attendees at this meeting
included representatives from the Army, the Navy, the Air Force, the
Defense Logistics Agency, the Department of Energy, the Department of
Veterans Affairs, the General Services Administration, and the National
Aeronautics and Space Administration. At this briefing, we explained
the types of cases we investigated and the overall control weaknesses
we identified. In response, GSA officials noted that most of the issues
we had identified could be solved through improved training, and the
other agencies agreed. We also referred the businesses and individuals
discussed in our case studies to the appropriate agency officials for
further investigation.
Conclusion:
EPLS system deficiencies and agency control weaknesses have allowed
contractors that have been deemed insufficiently responsible to do
business with the government and to receive federal funds during their
period of ineligibility. These excluded parties will no doubt continue
to benefit unless GSA strengthens its oversight and management of EPLS.
More importantly, agencies can prevent improper awards in the future by
strictly adhering to the requirement to check EPLS prior to making
awards and by entering all information related to excluded parties in
an accurate and timely fashion.
Recommendations for Executive Action:
To improve the effectiveness of the suspension and debarment process,
we recommend that the Administrator of General Services take the
following five actions:
* issue guidance to procurement officials on the requirement to check
EPLS prior to awarding contracts and to suspension and debarment
officials on the 5-day entry and contractor identification number
requirements;
* ensure that the EPLS database requires contractor identification
numbers for all actions entered into the system;
* strengthen EPLS search capabilities to include common search
operators, such as AND, NOT, and OR;
* take steps to ensure that the EPLS points of contact list is updated;
and:
* place a warning on the Federal Supply Schedule Web site indicating
that prospective purchasers need to check EPLS to determine whether
vendors are excluded and explore the feasibility of removing or
identifying excluded entities that are listed on the GSA Schedule.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, GSA concurred with all
five recommendations and agreed to use the report's findings to
strengthen controls over the Excluded Parties List System. GSA's
comments are reprinted in appendix III. As part of its response, GSA
outlined actions it plans to take or has taken that are designed to
address the recommendations. However, most of the actions described do
not achieve the intent of these recommendations. In several instances,
GSA simply restated its current policies and procedures instead of
agreeing to take steps to oversee the completeness of EPLS and ensure
that exclusions are properly enforced. Based on our investigation, if
GSA is not more proactive in its management of the system, suspended
and debarred companies will continue to improperly receive taxpayer
dollars.
For example, in response to our recommendation to issue guidance to
procurement officials on the requirement to check EPLS prior to
awarding contracts and to suspension and debarment officials on the 5-
day entry and contractor identification number requirements, GSA does
not plan to take any new actions. Instead, GSA cited Federal
Acquisition Regulation (FAR) requirements already in place and pointed
to a two-paragraph section of the EPLS Frequently Asked Questions (FAQ)
Web page that existed prior to our investigation. GSA considers the FAQ
to be support for closing this recommendation. However, our
investigation clearly demonstrates that, despite the existence of this
FAQ, agencies are not always checking EPLS prior to awards or entering
exclusions in a timely or complete fashion. Moreover, at our corrective
action briefing, GSA officials noted, and the other agencies agreed,
that most of these problems could be solved through improved training
and guidance. If GSA and the other agencies continue to operate the
EPLS system as they have, we believe suspended and debarred companies
will continue to be able to do business with the government. Therefore,
we do not consider the GSA FAQ to be sufficient support to close this
recommendation.
In response to our recommendation that GSA ensure that the EPLS
database requires contractor identification numbers for all actions
entered into the system, GSA maintains that it made the entrance of
DUNS numbers in EPLS mandatory for organizations and contractors on
June 29, 2007. GSA does not plan to take any additional actions and
believes that this 2007 action closes the recommendation. However, our
investigation clearly demonstrates that EPLS entries for firms lacked
contractor identification numbers after June 29, 2007. Specifically, we
found that 38 (9 percent) of the 437 firms entered into EPLS between
June 29, 2007, and January 23, 2008, did not have any information
listed in the DUNS field. We also found that for 81 additional firms
entered into EPLS during the same period, the excluding agency entered
a DUNS number of "000000000" or some other nonidentifying information.
