United States General Accounting Office General Government Division

Washington, D.C. 20548

Page 1 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

B-285059

September 28, 2000

The Honorable John L. Mica

Chairman, Subcommittee on Criminal

 Justice, Drug Policy and Human Resources

Committee on Government Reform

House of Representatives

Subject: Civilian Acquisitions: Selected Agencies’ Use of Criminal Background Checks on

Contractor Principals to Prevent Fraud

Dear Mr. Chairman:

This letter and its enclosures respond to your request for information on executive agencies’

utilization of criminal background checks to help prevent fraud by federal contractors.1

 You

requested this information because of your continued concern about the potential

vulnerability of federal funds to fraud by contractors. This letter is the last in a series of

products addressed to you on this topic. 2

On the basis of discussions with your office, our objectives were to provide information on

selected agencies’ use of criminal background checks to help prevent contractor fraud.

Specifically, we provide information on selected agencies’ (1) policies and practices for

making contractor responsibility determinations and conducting criminal background checks

on contractor principals;3

 (2) efforts to suspend, debar, or otherwise prevent firms or

contractor principals that have violated relevant federal laws and regulations from receiving

government contracts; and (3) Office of Inspector General (OIG) completed contractor fraud

investigations involving principals and whether the principals who committed fraud had

criminal histories.

 1

 For purposes of this letter, a contractor may be an individual or entity, such as a company, firm, or business.

2

 We also issued two other products that responded to your request: Medicare: Contractors Screen Employees but Extent of

Screening Varies (GAO/HEHS-00-135R); and a May 31, 2000, letter in which we provided you information on various issues

associated with agency background checks on contractors (B-285059).

3

 The Federal Acquisition Regulation defines principals as officers, directors, owners, partners, and persons having primary

management or supervisory responsibilities within a business entity, such as general managers, plant managers, and heads of

subsidiaries.
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To address the first objective, we obtained information from the Departments of Housing and

Urban Development (HUD) and the Treasury, and the General Services Administration

(GSA). We selected these three agencies because they were among the leading civilian

agencies involved with acquisition and physical security issues. For the second objective, we

obtained information from the Department of Health and Human Services (HHS), HUD, and

the Office of Personnel Management (OPM). We selected these agencies because they were

among the top five agencies regarding debarments. For the third objective, we obtained

statistics from the OIGs at the Departments of Agriculture, HUD, Justice, Transportation, and

Veterans Affairs (VA) and from GSA. We selected these 6 agencies because they were among

the top 15 civilian agencies that obligated funds for procurement during fiscal year 1999.

In June 2000, we briefed your office on the information we gathered during our preliminary

work, the results of which are included in enclosure I. This letter summarizes and updates the

information presented at that briefing. The additional information that your office requested

regarding new contracts awarded and funds obligated by the six selected agencies during

fiscal years 1997 through 1999 is included in enclosure II.4

Background

The Federal Acquisition Regulation (FAR) generally governs all acquisitions by executive

agencies and along with agencies’ implementing and supplemental regulations makes up the

Federal Acquisition Regulations System. The FAR in general provides agencies’ contracting

officers with guidance on how to award and administer contracts for the goods and services

that their agencies need. The FAR is issued and maintained jointly by the Secretary of

Defense; the Administrator of GSA; and the Administrator of the National Aeronautics and

Space Administration under the Office of Federal Procurement Policy Act.5

Before government contracts are awarded, the FAR requires that agencies determine whether

prospective contractors are responsible. The purpose of the contractor responsibility

determination is to help ensure that the government does business only with contractors that

are found to be reliable, dependable, and capable of performing the work required under the

terms of the contract. The FAR provides that no contract shall be awarded unless the

contracting officer makes an affirmative determination of responsibility.

Under the FAR, agencies may debar or suspend contractors for various fraudulent or criminal

offenses associated with government contracts, such as embezzlement, theft, or bribery. Also,

agencies may debar or suspend contractors for any serious or compelling reason that affects

the responsibility of a government contractor, such as failure to comply with the

requirements of the Drug-Free Workplace Act of 1988.6

 Debarment precludes a contractor

from receiving further government contracts or assistance from any federal agency for a

 4

 The six agencies included the Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA.

