Excluded Parties List System: Suspended and Debarred Businesses and Individuals Improperly Receive Federal Funds
Published: 2009-02-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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 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. 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). 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. 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. 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.
subsections: section_title: Background
paragraphs: GSA operates EPLS through funds obtained from 24 federal agencies in  support of the Integrated Acquisition Environment (IAE), a bundle of  services established to streamline the federal government acquisition  process. 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.
section_title: Excluded Parties Continue to Do Business with the Government
paragraphs: 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.
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.
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.
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. 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.
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.”
section_title: Ineffective EPLS Management or Agency Control Weaknesses Lead to Improper Awards and Other Payments
paragraphs: 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.
subsections: section_title: Ineffective Management of EPLS
paragraphs: 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, 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.  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.
section_title: Excluding and Procuring Agency Control Weaknesses
paragraphs: 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. 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. 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.
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.
section_title: Corrective Action Briefing and Referrals
paragraphs: 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.
section_title: Conclusion
paragraphs: 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.
section_title: Recommendations for Executive Action
paragraphs: 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.
section_title: Agency Comments and Our Evaluation
paragraphs: 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   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 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.
section_title: Appendix I: Scope and Methodology
paragraphs: 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, Commercial and  Government Entity (CAGE) code, exclusion type, cause and treatment  code, full address, Data Universal Numbering System (DUNS) number,  debarring agency, date of action, date of termination, delete date,  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.
section_title: Appendix II: Additional Case Studies Show That Agencies Are Awarding Funds to Excluded Parties
paragraphs: The first 15 cases, numbered 1 through 15, are listed in table 1.
section_title: Appendix III: Comments from the General Services Administration