Therefore, 119 firms in total---27 percent---lacked an identifiable
DUNS number. In addition to DUNS numbers, the FAR also states that
excluding agencies should enter an employer identification number
(EIN), other taxpayer identification number (TIN), or a Social Security
number (SSN), if these numbers are available and disclosure is
authorized. Department of Defense agencies may also enter a Commercial
and Government Entity (CAGE) code. However, none of these
identification numbers are mandatory in EPLS and the data reliability
assessment we conducted at the start of our work[Footnote 17] showed
that they are rarely entered. Without unique identification
information, agencies are forced to rely on name and address matches,
making it extremely difficult to definitively identify an excluded
party when making awards. Consequently, we continue to believe that GSA
should take further steps to ensure that the EPLS database requires, at
a minimum, contractor identification numbers for all actions entered
into the system. We do not consider the recommendation to be closed.
In response to our recommendation to strengthen EPLS search
capabilities to include common search operators, such as AND, NOT, and
OR, GSA noted that EPLS now supports these operators and provided a
link to the advanced search tips help site. Our observation is that
since we concluded our investigation, EPLS search capabilities have
improved. However, there is no link to the advanced search tip site on
the EPLS front page, so users may not be able to readily access this
information. Specifically, users must first click on "search help,"
which provides a list of basic tips, and then scroll down to find the
advanced search tip link. Therefore, we consider this recommendation to
be open.
In response to our recommendation to take steps to ensure that the EPLS
points of contact list is updated, GSA explained that while it
maintains responsibility for updating the list, it is the
responsibility of each agency to notify GSA of any changes to their
individual point of contact information. GSA also mentioned that the
responsibility of each agency has been addressed at the Interagency
Suspension and Debarment Committee and EPLS Advisory Group meetings. In
addition, GSA stated that EPLS includes semi-annual automated
notifications to verify agency point of contacts and that the EPLS help
desk also provides support in identifying current information in
response to public user reports of outdated point of contact
information. As we noted in our report, the EPLS Web site has a
directory that covers 59 agencies and lists 78 different individuals,
if additional follow-up is needed. However, we were unable to contact
suspension and debarment personnel at 15--about 25 percent--of the
agencies with listed points of contact. For example, we initially found
that 19 of the phone numbers listed were disconnected or otherwise
nonfunctioning. In addition, we found that 6 points of contact were
completely incorrect. In one instance, the individual listed had been
retired for 5 years. As of February 11, 2009, the date of GSA's agency
comment letter, our follow-up work shows that the majority of these
inaccuracies still existed on the EPLS agency contact list. Therefore,
it appears that the steps GSA mentions in its comment letter have been
ineffective. Although we recognize that agencies have a responsibility
to provide GSA with up-to-date information, we think it is reasonable
for GSA to proactively manage the completeness and accuracy of the
list, especially since they know, as a result of our investigation,
that the list has significant errors. In short, we do not consider
GSA's actions to be sufficient to close the recommendation.
Finally, we recommended that GSA place a warning on the Federal Supply
Schedule Web site indicating that prospective purchasers need to check
EPLS to determine whether vendors are excluded and also explore the
feasibility of removing or identifying excluded entities that are
listed on the GSA Schedule. In response, GSA outlined proposed actions
that it believes warrant closing the recommendation. These actions
include (1) adding reminders to eCommerce systems to ensure that
purchasers are aware of excluded parties prior to placing orders, (2)
establishing and placing messages within the Web sites to remind
purchasers to check EPLS, and (3) providing direct access links to the
EPLS Web site within the GSA Advantage, eBuy, and eLibrary sites so
that purchasers have easy access to the system. We support these
planned improvements; however, they only address part of our
recommendation. With regard to the second part of our recommendation--
exploring the feasibility of removing or identifying excluded entities-
-GSA reiterated the process for terminating a contractor's Schedule
contract without actually stating any actions it would take to address
the vulnerability we found. During our investigation, we identified
several excluded parties on the Schedule, including a body armor
manufacturer that had been debarred for the egregious offense of
falsifying tests related to the safety of its products. As shown by
this finding, there is currently no way to alert prospective purchasers
that a specific Schedule contractor is excluded. We continue to believe
it is important for GSA to explore the feasibility of proactively
removing or identifying excluded parties that are listed on the
Schedule. Therefore, we consider the recommendation to be open.