5

 41 U.S.C. §§ 405, 421.

6

 Public Law 100-690.
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specified period of time, generally not to exceed 3 years. Suspension temporarily disqualifies

a contractor from doing business with the federal government for up to 18 months unless

legal proceedings are initiated during that period.

Summary of Findings

The FAR sets forth seven general standards that agencies’ contracting officers are required to

use in determining whether prospective contractors are responsible. Among other things,

these standards require prospective contractors to have adequate financial resources to

perform the contract, the ability to comply with contract schedules, satisfactory performance

records, and satisfactory records of integrity and business ethics. Although the FAR does not

specifically require criminal background checks on contractor principals, agencies are not

prohibited from performing such checks and may do so when they believe it is necessary or

appropriate. For example, in one case, a contracting officer found a prospective contractor

nonresponsible for lack of integrity based on information in a criminal investigation report.7

HUD, Treasury, and GSA have acquisition regulations and guidance that implement and

supplement the FAR requirements concerning the information that contracting officers are

expected to obtain when making contractor responsibility determinations. For example,

HUD’s Handbook on Procurement Policies and Procedures requires that contracting officers,

when making responsibility determinations, are to check with the HUD OIG regarding

information from its completed audits and investigations that could adversely affect

affirmative determinations of responsibility for prospective contractors. Also, Treasury’s

acquisition regulations discuss obtaining information on credit reports on prospective

contractors. Finally, GSA’s acquisition manual includes procedures for obtaining information

on prospective contractors from appropriate activities within GSA, such as legal counsel,

contract management, and OIG.

HUD’s practices for making contractor responsibility determinations appeared consistent

with the FAR and the HUD Handbook. According to HUD acquisition officials, HUD’s

responsibility determinations do not include criminal background checks on contractor

principals. Our review of two major HUD contract awards showed that the requisite

responsibility determinations were based on the types and sources of information identified

in the FAR and the HUD Handbook. We found no evidence that criminal background checks

were done. According to Treasury and GSA officials, their contracting officers rely on similar

types and sources of information to make responsibility determinations. Treasury and GSA

officials said that such determinations do not include criminal background checks on

contractor principals.

As of March 2000, HUD was among the top five agencies regarding debarments. According to

HUD officials, most of these debarments were not related to acquisition activities. HUD’s

debarments primarily involved loans, grants, subsidies, and insurance. HHS and OPM

accounted for about 70 percent of debarments governmentwide. Like HUD, most of HHS’ and

 7

 Becker and Schwindenhammer. GmbH, B-225396, Mar. 2, 1987, 87-1 CPD ¶ 235.
B-285059

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OPM’s debarments were not related to acquisitions. Rather, their debarments involved health

care providers, such as doctors and nursing homes.

During fiscal years 1997 through 1999, the OIGs at the Departments of Agriculture, HUD,

Justice, Transportation, and VA and at GSA investigated a total of 151 contractor principals

for allegedly committing fraud. Of these principals, 56, or 37 percent, were found to have

committed fraud. Eight of the 56 principals who committed fraud had criminal histories.

Scope and Methodology

In developing the information for this letter, we (1) reviewed the appropriate sections of the

FAR as well as HUD, Treasury, and GSA supplemental contracting guidance; (2) researched

relevant Comptroller General decisions; (3) examined documentation related to HUD’s

responsibility determinations for two major contracts; (4) discussed responsibility

determinations, debarment, and background checks with cognizant HHS, HUD, OPM,

Treasury, and GSA officials; (5) obtained statistics on completed OIG contractor fraud

investigations from the OIGs at the Departments of Agriculture, HUD, Justice,

Transportation, and VA and at GSA; and (6) analyzed the Federal Procurement Data System

to identify new contracts awarded and funds obligated by six selected agencies during fiscal

years 1997 through 1999.

