TO PAY, OR NOT TO PAY:REDUCING IMPROPER PAYMENTS THROUGH

THE DO NOT PAY LIST

Rachel Cohn*

*Rachel Cohn is a J.D. Candidate at The George Washington University Law School and a member of the Public Contract Law Journal. She wishes to thank Megan Bartley and Meg Nielsen for their help and guidance throughout the writing process.

TABLE OF CONTENTS

I. The Recent Increase in Improper Payments..................3A. What Are Improper Payments?..........................4B. Efforts to Reduce Improper Payments.................65C. The Do Not Pay List..................................9D. The Do Not Pay List is a Start, but Not Enough. . . .1110

II. Information Databases Repeatedly Fail to Reduce Improper Payments.................................................12A. Federal Procurement Data System...................1413B. Past Performance Information Retrieval System.....1716C. Excluded Parties List System......................2119D. Federal Awardee Performance and Integrity Information

System............................................2422III. Plagued by the Same Defects: The Do Not Pay List.......2725

A. The Existing Databases Repeat the Same Mistakes. . .2826B. The Do Not Pay List Does Not Rectify Problems in

Existing Lists....................................2926IV. Recommendation: A Two-Part Solution....................3330

A. Improving the Do Not Pay List Through Private Sector Analytics.........................................3330

B. Impose Sanctions to Improve Contracting Decisions and Decrease Improper Payments........................3936

V. Conclusion.............................................4038

“In total, the [G]overnment made $116 billion in improper payments last year. Imagine how many private and publicly traded companies would shut down if they committed errors of this magnitude.”1

In May 2007, the Government Services Administration (GSA)

debarred a chemical products company and its principals after the

Environmental Protection Agency and the Drug Enforcement Agency

discovered the company had conspired to defraud the Government by

affixing false manufacturing labels to chemicals being sold to

government agencies.2 Despite debarment, that same chemical

company has since received over $1 million in federal contract

awards from four different federal agencies, including the GSA.3

Another agency, the United States Department of Agriculture,

claimed it paid this same company over $700,000 after the

debarment because it was exercising a one-year option on an

already existing contract and believed, erroneously, that it was

not required to check the database of debarred companies before

1 Dave Dantus, Agencies Must Erase Payment Errors to Cut Inefficiencies, FED. TIMES (Nov. 27, 2011), http://www.federaltimes.com/article/20111127/ADOP06/111270303/.2 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-09-174, EXCLUDED PARTIES LIST SYSTEM: SUSPENDED AND DEBARRED BUSINESSES AND INDIVIDUALS IMPROPERLY RECEIVE FEDERAL FUNDS 10 (2009) [hereinafter EXCLUDED PARTIES LIST SYSTEM]. Contractors suspended, debarred, or proposed for debarment are excluded from receiving contracts and agencies cannot solicit offers from, award contracts to, or consent to subcontracts with these contractors, absent extenuating circumstances. FAR 9.405(a). Contractors debarred, suspended, or proposed for debarment are also excluded from conducting business with the Government as agents or representatives of other contractors. Id.3 EXCLUDED PARTIES LIST SYSTEM, supra note 2, at 10.

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exercising the option.4 The GSA, on the other hand, claimed that

the company it continued to do business with was not the same

company that it had previously debarred.5 Although the GSA said

it researched the company before awarding the contract, a GAO

investigation revealed that the company in question did not

appear in the GSA’s search of the debarred contractor database

because the original database entry did not include the required

unique identifying information for the company.6

Awarding subsequent contracts to a debarred company is just

one of many examples illustrating the depth of the Federal

Government’s current improper payments problem. In September

2006, the GSA suspended a construction company after it found the

company’s president had “used fictitious Social Security numbers

to open multiple GSA auction accounts to bid on surplus

property.”7 Despite this suspension, which should have prevented

additional awards, the Department of Interior (DOI) made seven

awards to the company in 2007 in amounts exceeding $230,000.8

The DOI failed to check federal databases that should have listed 4 Id. The federal acquisition guidelines state, however, that options cannot be exercised with debarred parties unless the head of the agency makes a determination that the agency should continue the contract. FAR 9.405-1(b)(3).5 EXCLUDED PARTIES LIST SYSTEM, supra note 2, at 10.6 See id. GSA had mistakenly entered the company’s attorney’s address into the database instead of the company address, and even though the debarred company and the one GSA continued to do business with had the same name, GSA officials mistakenly decided they were different companies. Id.7 Id. at 12.8 Id.