As arranged with your office, we plan no further distribution until 5
days after the date of this report. At that time, we will be sending
copies of this report to the Administrator of General Services and
other interested parties. In addition, the report will be available at
no charge on GAO's Web site at [hyperlink, http://www.gao.gov]. For
further information about this report, please contact Gregory D. Kutz
at (202) 512-6722 or kutzg@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report.
Signed by:
Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
[End of section]
Appendix I: Scope and Methodology:
To substantiate the allegation that businesses and individuals
improperly received federal funds despite being excluded for egregious
offenses, first we obtained a database from the General Services
Administration (GSA) of all Excluded Parties List System (EPLS) records
that were active between October 1, 2001, and January 23, 2008. This
database contained over 125,000 records and included the following
fields: unique record identifier, entity name, Social Security number
(SSN), taxpayer identification number (TIN), entity classification,
[Footnote 18] Commercial and Government Entity (CAGE) code, exclusion
type,[Footnote 19] cause and treatment code, full address, Data
Universal Numbering System (DUNS) number, debarring agency, date of
action,[Footnote 20] date of termination,[Footnote 21] delete date,
[Footnote 22] archive/current status, and description. We matched the
11,432 DUNS available in EPLS with DUNS numbers appearing in the
Federal Procurement Data System-Next Generation (FPDS-NG) for fiscal
years 2006 and 2007. Because not all records within EPLS contain DUNS
numbers, we also matched these databases by vendor address. We focused
our efforts on identifying parties that (1) were excluded
governmentwide for egregious offenses such as fraud, false statements,
theft, and violations of selected federal statutes and (2) received new
contracts in excess of $1,000 during the period of their exclusion. Our
objective was not to determine, and we did not have data to determine,
the total number of individuals and businesses in EPLS that received
new federal awards during their exclusions or the total dollar value of
improper awards.
To develop case studies, we performed investigative work on a
nonrepresentative selection of the contractors that received new awards
in excess of $1,000 during their period of exclusion. The investigative
work included obtaining and analyzing public records, criminal
histories, and conducting interviews. However, we did not conduct an
exhaustive investigation of these parties' business and financial
transactions, nor could we determine the total dollar value of improper
awards they received. To identify the key causes of the improper awards
identified in our case studies, we analyzed matches between EPLS and
FPDS-NG, obtained and reviewed agency documentation related to
exclusion actions, and obtained and evaluated agency justifications for
awards made to excluded parties. We did not conduct a comprehensive
review of each agency's internal controls.
To assess the reliability of EPLS data provided by GSA, we (1) reviewed
control totals provided by GSA, (2) matched a sample of records
provided by GSA to records located at EPLS's Web site to determine if
the data were exported correctly, (3) performed electronic testing of
the required data elements for obvious errors in completeness, and (4)
interviewed agency officials knowledgeable about the data. As a result
of electronic testing, we found missing and illogical entries in
required data fields. In addition, EPLS information may have been
incomplete for our purposes because of the loss of historic record
information. We found several instances in which the action date of an
existing record was changed, effectively deleting all evidence of the
original record. For example, agency EPLS users can modify almost all
information related to existing records. Should an agency need to amend
or update an entity's suspension or debarment record, EPLS does not
archive the record that was altered. We were able to confirm this issue
with GSA. We found the data to be insufficiently reliable for
determining how many excluded parties received new federal awards
during their period of exclusion because of the number of missing
entries in certain data fields and the lack of an historical archive
that results from record modifications; however, the data were
sufficient to identify case studies for further investigation.