We performed our work in Washington, D.C., and Philadelphia, PA, from March through July

2000, in accordance with generally accepted government auditing standards. We requested

comments on a draft of this letter and its enclosures from the Secretary of HUD. We also

provided officials from the Departments of Agriculture, HHS, Justice, Transportation, the

Treasury, and VA, as well as GSA and OPM copies or relevant portions of the draft to confirm

the accuracy of our presentation of the information we obtained from them.

Agency Comments and

Our Evaluation

In August and September 2000, we obtained comments on a draft of this letter and its

enclosures from HUD officials, including the Chief Procurement Officer. The officials

concurred with the information we presented on the results of our work. The Chief

Procurement Officer also provided additional perspective on the results of our work related

to HUD’s (1) practices for making contractor responsibility determinations and (2) possible

use of criminal background checks on principals to prevent contractor default. With regard to

contractor responsibility determinations, the Chief Procurement Officer said that the HUD

OIG’s checks of its completed audits and investigations related to prospective contractors

exceeded FAR requirements. He said that although these checks were very useful, the HUD

OIG has decided to discontinue making such checks. Regarding criminal background checks,

he indicated that such checks would not have prevented HUD from awarding some of its

Management and Marketing contracts to a firm that subsequently had to be terminated for

default. Rather, he said that the best way to ensure compliance with HUD contracts is to

strictly enforce them and terminate the contracts if contractors fail to perform. He said that

by suspending the firm and initiating debarment proceedings against it, HUD sent a clear
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message to contractors that poor performance will not be tolerated and that poor prior

performance will affect responsibility determinations for these contractors in the future.

Also, the officials suggested some minor clarifications, which we incorporated where

appropriate.

In addition, during August and September 2000, officials from the Departments of Agriculture,

HHS, Justice, Transportation, the Treasury, and VA, as well as GSA and OPM, provided

comments on those portions of the draft that presented information we obtained from them.8

The officials agreed with our characterization of their information and suggested a few

technical changes. We made their suggested changes where appropriate.

We are sending copies of this letter and the enclosures to Representative Patsy T. Mink,

Ranking Minority Member of your Subcommittee. We are also sending copies to

Representative Dan Burton, Chairman, and Representative Henry A. Waxman, Ranking

Minority Member, of the House Committee on Government Reform; and Senator Fred

Thompson, Chairman, and Senator Joseph I. Lieberman, Ranking Minority Member, of the

Senate Committee on Governmental Affairs; and other interested congressional members. In

addition, we are sending copies to the Honorable Andrew M. Cuomo, Secretary of HUD, and

will make copies available to others upon request.

Major contributors to this letter included Gerald P. Barnes, Anne Hilleary, and Geraldine

Beard. If you have any questions about this letter or the enclosed slides, please contact Mr.

Barnes of my staff or me on (202) 512-8387.

Sincerely yours,

JayEtta Hecker

Associate Director, Government

 Business Operations Issues

 8

 The officials who provided comments included (1) Agriculture’s Supervisory Law Enforcement Analyst, Program Investigations

Division, OIG; (2) HHS’ Procurement Analyst, Office of Acquisition Management; and Assistant Inspector General for Legal

Affairs, OIG; (3) Justice’s Assistant Special Agent-in-Charge of Operations, Investigations Division, OIG; (4) Transportation’s

Special Agent-in-Charge of Headquarters Operations, OIG; (5) Treasury’s Director, Office of Procurement; (6) VA’s Director,

Analysis and Oversight Division, Office of Investigations, OIG; (7) GSA’s Deputy Associate Administrator for Acquisition Policy;

Special Assistant for Contractor Integrity, Office of Acquisition Policy, Office of Governmentwide Policy; and Deputy Assistant

Inspector General for Investigations, Office of Investigations, OIG; and (8) OPM’s Chief, Contracting Division, Office of

Contracting and Administrative Services; and the Debarring Official, OIG.
Enclosure I