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the company as suspended but, even if it had, those databases

were out of date.9

This Note will discuss the Federal Government’s failed

attempts to solve the ongoing improper payments problem and

explain why the Government’s latest attempt fails to improve upon

past endeavors. Part I of this Note provides background on the

causes and amounts of improper payments. Part II examines

previous efforts to reduce improper payments and identifies the

factors that thwarted the success of those programs. Part III

explains why the Do Not Pay List – the Federal Government’s

current approach to reducing improper payments – like it’s

predecessors, is unlikely to succeed in eliminating this ongoing

problem. Part IV proposes a novel two-pronged approach to help

minimize the Federal Government’s improper payments without

building additional databases.

I. The Recent Increase in Improper Payments

Improper payments to contractors have increased

significantly in recent years, from over $72 billion in fiscal

year 2008,10 to $116 billion in fiscal year 2011.11 The rate of

9 Id.10 Tom Cohen, White House Reports Billions of Improper Payments in 2009, CNNPOLITICS (Nov. 18, 2009, 1:44 AM), http://www.cnn.com/2009/POLITICS/11/18/government.improper.payments/index.html.11 Adam Aigner-Treworgy, Dir. Lew: Improper Federal Payments on the Decline, CNNPOLITICS (Nov. 15, 2011, 4:38 PM), http://whitehouse.blogs.cnn.com/2011/11/15/dir-lew-improper-federal-payments-on-the-decline/.

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improper payment peaked in fiscal year 2009 at 5.42%.12 This

represents approximately $105 billion in improper payments in

fiscal year 2009,13 and an increase of over 37% from the $72

billion in improper payments in fiscal year 2008.14 In response

to these drastic increases, the Federal Government has devoted

considerable resources to creating databases of contractor

information intended to prevent improper payments.15

A. What Are Improper Payments?

The Office of Management and Budget (OMB) defines improper

payments broadly as “any payment that should not have been made

or that was made in an incorrect amount” under applicable

requirements.16 Improper payments include both underpayments and

overpayments or erroneous transfers of federal funds.17 They

also encompass wrongful denials of payment or service, payments

made “to an ineligible recipient or for an ineligible service,”

12 Improper Payments Overview, PAYMENT ACCURACY, http://www.paymentaccuracy.gov (last visited Oct. 21, 2012).13 Id.14 Cohen, supra note 10.15 See discussion infra Parts I.B, I.C. 16 OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB M-10-13, ISSUANCE OF PART III TO OMB CIRCULAR A-123, APPENDIX C, REQUIREMENTS FOR IMPLEMENTING EXEC. ORDER 13520: REDUCING IMPROPER PAYMENTS 4 (2010) [hereinafter REQUIREMENTS FOR IMPLEMENTING EXEC. ORDER 13520]. OMB is responsible for government-wide budget development and execution, as well as oversight of agency performance and financial management. See The Mission and Structure of the Office of Management and Budget, OFFICE OF MGM’T & BUDGET, http://www.whitehouse.gov/omb/organization_mission/ (last visited Nov. 1, 2012). 17 REQUIREMENTS FOR IMPLEMENTING EXEC. ORDER 13520, supra note 16, at 4.

