Excluded Parties List System
Suspended and Debarred Businesses and Individuals Improperly Receive Federal Funds Gao ID: GAO-09-419T February 26, 2009In 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. 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 parties. Despite such modifications, 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. We described the results of our investigation confirming these allegations in our recently issued report. This testimony will summarize our overall findings and will also describe the key causes of the improper awards and other payments we detected.
We confirmed the allegations that businesses and individuals that were excluded for egregious offenses were continuing to 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. 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.
GAO-09-419T, Excluded Parties List System: Suspended and Debarred Businesses and Individuals Improperly Receive Federal Funds
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Testimony:
Before the Committee on Oversight and Government Reform, House of
Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EST:
Thursday, February 26, 2009:
Excluded Parties List System:
Suspended and Debarred Businesses and Individuals Improperly Receive
Federal Funds:
Statement of Gregory D. Kutz, Managing Director:
Forensic Audits and Special Investigations:
GAO-09-419T:
Mr. Chairman and Members of the Committee:
Thank you for the opportunity to discuss the results of our
investigation of the Excluded Parties List System (EPLS), a Web-based
system maintained by the General Services Administration (GSA).
[Footnote 1] To protect the government's interests, any agency can
exclude, i.e., suspend or debar, businesses or individuals from
receiving contracts or assistance[Footnote 2] for various reasons, such
as a conviction of or indictment for a criminal or civil offense or a
serious failure to perform to the terms of a contract.[Footnote 3]
Agencies must report all excluded parties to EPLS within 5 business
days after a suspension or debarment becomes effective. 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.
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 parties.[Footnote 5] Despite
such modifications, 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. We described the results of our investigation confirming these
allegations in our recently issued report.[Footnote 6] This testimony
will summarize our overall findings and will also describe the key
causes of the improper awards and other payments we detected.
To conduct our work 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. The FPDS-NG is the
central repository for capturing information on federal procurement
actions. Because not all records within EPLS contained 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 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. GAO's objective was
not to determine, and GAO did not have data to determine, the number of
businesses and individuals in EPLS that received new federal awards
during their exclusions.
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.
Excluded Parties Continue to Do Business with the Government:
We confirmed the allegations that businesses and individuals that were
excluded for egregious offenses were continuing to 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, in fact several
options were 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.
Ineffective EPLS Management or Agency Control Weaknesses Lead to
Improper Awards and Other Payments:
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 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.
Recommendations for Executive Action:
At the close of our investigation, we referred all the cases we
identified to the appropriate agency officials for further action. We
also made recommendations to GSA to improve the effectiveness of the
suspension and debarment process. Specifically, we recommended that
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.
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. 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 did not plan to take any new
actions and instead pointed to Federal Acquisition Regulation
requirements and GSA policies that were already in place before we
conducted our investigation. Similarly, GSA did not plan to take any
new actions to ensure that the EPLS database requires contractor
identification numbers for all actions entered into the system, nor did
it plan to take additional steps to update the EPLS agency contact
list. Based on our investigation, if GSA is not more proactive in its
management of EPLS system, suspended and debarred companies will
continue to improperly receive millions of taxpayer dollars. More
detailed information on GSA's comments and our response can be found in
our report.
Mr. Chairman and Members of the Committee, this concludes my statement.
I would be pleased to answer any questions that you or other members of
the committee may have at this time.
Contacts and Acknowledgments:
For further information about this testimony, 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 testimony. In addition to the individual named above, the
individuals who made major contributions to this testimony were Gary
Bianchi, Cindy Brown Barnes, Shafee Carnegie, Bruce Causseaux, Jennifer
Costello, Craig Fischer, Georgeann Higgins, Betsy Isom, Leslie Kirsch,
Robert Lowthian, Andrew McIntosh, and Kim Perteet.
[End of section]
Footnotes:
[1] The database can be accessed at [hyperlink, http://www.epls.gov].
[2] 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.
[3] 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.
[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] GAO, Excluded Parties List System: Suspended and Debarred
Businesses and Individuals Improperly Receive Federal Funds,
[hyperlink, http://www.gao.gov/products/GAO-09-174] (Washington, D.C.:
Feb. 25, 2009).
[End of section]
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