Selected Agencies’ Use of Criminal

Background Checks on Contractor Principals

to Prevent Fraud

Page 6 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

Briefing

Civilian Acquisitions:

Selected Agencies’ Use of

Criminal Background Checks on

Contractor Principals to Prevent Fraud
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 7 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

2

Objectives

• For selected agencies, which included the Departments of Agriculture, Health and

Human Services (HHS), Housing and Urban Development (HUD), Justice,

Transportation, Treasury, and Veterans Affairs (VA), as well as the General

Services Administration (GSA) and the Office of Personnel Management (OPM),

our objectives were to provide information on

• policies and practices for making contractor responsibility determinations and

conducting criminal background checks on contractor principals;

• efforts to suspend, debar, or otherwise prevent contractors that have violated

relevant federal laws and regulations from receiving government contracts;

and

• Office of Inspector General (OIG) completed contractor fraud investigations

involving principals and whether the principals who committed fraud had

criminal histories.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 8 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

3

Scope

• Washington, D.C.

• Headquarters offices of HUD, HHS, Treasury, GSA, and OPM.

• Philadelphia, PA.

• HUD Philadelphia Field Contracting Operations.

• OIGs contacted.

• Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 9 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

4

Methodology

• Reviewed appropriate sections of

• Federal Acquisition Regulation (FAR); and

• HUD, GSA, and Treasury supplemental acquisition regulations and guidance.

• Reviewed

• relevant Comptroller General decisions;

• governmentwide debarment list for FY 1999;

• HUD documentation of contractor responsibility determinations for

Management and Marketing (M&M) and Appraisal Quality Assessment

Services (AQAS) contracts, which had total estimated values of $927 million

and $43 million, respectively. Excluding information technology contracts,

M&M and AQAS contracts were among the largest contracts HUD awarded;

and

• Federal Procurement Report for FY 1999, which contains governmentwide data

on agency contract awards and funds obligated.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 10 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

5

Methodology

• Held discussions with officials from

• HUD, GSA, and Treasury regarding responsibility determination policies and

practices;

• HUD, GSA, Treasury, and OPM regarding agencies’ use of criminal

background checks on contractor principals; and

• HUD, HHS, GSA, and OPM regarding agency debarment efforts.

• Obtained statistics on contractor fraud investigations completed during FYs 1997-

1999 from OIGs at the Departments of Agriculture, HUD, Justice, Transportation,

and VA and GSA. The statistics included the number of

• completed contractor fraud investigations,

• completed fraud investigations involving contractor principals,

• principals who committed fraud, and

• principals who committed fraud and had criminal histories.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 11 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

6

Background

• FAR generally governs executive agencies’ acquisitions.

• FAR and agency acquisition regulations, which implement and supplement

FAR, make up the Federal Acquisition Regulations System.

• FAR in general provides guidance to agencies’ contracting officers on how to

award and administer contracts for the goods and services that their agencies

need.

• FAR is issued and maintained jointly by the Secretary of Defense, the

Administrator of GSA, and the Administrator of the National Aeronautics and

Space Administration under the Office of Federal Procurement Policy Act.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 12 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

7

Background

• FAR requires that agencies determine contractor responsibility before awarding

government contracts.

• Contractor responsibility determinations help ensure that government does

business only with reliable, dependable, and capable contractors.

• No contracts shall be awarded unless an affirmative determination of

responsibility is made.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 13 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

8

Background

• FAR allows agencies to debar or suspend contractors for:

• fraudulent or criminal offenses associated with contracts, such as

embezzlement, theft, or bribery; or

• any serious or compelling reason that affects contractor responsibility, such as

failure to comply with the requirements of the Drug-Free Workplace Act of

1988.

• Debarment precludes a contractor from receiving or participating in government

contracts, generally for a period not to exceed 3 years.