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and payments for which an agency is unable to discern the

accuracy due to lack of appropriate documentation.18

The OMB has identified and categorized three main causes of

improper payments: (1) documentation and administrative errors,

which occur when an agency lacks the requisite documentation “to

verify the accuracy of the recipient’s claim for federal

benefits”; (2) authentication and medical necessity errors, which

occur when an agency is “unable to confirm that the [intended]

recipient meets all of the requirements for receiving payment”;

and (3) verification errors, which occur when the Government

fails to verify recipient information such as earnings, assets,

or work status.19 Improper payments can arise when an agency

either lacks accurate information or fails to consult the correct

information regarding the intended recipient of government funds

prior to payment.20

B. Efforts to Reduce Improper Payments

Since the 1980s, the President and various executive

agencies have implemented several initiatives, and Congress has

passed legislation, aimed at reducing improper payments. 18 Id.19 PAYMENT ACCURACY, supra note 12. Documentation errors are typically caused by errors made in processing or classifying benefit applications at the agency level. Id. Authentication errors generally occur when a medical service is provided to a patient who does not require such a service. Id. The vast majority of improper payments in all three categories, however, are unintentional errors rather than fraudulent or intentional misuses of government funds. Id. 20 See id.

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Pursuant to a 1986 executive order, the GSA created a government-

wide list of companies excluded from federal procurement and non-

procurement programs.21 In 1990 and 1993, respectively, Congress

passed the Chief Financial Officers Act22 and the Government

Performance and Results Act,23 which each challenged agencies to

identify, systematically measure, and reduce improper payments by

requiring agencies to prepare annual performance plans, including

strategies necessary to achieve such performance goals.24 In

2002, Congress passed the Improper Payments Information Act

(IPIA), which required the OMB to quantify the amount of improper

payments reported by individual agencies.25

Since taking office in 2008, President Obama has emphasized

reducing government waste and increasing accountability and

transparency.26 As part of his Accountable Government

21 Exec. Order No. 12,549, 3 C.F.R. 189 (1986). 22 Chief Financial Officers Act of 1990, Pub. L. No. 101-576, 104 Stat. 2838 (codified as amended in scattered sections of 5 and 31 U.S.C.).23 Government Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285 (codified as amended in scattered sections of 5, 31, and 39 U.S.C.).24 See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO/AIMD-00-10, FINANCIAL MANAGEMENT: INCREASED ATTENTION NEEDED TO PREVENT BILLIONS IN IMPROPER PAYMENTS 5-7 n.1, n.2 (1999).25 Improper Payments Information Act (IPIA) of 2002, Pub. L. No. 107-300, § 2, 116 Stat. 2350, 2350 (codified at 31 U.S.C. § 3321 note (2006)). The IPIA was passed in response to a GAO report which recommended a coordinated approach to address the Government’s improper payments problem. U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-02-749, FINANCIAL MANAGEMENT: COORDINATED APPROACH NEEDED TO ADDRESS THE GOV’T’S IMPROPER PAYMENTS PROBLEMS 2 (2002). 26 See OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, CAMPAIGN TO CUT WASTE 1 (2011).

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Initiative, President Obama set an aggressive goal, challenging

his administration to reduce improper payments government-wide by

$50 billion and to recapture at least $2 billion by fiscal year

2012.27

Through a series of executive orders and memoranda,

President Obama has sought to make reducing improper payments a

priority for federal agencies. In November 2009, the President

required the OMB Director to identify high priority federal

programs – those programs issuing the highest dollar amounts of

improper payments.28 The OMB created a website publishing

information about these high priority programs, including targets

for reduction of improper payments.29 In March 2010, President

Obama issued a memorandum to expand the use of payment recapture

audits, a process through which accounting specialists and fraud

examiners utilize technology to examine agency payment records

and uncover duplicate payments, overpayments, and fictitious

vendors.30

27 OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB M-11-04, INCREASING EFFORTS TO RECAPTURE IMPROPER PAYMENTS BY INTENSIFYING AND EXPANDING PAYMENT RECAPTURE AUDITS 1 (2010).28 Exec. Order No. 13,520, 74 Fed. Reg. 62201 (Nov. 20, 2009). In response to the Order, OMB issued guidance on how such programs were selected, as well as how the annual or semi-annual agency improvement targets determined. See REQUIREMENTS FOR IMPLEMENTING EXEC. ORDER 13 , 520 OMB M-10-13 , supra note 161515, at 5.29 PAYMENT ACCURACY, supra note 121812. 30 Memorandum on Finding and Recapturing Improper Payments, 75 Fed. Reg. 12,119, 12,119 (Mar. 10, 2010). In response, OMB issued revisions to Part III to Appendix C of OMB Circular A-123, Management's Responsibility for Internal Controls, which specifies responsibilities for agency officials, determines the

