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entitled 'Excluded Parties List System: Suspended and Debarred 
Businesses and Individuals Improperly Receive Federal Funds' which was 
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Before the Committee on Oversight and Government Reform, House of 

United States Government Accountability Office: 

For Release on Delivery: 
Expected at 10:00 a.m. EST:
Thursday, February 26, 2009: 

Excluded Parties List System: 

Suspended and Debarred Businesses and Individuals Improperly Receive 
Federal Funds: 

Statement of Gregory D. Kutz, Managing Director: 
Forensic Audits and Special Investigations: 


Mr. Chairman and Members of the Committee: 

Thank you for the opportunity to discuss the results of our 
investigation of the Excluded Parties List System (EPLS), a Web-based 
system maintained by the General Services Administration (GSA). 
[Footnote 1] To protect the government's interests, any agency can 
exclude, i.e., suspend or debar, businesses or individuals from 
receiving contracts or assistance[Footnote 2] for various reasons, such 
as a conviction of or indictment for a criminal or civil offense or a 
serious failure to perform to the terms of a contract.[Footnote 3] 
Agencies must report all excluded parties to EPLS within 5 business 
days after a suspension or debarment becomes effective. Before awarding 
funds, contracting officers and other agency officials are required to 
check EPLS to ensure that a prospective vendor is not an excluded 

In July 2005, GAO reported that the data in EPLS were insufficient to 
enable agencies to determine with confidence that a prospective vendor 
was not currently excluded.[Footnote 4] In response, GSA agreed to 
modify EPLS's data requirements to include a mandatory provision that 
agencies enter a Data Universal Numbering System (DUNS) number to 
facilitate the identification of excluded parties.[Footnote 5] Despite 
such modifications, recent allegations indicate that businesses or 
individuals that have been excluded for egregious offenses have been 
able to "resurface" under the same or a different business name or 
identity in order to continue to receive federal contracts and other 
funds. We described the results of our investigation confirming these 
allegations in our recently issued report.[Footnote 6] This testimony 
will summarize our overall findings and will also describe the key 
causes of the improper awards and other payments we detected. 

To conduct our work we first compared DUNS numbers appearing in EPLS 
with those appearing in the Federal Procurement Data System-Next 
Generation (FPDS-NG) for fiscal years 2006 and 2007. The FPDS-NG is the 
central repository for capturing information on federal procurement 
actions. Because not all records within EPLS contained DUNS numbers, we 
also compared vendor addresses available in EPLS with those in FPDS-NG. 
From the matches we identified, we selected for further investigation 
parties that (1) were excluded governmentwide for egregious offenses 
such as fraud, false statements, theft, and violations of selected 
federal statutes and (2) received new awards in excess of $1,000 during 
the period of suspension or debarment. We did not examine any federal 
award databases other than FPDS-NG, nor did we examine whether excluded 
parties continued to receive federal funds under subcontract 
arrangements or from grants, loans, or subsidies. GAO's objective was 
not to determine, and GAO did not have data to determine, the number of 
businesses and individuals in EPLS that received new federal awards 
during their exclusions. 

We conducted our audit work and investigative work from December 2007 
through November 2008. We conducted our audit work in accordance with 
U.S. generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our objectives. We performed our investigative work in 
accordance with standards prescribed by the President's Council on 
Integrity and Efficiency. 

Excluded Parties Continue to Do Business with the Government: 

We confirmed the allegations that businesses and individuals that were 
excluded for egregious offenses were continuing to receive federal 
contracts. Specifically, we developed case studies on businesses and 
individuals that were awarded funds despite being suspended or debarred 
for a variety of offenses, ranging from national security violations to 
illegal dumping of chemicals to tax fraud. These excluded parties 
received funding in part because agency officials failed to search EPLS 
or because their searches did not reveal the exclusions as a result of 
system deficiencies. We also identified additional cases involving 
businesses and individuals that were able to fraudulently circumvent 
the terms of their exclusions by operating under different identities 
and one case where the Army chose to continue doing business with an 
excluded party despite its debarment. Examples of our cases include the 

* In July 2005, the Department of the Army debarred a German company 
and its president after the president violated German law and attempted 
to ship dual use aluminum tubes, which can be used to develop nuclear 
weapons, to North Korea. In the debarment decision, the Army stated 
that because the president "sold potential nuclear bomb making 
materials to a well-known enemy of the United States," there was a 
"compelling interest to discontinue any business with this morally 
bankrupt individual." Despite this debarment, the Army chose to 
continue to award the company task orders and paid it over $4 million 
during fiscal year 2006. Although the Army told us that it was legally 
obligated to continue the contract with the company, in fact several 
options were available for termination. It is not clear if the Army 
considered these options because the officials we spoke with were not 
sure of the exact circumstances surrounding the decision and there was 
no contemporaneous documentation related to the case. 

* In April 2006, the Department of the Navy suspended a company after 
one of its employees sabotaged repairs on an aircraft carrier by using 
nonconforming parts to replace fasteners on steam pipes. If these pipes 
had ruptured as a result of faulty fasteners, those aboard the carrier 
could have suffered lethal burns. However, less than a month after the 
suspension, the Navy awarded the same company three new contracts 
because a contracting officer failed to check EPLS to verify the 
company's eligibility. 

* GSA suspended a construction company in September 2006 after its 
president opened fraudulent GSA surplus-property-auction accounts using 
fictitious social security numbers so that he could continue to do 
business with GSA while his original account was in default for 
nonpayment. The Department of the Interior attempted to check the 
contractor's eligibility in EPLS prior to making several awards to the 
company, but the exclusion was not revealed because GSA did not enter 
the company into EPLS until October 2006, more than a month after the 
suspension began. 