• Suspension temporarily precludes a contractor from doing business with the

government for up to 18 months unless legal proceedings are initiated during that

period.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 14 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

9

Objective 1: Selected Agencies’ Policies/Procedures for Making

Contractor Responsibility Determinations Mirror FAR

• FAR sets forth seven general standards that agencies’ contracting officers are to use

in making contractor responsibility determinations. The standards call for

prospective contractors to:

• have adequate financial resources;

• be able to meet proposed delivery and performance schedules;

• have satisfactory performance records;

• have satisfactory records of integrity and business ethics;

• have the necessary organization, experience, accounting and operational

controls, and technical skills;

• have the necessary production, construction, and technical equipment and

facilities; and

• be qualified and eligible to receive an award.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 15 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

10

Objective 1: Selected Agencies’ Policies/Procedures for Making

Contractor Responsibility Determinations Mirror FAR

• FAR does not specifically require criminal background checks on contractor

principals. However, agencies are not prohibited from performing such checks and

may do so when they believe it is necessary or appropriate. For example:

• An agency contracting officer found a prospective contractor nonresponsible for

lack of integrity based on information in a criminal investigation report, which

reported improper substitution of material and deficient performance under

recent government contracts. (Becker and Schwindenhammer. GmbH, B225396, Mar. 2, 1987, 87-1 CPD ¶ 235.)

• Another agency contracting officer requested the Defense Criminal

Investigative Service to conduct relevant inquiries with the state’s Attorney

General’s Office, the Department of Justice, and Department of Defense

concerning a prospective contractor’s business ethics and integrity. (TutorSaliba Corp., Perini Corp., Buckley & Co. Inc., and O & G Industries, Inc., A

Joint Venture, B-255756.2, Apr. 20, 1994, 94-1 CPD ¶ 268.)
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 16 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

11

Objective 1: Selected Agencies’ Policies/Procedures for Making

Contractor Responsibility Determinations Mirror FAR

• HUD’s Handbook on Procurement Policies and Procedures implements and

supplements the FAR requirements concerning the information that contracting

officers are expected to obtain when making contractor responsibility determinations.

• HUD’s Handbook

• identifies sources of information cited in the FAR;

• requires that contracting officers check with HUD OIG for information from its

completed audits and investigations that could adversely affect affirmative

determinations of responsibility for prospective contractors; and

• does not require criminal background checks on contractor principals, but does

not prohibit such checks.

• According to HUD acquisition officials, contracting officers are expected to follow

FAR and the HUD Handbook when making contractor responsibility determinations.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 17 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

12

Objective 1: Selected Agencies’ Policies/Procedures for Making

Contractor Responsibility Determinations Mirror FAR

• HUD practices appeared consistent with FAR and the HUD Handbook.

• HUD’s M&M and AQAS contract files showed that contractor responsibility

determinations included the following information:

• GSA debarment list;

• Dun and Bradstreet financial reports;

• technical evaluation panel reports, which included reviews of contractors’ past

performance; and

• checks with HUD OIG for information from its completed audits and

investigations that could adversely affect affirmative determinations of

responsibility for prospective contractors.

• M&M and AQAS contract files showed that criminal background checks on

contractor principals, which are not required, were not done.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 18 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

13

Objective 1: Selected Agencies’ Policies/Procedures for Making

Contractor Responsibility Determinations Mirror FAR

• Like HUD, GSA’s and Treasury’s acquisition regulations implement and supplement FAR

requirements regarding information sources for making contractor responsibility determinations.

• GSA’s and Treasury’s regulations discuss information sources and procedures that

contracting officers are to follow regarding such determinations. For example:

• GSA’s regulations identify procedures for obtaining information on (1) prospective

contractors from appropriate activities within GSA, such as legal counsel, contract

management, and OIG; and (2) prospective contractors’ past performance regarding

the use of subcontractors.

• Treasury’s regulations identify procedures for obtaining information on prospective

contractors’ credit reports.

• According to GSA and Treasury acquisition officials:

• Their regulations do not require criminal background checks on contractor principals.

• Their contracting officers are expected to use the types and sources of information similar

to those used by HUD when making contractor responsibility determinations.