We conducted our audit work and investigative work from December 2007
through November 2008. We conducted our audit work in accordance with
U.S. generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We performed our
investigative work in accordance with standards prescribed by the
President's Council on Integrity and Efficiency.
[End of section]
Appendix II: Additional Case Studies Show That Agencies Are Awarding
Funds to Excluded Parties:
The first 15 cases, numbered 1 through 15, are listed in table 1.
Table 2: Case Studies Show That Agencies Are Awarding Funds to Excluded
Parties:
Case: 16;
Nature of work: Cleaning services;
Excluding agency and reason for exclusion:
* Air Force, October 2003;
* Submission of false billings for services not provided;
Case details:
* The Air Force awarded the company $7,000 in FY 2006 after a properly
conducted EPLS search failed to reveal the company's debarment.
Case: 17;
Nature of work: Military supply;
Excluding agency and reason for exclusion:
* Navy, August 2007;
* Violation of federal antitrust statutes;
Case details:
* DLA made a $12,000 purchase from the company in September 2007
through an automated purchasing system that does not interface with
EPLS.
Case: 18;
Nature of work: Refinery;
Excluding agency and reason for exclusion:
* EPA, August 2007;
* Conspiracy to violate the Clean Water Act;
Case details:
* Energy awarded the company $10,000 after the suspension date, but
before the suspension was entered into EPLS.
Case: 19;
Nature of work: Microwave technology;
Excluding agency and reason for exclusion:
* Navy, June 2006;
* Indictment on multiple charges, including 29 counts of wire fraud;
Case details:
* The Navy made two purchases totaling $11,000 from the company using
simplified acquisition procedures without checking contractor
eligibility in EPLS.
Case: 20;
Nature of work: Construction services;
Excluding agency and reason for exclusion:
* Army, June 2006;
* Indictment on multiple charges, including conspiracy to commit fraud;
Case details:
* The Navy modified an existing contract to add $1,000 in goods during
August 2006 without performing an EPLS search.
Case: 21;
Nature of work: Computer services;
Excluding agency and reason for exclusion:
* Navy, November 2006;
* Failure to disclose a conflict of interest related to prior military
service;
Case details:
* Interior awarded a $200,000 contract modification during FY 2007
based on the company's oral representation of eligibility, without
conducting an independent query of EPLS;
* The Navy and USDA awarded contracting modifications worth $580,000
without checking EPLS.
Case: 22;
Nature of work: Construction;
Excluding agency and reason for exclusion:
* Army, October 2005;
* Engaging in a bid rigging scheme;
Case details:
* The Army made three awards to the company totaling $300,000 during FY
2006 based on an EPLS search conducted during FY 2003.
Case: 23;
Nature of work: Construction;
Excluding agency and reason for exclusion:
* Army, September 2005;
* Bribery and kickbacks related to federal contracts;
Case details:
* Army was unable to provide any justification for over $100,000 in
contracts awarded to the company during October 2005.
Case: 24;
Nature of work: Computer services;
Excluding agency and reason for exclusion:
Air Force, July 2007;
* Perpetrating a phantom bidding scheme;
Case details:
* Army made five awards during FY 2007 totaling $150,000 after EPLS
searches by name failed to reveal the company's debarment.
Case: 25;
Nature of work: Manufacturing;
Excluding agency and reason for exclusion:
* DLA, February 1997;
* Indictment for mail fraud;
Case details:
* Army was unable to provide any justification for $25,000 in awards to
the company made during FY 2006 and 2007.
Source: GAO.