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In June 2010, President Obama ordered the creation of a “Do

Not Pay List” (the DNP List).31 Touted as “a single source

through which all agencies can check the status of a potential

contractor or individual,”32 Obama intended the DNP List to

provide information to federal agencies in “a more timely and

cost-effective manner.”33 In addition, since the announcement of

the DNP List, Congress has sought to keep the focus on reducing

improper payments by enacting related legislation.34 While

programs that are subject to the executive order, establishes reporting requirements under the order, and establishes procedures to identify outstanding improper payments. See generally REQUIREMENTS FOR IMPLEMENTING EXEC. ORDER 13520, OMB M-10-13 , supra note 161515. OMB issued Parts I and II of Appendix C to OMB Circular A-123 in August, 2006 as implementing guidance for IPIA, (PUB. L. NO . 107-300), and section 831 of the Defense Authorization Act for Fiscal Year 2002 (PUB. L. NO . 107-107, codified at 31 U.S.C. §§ 3561-3567), also known as the Recovery Auditing Act. Id. at 1 n.1; National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-107, 115 Stat. 1012, 1019 (codified in 31 U.S.C. §§ 3561-3567 (2006)). 31 Memorandum on Enhancing Payment Accuracy Through a “Do Not Pay List”, 75 Fed. Reg. 35,953 (June 18, 2010).32 OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, FACT SHEET: DO NOT PAY LIST 1 (2010). 33 Id.34 See, e.g., Improper Payments Elimination and Recovery Act of 2010, Pub. L. No. 111-204, 124 Stat. 2224. Signed into law on July 22, 2010, the Improper Payments Elimination and Recovery Act (IPERA) amended the IPIA and required the OMB to issue guidance to federal agencies regarding the elimination of improper payments. Id. § 2. In response to the IPERA, the OMB re-issued Parts I and II to Appendix C of OMB Circular A-I23. OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB M-11-16, ISSUANCE OF REVISED PARTS I AND II TO OMB CIRCULAR A-123 1 (2011). Recently, Congress has proposed additional legislation on improper payments. See, e.g., Improper Payments Elimination and Recovery Improvement Act of 2011 (IPERIA), S. 1409, 112th Cong. (1st Sess. 2011). Companion bill HR 4053 was introduced in the House of Representatives in February 2012. H.R. 4053, 112th Cong. (2012).

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improper payments are not a new problem, these recent efforts by

the President and Congress indicate a renewed focus on reducing

them.

C. The Do Not Pay List

The goal of the DNP List is to prevent improper payments

from being made in the first place.35 Specifically, it will

serve as a single source “through which all agencies can check

the [eligibility] status of a potential contractor or

individual,” recipient, creating efficient access to information

to help reduce improper payments.36

Although the ultimate plan is for the DNP List to exist as a

single database, compiling the information and building the final

product is still a work in progress. In the meantime, the DNP

List exists only as a network of existing databases that agencies

are required to check prior to awarding a contract.37  The

Treasury Department has been compiling this information to make

it available through a “central portal” online.38 This online

35 Enhancing Payment Accuracy Through a “Do Not Pay List”, 75 Fed. Reg. at 35,953.36 FACT SHEET: DO NOT PAY LIST, supra note 32, at 1.37 MEMORANDUM ON Enhancing Payment Accuracy Through a “Do Not Pay List”, 75 Fed. Reg. supra note 3329 at 35,953.. 38 Id.; S.1409 § 5(b)(1), § 5(b)(1), 112th Cong. (1st Session), supra note 323, at § 5(b)(1); Jeff Zients, Moving Aggressively on Improper Payments, OMBLOG 1-2 (Sept. 23, 2011, 2:55 PM),, http://www.whitehouse.gov/blog/2011/09/23/moving-aggressively-improper-payments.