• Their contracting officers are not required to check with their OIGs for information on

completed audits and investigations that could adversely affect affirmative determinations

of responsibility for prospective contractors.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 19 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

14

Objective 2: Most Debarments Are Not Acquisition-Related

• HUD was among the top five agencies regarding debarments governmentwide.

• As of March 2000, HUD had about 1,800 debarments, few of which were

acquisition-related.

• Most of these debarments were against entities and individuals that received

HUD loans, grants, subsidies, and insurance.

• In addition to its debarments governmentwide, HUD imposes

• Limited Denials of Participation (LDP), which exclude individuals who have not

met HUD contract requirements from participating in specific HUD programs

within a limited geographic area for a period not to exceed 12 months; and

• civil money penalties, which are imposed against violators of HUD statutes,

regulations, and handbooks.

• HUD provided written guidance to its staff on debarment, LDPs, and civil money

penalties.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 20 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

15

Objective 2: Most Debarments Are Not Acquisition-Related

• Most HHS and OPM debarments are not acquisition-related.

• As of March 2000, HHS (about 18,000) and OPM (about 13,000) accounted for

a total of about 31,000 (70 percent) of 44,000 debarments governmentwide.

• According to HHS and OPM officials, most of their agencies’ debarments were

taken against health care providers (e.g., doctors, nursing homes, home health

care agencies).
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

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16

Objective 3: Some Principals Found to Have Committed Fraud by Six

Selected Agencies’ OIGs Also Had Criminal Histories

• During FYs 1997-1999, HUD OIG identified three contractor fraud investigations.

• Two investigations were ongoing.

• One investigation had been completed.

• HUD OIG’s completed investigation involved allegations of conflict of interest by five

contractor principals. Results of the investigation revealed that none of the five

principals were found to have committed fraud.

• We conducted background checks on the five principals and found that none of them

had criminal histories.

• Most of HUD OIG fraud investigations are related to contracts with the nation’s

nearly 3,300 Public Housing Agencies (PHA). Regarding contract fraud, HUD OIG

primarily focuses on PHA procurements of goods and services and routinely

develops prosecutable cases.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 22 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

17

Objective 3: Some Principals Found to Have Committed Fraud by Six

Selected Agencies’ OIGs Also Had Criminal Histories

• During FYs 1997-1999, OIGs at the Departments of Agriculture, HUD, Justice,

Transportation, and VA and at GSA completed a total of 298 contractor fraud

investigations.

• Results of the OIGs’ completed investigations showed that

• of 298 investigations, 74 (25 percent) involved fraud allegedly committed by

principals;

• for the 74 investigations, a total of 151 principals were investigated for allegedly

committing fraud;

• of the 151 principals investigated, 56 were found to have committed fraud; and

• of the 56 principals who committed fraud, 8 had criminal histories.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 23 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

18

Objective 3: Six Selected Agencies’ OIG Completed Contractor Fraud

Investigations That Involved Principals

• Total of 298 contractor fraud

investigations were completed.

• Of 298 investigations:

• 74 (25 percent) involved

principals.

• 224 (75 percent) did not involve

principals. (74)

Principals involved

(224)

Principals not

involved

75%

25%

Source: Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA OIGs.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 24 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

19

Objective 3: Six Selected Agencies’ OIG Completed Contractor Fraud

Investigations That Involved Principals

Contractor fraud investigations

Agency Office of

Inspector General

Department of Agriculture

General Services Administration

Department of Housing and

Urban Development

Department of Justice

Department of Transportation

Department of Veterans Affairs

Total

Number completed Number involving principals

9

117

1

10

77

84

298

2

35

1

5

11

20

74 (25%)

a

a Three of the five fraud investigations reported by the Department of Justice involved subcontractor principals.

Source: Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA OIGs.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 25 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

20

Objective 3: Six Selected Agencies’ OIG Completed Contractor Fraud

Investigations That Involved Principals

• For the 74 completed OIG contractor

fraud investigations that involved

principals, 151 principals were

investigated for allegedly committing

fraud.

