crossposted from unbossed
Among GAO's greatest hits this past week is a basic report on how poorly government contracting can be done. That's not quite the title or the intent, but it's certainly the theme. The report and a second report with testimony show how poorly GSA's Excluded Parties List System is working at its most basic function - excluding parties who have defrauded the goverment in the past financially or by providing defective products or by breaking laws. The reasons for the failure to do this basic job are many, and examples from the reports are included below.
For those not familiar with GSA, here is its own description:
Excellence in the Business of Government. GSA provides workplaces by constructing, managing, and preserving government buildings and by leasing and managing commercial real estate. GSA's acquisition solutions offer private sector professional services, equipment, supplies, telecommunications, and information technology to government organizations and the military. GSA policies promote management best practices and efficient government operations.
Word has it that GSA performs its work at a level that some federal judges have show caused it as to why there is no heat in their buildings. Perhaps just a rumor, but it captures the problems with the federal landlord.
This is not the first time GAO has investigated this problem and made recommendations for improvement. Nor, I gather, will it be the last. GAO's testimony stated:
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.
Here is a brief description of the basis for the current report.
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.
GAO finds that problems arise from improper or ineffective use of the EPLS database itself. Among its recommendations is the basic concept of being able to search multiple terms through connectors such as and or or. Other problems come from permitting input of inaccurate information by vendors.
GIGO
These are all obvious issues that should never have arisen or - once they did - they should have been taken care of.
This report is a real indictment of the way GSA has been running, and, unfortunately, these are not recent problems. They are not problems that software can cure. They are problems at the core of GSA's "management tradition".
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.
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.
Here are some examples of problems GAO found. The numbers refer to specific cases in the report. There are a score of examples included in the reports. Each example begins with a summary of the contractor wrongdoing followed by a narrative explanation of the situation.
*
1 Chemical products excluded by GSA, May 2007
• Conspiring to defraud the government.
• 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.
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.
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.
*
2 Cable television excluded by the Navy, July 2003
• Conviction for a massive tax fraud scheme.
• 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.
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.
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12 Medical equipment excluded by HHS, April 2003
• Conviction for wire and Medicare fraud.
• 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.
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.
What's to be done?
GAO makes a number of recommendations to prevent this sort of fraud and waste of taxpayer money - and they seem to be basic common sense. In fact, they are so obvious that the fact they are not already in place speaks volumes.
GSA's response is to agree to change . . . sort of.
Here is an example.
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 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.
Remember these are only a small percentage of the cases GAO included in this report, and those cases are only a small example of the problems it found . . . and it seems likely that they did not find all the problems.
Problems in hiring private contractors, massive fraud, an inability to detect it and even a lack on interest in preventing fraud . . . that's just the proud tradition by which GSA operates.
Report on Results: Excluded Parties List System: Suspended and Debarred Businesses and Individuals Improperly Receive Federal Funds GAO-09-174, February 25, 2009
Testimony: Excluded Parties List System: Suspended and Debarred Businesses and Individuals Improperly Receive Federal Funds GAO-09-419T, February 26, 2009