[End of table]
[End of section]
Appendix III: Comments from the General Services Administration:
U.S. General Services Administration:
1800 F Street NW:
Washington, DC 20405-0002:
Telephone: (202) 501-0800:
Fax: (202) 219-1243:
[hyperlink, http://www.gsa.gov]
February 11, 2009:
The Honorable Gene L. Dodaro:
Acting Comptroller General of the United States:
Government Accountability Office:
Washington, DC 20548:
Dear Mr. Dodaro:
The U.S. General Services Administration (GSA) appreciates the
opportunity to review and comment on the draft report, "Excluded
Parties List System: Suspended and Debarred Businesses and Individuals
Improperly Receive Federal Funds" (GAO-09-174). We regret the delay in
forwarding our response to you and appreciate the Government
Accountability Office's (GAO) willingness to accept our delayed
response. We agree with the findings and recommendations and will use
the report's findings to strengthen controls over the Excluded Parties
List System (EPLS). Substantive comments to the findings and
recommendations are provided below:
The GAO recommends that the Administrator of General Services take the
following five actions:
1. Issue guidance to procurement officials on the requirement to check
EPLS prior to awarding contracts and to suspension and debarment
officials on the 5-day entry and contractor identification number
requirements.
GSA recognizes this recommendation as a training concern of all Federal
agency procurement and acquisition communities. The Federal Acquisition
Regulation (FAR) provides guidance at FAR Section 9.405 regarding the
requirements to review the EPLS. In addition, the EPLS "Frequently
Asked Questions (FAQ)" webpage provides further information on the
requirements for using the EPLS at [hyperlink,
https://www.epls.gov/epls/isplFAQ,isp#4] and is provided as an
attachment to support this answer and close this recommendation.
(Enclosure 1).
Also, FAR Section 9.404(c)(5) requires agencies to enter information
into EPLS within 5 days after the action becomes effective.
2. Ensure that the EPLS database requires contractor identification
numbers for all actions entered into the system.
On June 29, 2007, the Data Universal Numbering System (DUNS) for
organizations and contractors was made mandatory and the Dun and
Bradstreet (D&B) Lookup process was incorporated into the EPLS. The
Central Contractor Registration DUNS Lookup has been available since
October 31, 2006. The EPLS release notes for fiscal year 2007 is
provided as an attachment to support this answer and close this
recommendation. (Enclosure 2).
3. Strengthen EPLS search capabilities to include common search
operators, such as AND, NOT, and OR.
The EPLS supports the search operators AND, NOT, and OR as part of the
EPLS Advanced Search functionality. The advanced search tips are
available for review at
https.//www.epis.gowepls/isp/advancedSearchHelp.jsp. A copy of the
advanced search tips is provided as an attachment to support this
answer and close this recommendation. (Enclosure 3).
4. Take steps to ensure that the EPLS points of contact list is
updated.
While GSA maintains responsibility for updating the EPLS points of
contact list, it is the responsibility of each agency to notify GSA of
any changes or updates to their individual Point of Contact (POC)
information. This responsibility of each agency has been addressed
during Interagency Suspension and Debarment Committee meetings and EPLS
Advisory Group meetings. In addition, the EPLS includes an automated e-
mail process that generates semi-annual notifications, to the POC e-
mail addresses provided, to verify their POC status for their agency.
Lastly, the EPLS help desk also provides support in identifying current
information in response to public user reports of outdated POC
information or forwards the concern to the GSA EPLS Project Manager for
handling. We believe these actions sufficiently address the
recommendation and warrant closure to this recommendation.
5. Place a warning on the Federal Supply Schedule (sic) Web site
indicating that prospective purchasers need to check EPLS to determine
whether vendors are excluded and explore the feasibility of removing or
identifying excluded entities that are listed on the GSA Schedule.
GSA agrees with the need to take actions to mitigate against customers
placing orders with Schedule vendors who appear on EPLS. GSA's Federal
Acquisition Service (FAS) plans to take the following actions: (1) add
reminders to customer-facing eCommerce systems to ensure prospective
purchasers are aware of potential excluded parties prior to placing
task orders; (2) establish and place messages within the websites to
remind purchasers to check the EPLS website prior to placing a task
order; and (3) provide direct access links to the EPLS website within
GSA Advantage, eBuy, and eLibrary allowing purchasers easy access to
information.