74

151

0

20

40

60

80

100

120

140

160

Investigations completed

Principals investigated

Fiscal years 1997 - 1999

Number

Source: Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA OIGs.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 26 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

21

Objective 3: Six Selected Agencies’ OIG Completed Contractor Fraud

Investigations and Number of Principals Investigated

Agency Office of Inspector General

Department of Agriculture

General Services Administration

Department of Housing and Urban Development

Department of Justice

Department of Veterans Affairs

Total

Number of investigations

involving principals

Number of principals

investigated

2

35

1

5

20

74

3

55

5

151

28

7

a

Three of the five fraud investigations reported by the Department of Justice OIG involved subcontractor principals.

Department of Transportation 11 53

a

Source: Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA OIGs.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 27 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

22

Objective 3: Principals Found to Have Committed Fraud by Six Selected

Agencies’ OIGs

• Total of 151 principals alleged to have

committed fraud were investigated.

• Of the 151 principals investigated:

• 56 (37 percent) committed fraud.

• 95 (63 percent) did not commit

fraud. 37%

63%

(56)

Committed fraud

(95)

Did not commit

fraud

Source: Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA OIGs.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 28 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

23

Objective 3: Principals Found to Have Committed Fraud by Six Selected

Agencies’ OIGs

Contractor principals

Agency Office of Inspector General

Department of Agriculture

General Services Administration

Department of Housing and Urban Development

Department of Justice

Department of Veterans Affairs

Total

Number investigated for fraud Number found to have

committed fraud

3

55

5

7

28

151

1

4

0

7

14

56

a

a

Five of the seven principals who committed fraud were subcontractor principals.

Department of Transportation 53 30

Source: Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA OIGs.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 29 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

24

Objective 3: Principals Who Committed Fraud and Had Criminal

Histories at Six Selected Agencies

• Of 56 principals who committed fraud:

• 8 had criminal histories.

• 48 did not have criminal histories.

Number

Did not have criminal histories

Had criminal histories

48

8

0

10

20

30

40

50

60

Source: Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA OIGs.
Enclosure I

Selected Agencies’ Use of Criminal Background Checks on Contractor Principals to Prevent

Fraud

Page 30 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

25

Objective 3: Principals Who Committed Fraud and Had Criminal

Histories at Six Selected Agencies

Contractor principals

Agency Office of Inspector General

Department of Agriculture

General Services Administration

Department of Housing and Urban Development

Department of Justice

Department of Veterans Affairs

Total

Number who committed

fraud

Number who committed fraud and

had criminal histories

1

4

0

7

14

56

0

0

0

4

2

8

a

a Three of the four principals who committed fraud and had criminal histories were subcontractor principals.

Department of Transportation 30 2

Source: Departments of Agriculture, HUD, Justice, Transportation, and VA and GSA OIGs.
Enclosure II

New Contracts Awarded and Funds Obligated

for Acquisitions Above $100,000 by Six

Selected Agencies for Fiscal Years 1997-1999a

Page 31 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals

New contracts awarded

Funds obligated by fiscal year (in thousands)

(in constant FY99 dollars)

Total funds

obligated

(in thousands)

 (in constant FY99

dollars)

Fiscal year Number FY 1997 FY 1998 FY 1999 FYs 1997-1999

1997 5,932 $6,182,334 $809,463 $568,871 $7,560,668

1998 6,499 --- 5,747,320 796,214 6,543,534

1999 5,836 --- --- 6,379,657 6,379,657

Total 18,267 $6,182,334 $6,556,783 $7,744,742 $20,483,859

Note: We did our analysis based on contract purchases above $100,000 because FAR permits

purchases at $100,000 or below to use simplified acquisition procedures that are less complex and

eliminate various requirements compared to acquisition procedures used for contracts above

$100,000.

a

The six selected agencies were the Departments of Agriculture, HUD, Justice, Transportation, and

VA and GSA.

Source: GAO analysis of data obtained from Federal Procurement Data System.
Page 32 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals
Page 33 GAO/GGD-00-194R Criminal Background Checks on Contractor Principals
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