* The Department of Health and Human Services (HHS) debarred an 
individual in April 2003 for 5 years after he pleaded guilty to 
Medicare fraud. Because HHS did not debar the individual's company, he 
transferred ownership of the company to his wife in an attempt to 
continue receiving Medicare reimbursements. After HHS objected to this 
arrangement, he then sold the company to a neighbor. Two years later, 
citing financial difficulties, the neighbor sold the business back to 
the original owner's wife. The wife admitted to our investigators that 
she then legally changed her last name to her maiden name to avoid 
"difficulties" in using her husband's name. Using this scheme, the 
couple received Medicare payments for the remaining 3 years of the 
husband's debarment. 

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

Most of the improper contracts and payments we identified can be 
attributed to ineffective management of the EPLS database or to control 
weaknesses at both excluding and procuring agencies. Our cases and 
analyses of EPLS data demonstrate that no single agency is proactively 
monitoring the content or function of the database and that agencies 
are not consistently inputting timely or accurate data related to the 
parties they exclude. Specifically, our work shows that EPLS entries 
may contain incomplete information, the database has insufficient 
search capabilities, and the listed points of contact for further 
information about exclusions are incorrect. With regard to agency 
control weaknesses, our investigation shows that (1) excluding agencies 
ignored the DUNS number requirement, (2) agencies did not enter 
exclusions within the required time frame, (3) contracting officers 
failed to check EPLS prior to making awards or adding new work or 
extensions to existing contracts, (4) agencies used automated 
purchasing systems that do not interface with EPLS, and (5) agencies 
made purchases from excluded parties that are listed on GSA's Federal 
Supply Schedule. Although agencies are still required to check EPLS 
prior to purchasing items through this program, the fact that excluded 
parties are listed on the GSA Schedule can result in agencies' 
purchasing from unscrupulous companies that continue to pursue business 
with the government notwithstanding their exclusions. To verify that no 
warnings exist to alert agencies that they are making purchases from 
excluded parties, we used our own GAO purchase card to buy body armor 
worth over $3,000 through the supply schedule from a company that had 
been debarred by the Department of the Air Force in September 2007 for 
falsifying tests related to the safety of its products. 

Recommendations for Executive Action: 

At the close of our investigation, we referred all the cases we 
identified to the appropriate agency officials for further action. We 
also made recommendations to GSA to improve the effectiveness of the 
suspension and debarment process. Specifically, we recommended that 
that the Administrator of General Services take the following five 

* 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 

* 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; 

* place a warning on the Federal Supply Schedule Web site indicating 
that prospective purchasers need to check EPLS to determine whether 
vendors are excluded and explore the feasibility of removing or 
identifying excluded entities that are listed on the GSA Schedule. 

In written comments on a draft of this report, GSA agreed with all five 
of our recommendations. As part of its response, GSA outlined actions 
it plans to take or has taken that are designed to address our 
recommendations. However, most of the actions described do not achieve 
the intent of these recommendations. In several instances, GSA simply 
restated its current policies and procedures instead of agreeing to 
take steps to oversee the completeness of EPLS and ensure that 
exclusions are properly enforced. For example, in response to our 
recommendation to issue guidance to procurement officials on the 
requirement to check EPLS prior to awarding contracts and to suspension 
and debarment officials on the 5-day entry and contractor 
identification number requirements, GSA did not plan to take any new 
actions and instead pointed to Federal Acquisition Regulation 
requirements and GSA policies that were already in place before we 
conducted our investigation. Similarly, GSA did not plan to take any 
new actions to ensure that the EPLS database requires contractor 
identification numbers for all actions entered into the system, nor did 
it plan to take additional steps to update the EPLS agency contact 
list. Based on our investigation, if GSA is not more proactive in its 
management of EPLS system, suspended and debarred companies will 
continue to improperly receive millions of taxpayer dollars. More 
detailed information on GSA's comments and our response can be found in 
our report. 

Mr. Chairman and Members of the Committee, this concludes my statement. 
I would be pleased to answer any questions that you or other members of 
the committee may have at this time. 

Contacts and Acknowledgments: 

For further information about this testimony, please contact Gregory D. 
Kutz at (202) 512-6722 or Contact points for our Offices 
of Congressional Relations and Public Affairs may be found on the last 
page of this testimony. In addition to the individual named above, the 
individuals who made major contributions to this testimony were Gary 
Bianchi, Cindy Brown Barnes, Shafee Carnegie, Bruce Causseaux, Jennifer 
Costello, Craig Fischer, Georgeann Higgins, Betsy Isom, Leslie Kirsch, 
Robert Lowthian, Andrew McIntosh, and Kim Perteet. 

[End of section] 


[1] The database can be accessed at [hyperlink,]. 

[2] Parties can be excluded from receiving a wide range of federal 
funds including, but not limited to, Medicare and Medicaid provider 
payments, cooperative agreements, scholarships, fellowships, loan 
guarantees, subsidies, insurance, payments for specified uses, donation 
agreements, or contracts of assistance. 

[3] A suspension is a temporary exclusion of a party pending the 
completion of an investigation, while a debarment is a fixed-term 
exclusion. Generally, the period of debarment does not exceed 3 years, 
though some are indefinite. 

[4] GAO, Federal Procurement: Additional Data Reporting Could Improve 
the Suspension and Debarment Process, [hyperlink,] (Washington, D.C.: July 29, 

[5] A DUNS number is a unique nine-digit identification number assigned 
to firms by Dun & Bradstreet, Inc. 

[6] GAO, Excluded Parties List System: Suspended and Debarred 
Businesses and Individuals Improperly Receive Federal Funds, 
[hyperlink,] (Washington, D.C.: 
Feb. 25, 2009). 

[End of section] 

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