Also included in recommendation 5 was the need to explore the
feasibility of removing or identifying excluded entities that are
listed on the GSA Schedule. The appropriate GSA Contracting Officer
works with GSA's Office of General Counsel on a case-by-case basis to
determine what type of contractual action may be appropriate, in
accordance with FAR 9.405-1, "Continuation of current contracts."
Current contracts may be continued despite administrative action,
unless the agency head directs otherwise. It is only after consultation
with legal counsel and others as prescribed by the FAR that the GSA
Contracting Officer may take such action as terminating a contractor's
Schedule contract. Finally, pursuant to FAR 9.405-1(b), unless an
agency head determines that there are compelling reasons in ordering
from a vendor that has been debarred, suspended or proposed for
debarment. ordering activities should not place orders. We believe
these actions sufficiently address the recommendation and warrant
closure to this recommendation.
Should you have any questions, please contact me. Staff inquiries may
be directed to Earl J. Warrington, Director, Acquisition Environment
Division, at 703-605-3404.
Sincerely,
Signed by:
Paul F. Prouty:
Acting Administrator:
Enclosures
cc: Gregory D. Kutz:
Managing Director, Forensic Audits and Special Investigations:
Enclosure 1:
EPLS FAQ to support guidance on the requirements to check EPLS:
4. What are the requirements for using EPLS?
FAR Subpart 9.405(d)(1) requires contracting officers to review the
EPLS after the opening of bids or receipt of proposals. FAR Subpart
9.405(d)(4) requires contracting officers to review the EPLS again,
immediately prior to award, to ensure that no award is made to a listed
contractor. FAR 9.405-1(b) also requires contracting officers to check
the EPLS prior to awarding "new work" as defined in this provision.
Subpart D of the Government-wide Nonprocurement Suspension and
Debarment Common Rule requires agency officials to check the EPLS
before they enter into a primary tier covered transaction, approve a
principal in a primary tier covered transaction, approve a lower tier
participant when agency approval is required, or approve a principal in
a lower tier transaction if agency approval of the principal is
required.
Figure: EPLS Release Notes FY 2007:
[Refer to PDF for image]
[End of figure]
Advanced Search Tips:
The following information is provided to assist in performing searches
on EPLS.
Term Modifiers:
The search engine supports a wide range of searching options.
Wildcard Searches:
To perform a single character wildcard search use the "?" symbol.
To perform a multiple character wildcard search use the "*" symbol.
The single character wildcard search looks for terms that match that
with the single character replaced. For example, to search for "text"
or "test" you can use the search:
te?t:
Multiple character wildcard searches looks for 0 or more characters.
For example, to search for test, tests or tester, you can use the
search:
test*:
You can also use the wildcard searches in the middle of a term.
te*t:
Note: You cannot use a " or ? symbol as the first character of a
search.
Fuzzy Searches:
To do a fuzzy search use the tilde, "~", symbol at the end of a Single
word Term. For example to search for a term similar in spelling to
"roam" use the fuzzy search:
roam-:
This search will find terms like foam and roams.
Proximity Searches:
Finding words are a within a specific distance away. To do a proximity
search use the tilde, "~", symbol at the end of a Phrase. For example
to search for a "john" and "doe" within 10 words of each other in a
document use the search:
"john doe"~10:
Boolean operators:
Boolean operators allow terms to be combined through logic operators.
We support AND, "+", OR, NOT and "" as Boolean operators (Note: Boolean
operators must be ALL CAPS).
OR:
The OR operator is the default conjunction operator. This means that if
there is no Boolean operator between two terms, the OR operator is
used. The OR operator links two terms and finds a matching document if
either of the terms exist in a document. This is equivalent to a union
using sets. The symbol 11 can be used in place of the word OR.
To search for documents that contain either "john doe" or just "john"
use the query:
"john doe" john;
or
"john doe" OR john.
AND:
The AND operator matches documents where both terms exist anywhere in
the text of a single document. This is equivalent to an intersection
using sets. The symbol && can be used in place of the word AND.
