Excluded Parties Continue to Do Business with the Government

Businesses and individuals that have been excluded for egregious offenses  are continuing to receive federal contracts and other funds. We developed  case studies on several of these excluded parties and found that they  continued to receive contracts and other federal payments in part because  agency officials failed to search EPLS or because their searches did not  reveal that the entity was excluded as a result of system deficiencies. In  other cases, these searches did not reveal exclusions because the  excluded businesses and individuals were fraudulently operating under  different identities. 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. 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. 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 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. 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. Thus, the Command continued to pay the company millions of dollars,  even though the Army had determined that doing business with the  company would be “irresponsible.”

	Ineffective EPLS Management or Agency Control Weaknesses Lead to Improper Awards and Other Payments

Most of the improper awards and payments we identified can be attributed  to ineffective management of the EPLS database or to control weaknesses  at both excluding and procuring agencies. Incorrect DUNS numbers prevent contracting officers and other agency  officials from readily identifying debarred or suspended parties when  making awards. Nonetheless, these GSA Schedule listings can result in agencies  purchasing items from unscrupulous vendors. 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. Recommendations for Executive Action

To improve the effectiveness of the suspension and debarment process,  we recommend that the Administrator of General Services take the  following five actions:  issue guidance to procurement officials on the requirement to check  EPLS prior to awarding contracts and to suspension and debarment  officials on the 5-day entry and contractor identification number  requirements;  ensure that the EPLS database requires contractor identification  numbers for all actions entered into the system;  strengthen EPLS search capabilities to include common search  operators, such as AND, NOT, and OR;  take steps to ensure that the EPLS points of contact list is updated;  and    place a warning on the Federal Supply Schedule Web site indicating  that prospective purchasers need to check EPLS to determine whether  vendors are excluded and explore the feasibility of removing or  identifying excluded entities that are listed on the GSA Schedule. 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.
Why GAO Did This Study

To protect the government's interests, any agency can exclude (i.e., debar or suspend) parties from receiving federal contracts or assistance for a range of offenses. Exclusions of companies or individuals from federal contracts or other funding are listed in the Excluded Parties List System (EPLS), a Web-based system maintained by GSA. Recent allegations indicate that excluded parties have been able to receive federal contracts. As a result, GAO was asked (1) to determine whether these allegations could be substantiated and (2) to identify the key causes of any improper awards and other payments detected. GAO investigated parties that were excluded for offenses such as fraud, theft, and violations of federal statutes and received awards in excess of $1,000.

What GAO Found

Businesses and individuals that have been excluded for egregious offenses ranging from national security violations to tax fraud are improperly receiving federal contracts and other funds. GAO developed cases on a number of these parties and found that they received funding for a number of reasons, including because agency officials failed to search EPLS or because their searches did not reveal the exclusions. GAO also identified businesses and individuals that were able to circumvent the terms of their exclusions by operating under different identities. GAO's cases include the following: (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.