To search for documents that contain "john doe" and "jane doe" use the
query:
john doe' AND "jane doe".
The "+" or required operator requires that the term after the "+"
symbol exist somewhere in a the field of a single document.
To search for documents that must contain "doe" and may contain "john"
use the query:
+doe john.
NOT:
The NOT operator excludes documents that contain the term after NOT.
This is equivalent to a difference using sets. The symbol ! can be used
in place of the word NOT.
To search for documents that contain "john doe" but not "anonymous" use
the query:
"john doe" NOT "anonymous".
Note: The NOT operator cannot be used with just one term. For example,
the following search will return no results:
NOT "john doe"
The "-" or prohibit operator excludes documents that contain the term
after the "-" symbol.
To search for documents that contain "john doe" but not "anonymous" use
the query:
"john doe" -"anonymous".
Grouping:
The search engine supports using parentheses to group clauses to form
sub queries. This can be very useful if you want to control the boolean
logic for a query.
To search for either "john" or "doe" and "anonymous" use the query:
(john OR doe) AND anonymous.
This eliminates any confusion and makes sure you that anonymous must
exist and either term john or doe may exist.
Escaping Special Characters:
Escaping special characters that are part of the query syntax. The
current list special characters are:
+ - && || () [] ^ " ! * ? : \
To escape these character use the \ before the character. For example
to search for (1+1):2 use the query:
\(1\+1\):2.
This eliminates any confusion and makes sure you that anonymous must
exist and either term john or doe may exist.
[End of section]
Footnotes:
[1] Parties can be excluded from receiving a wide range of federal
funds including, but not limited to, Medicare and Medicaid provider
payments, cooperative agreements, scholarships, fellowships, loan
guarantees, subsidies, insurance, payments for specified uses, donation
agreements, or contracts of assistance.
[2] A suspension is a temporary exclusion of a party pending the
completion of an investigation, while a debarment is a fixed-term
exclusion. Generally, the period of debarment does not exceed 3 years,
though some are indefinite.
[3] The database can be accessed at [hyperlink, http://www.epls.gov].
[4] GAO, Federal Procurement: Additional Data Reporting Could Improve
the Suspension and Debarment Process, [hyperlink,
http://www.gao.gov/products/GAO-05-479] (Washington, D.C.: July 29,
2005).
[5] A DUNS number is a unique nine-digit identification number assigned
to firms by Dun & Bradstreet, Inc.
[6] The 24 agencies are those subject to the Chief Financial Officers
Act.
[7] See [hyperlink, http://www.gsa.gov/iae] for a list of the services
included in the IAE.
[8] Federal Acquisition Regulation (FAR) § 9.405-1(b)(3).
[9] Navy identified this award prior to delivery and canceled it at no
cost to the government.
[10] Although the second company was incorporated in 2002, prior to the
debarment of the CEO's primary business, the majority of its sales
occurred after the debarment.
[11] Prior to the debarment, the Command had exercised an option on the
contract, extending it for another year.
[12] [hyperlink, http://www.gao.gov/products/GAO-05-479].
[13] Although we found that most of agencies we identified conduct
searches by exact name, EPLS users can also search by other fields,
including "partial name."
[14] FAR 9.404(c)(3).
[15] FAR 9.404(c)(7). Each agency must "establish procedures to ensure
that the agency does not solicit offers from, award contracts to, or
consent to subcontracts with contractors whose names are in EPLS."
[16] We found another six instances where DLA noticed an improper
purchase prior to delivery and canceled it without cost or liability to
the government.
[17] See appendix I for more information.
[18] Entities in EPLS can be classified as an individual, firm, or
entity.
[19] Exclusions can be from procurement actions, nonprocurement
actions, or both (reciprocal).
[20] The action date is the date that an exclusion became active.
[21] The termination date is the date that an exclusion is scheduled to
expire.
[22] The delete date is the date that, if the exclusion ended prior to
the scheduled termination date, the exclusion was removed from EPLS.
[End of section]
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