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DNP List currently includes information from seven contractor

databases, and other data sources are still being added.39

D. The Do Not Pay List is a Start, but Not Enough

President Obama’s efforts and the creation of the DNP List

demonstrate progress, but are not enough to neutralize the

increase in erroneous payments. Previous pilot program efforts

and increased use of recovery audits decreased the rate of

improper payments in fiscal year 2010 to 5.29%.40 This amounts

to avoiding $3.8 billion n in avoided improper payments.41

“Agencies also reported. . . recaptur[ing] $687 million in

improper payments in fiscal yearFY 2010 —- the highest amount

recovered to date.”42 The overall amount of improper payments,

39 Zients, supra note 383736 ; Do Not Pay Portal, DO NOT PAY POR TAL , http://donotpay.treas.gov/portal.htm. (last visited Oct. 21, 2012). As of the date of this Note, the online DNP List includes data from the Excluded Party List System with an Office of Foreign Asset Controls feed, the Death Master File, List of Excluded Individuals/Entities, Excluded Party List System, Debt Check, Central Contractor Registration, and The Work Number. DO NOT PAY PORTAL , http://donotpay.treas.gov/portal.htm. Id. The online DNP List was intended to be completed by the end of 2011. Zients, supra note 3736. In September 2011, OMB announced that the system was “in production right now and will be available government-wide in a few months.” Zients, supra note 38, at 2. Id. The DNP online portal launched a Business Center in January, 2012, which provides automated tools and single-entry access to three existing contractor databases. GoVerify Business Center: Preventing and Reducing Improper Payments, U. S. DEP’T. OF THE TREASURY BUREAU OF TH E PUB.LIC DEBT, GOVERIFY BUSINE SS CENTER 4 ( Jan. 11, 2012) [hereinafter GOVERIFY] , available at http://www.fms.treas.gov/sfc/GOVerify%20Improper%20Payments.pdf.. 40 PAYMENT ACCURACY, supra note 1912, at 2.41 Zients, supra note 383736, at 1.42 Id.

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however, still increased in fiscal year 2010 to an all-time high

of $125 billion.43

The Ffederal Ggovernment continued to make progress reducing

improper payments in fiscal year 2011, but the Ggovernment is not

on track to meet President Obama’s goal of reducing improper

payments by $50 billion by fiscal year 2012.44 In 2011, OMB The

administration reported that, in Fiscal Year 2011, “the

[F]federal [G]government cut improper payments by $17.618 billion

in wasteful and improper payments, and recaptured $1.2 billion”

in improper payments.45 For the first time in six years, the

amount of total improper payments declined from the previous

year, down to approximately $116 billion, with the error rate

decreasing to 4.69%.46 Since the start of the Accountable

Government Initiative, the Ffederal Ggovernment has avoided

improperly paying out over $20 billion,47, but still needs to 43 Ed O’Keefe, Government Made $125 Billion In Improper Payments Last Year, WASH. INGTON POST (Nov. 17, 2010, 7:57 PM), http://www.washingtonpost.com/wp-dyn/content/article/2010/11/17/AR2010111706323.html. Even though the rate of improper payments decreased in fiscal year 2010, the overall amount increased because the economic recession has lead to increased numbers of payments for unemployment insurance and Medicaid benefits. Id.44 See Adam Aigner-Treworgy, supra note 11; INCREASING EFFORTS TO RECAPTURE IMPROPER PAYMENTS BY INTENSIFYING AND EXPANDING PAYMENT RECAPTURE AUD ITS, supra note 27, at 11.45 Id.Adam Aigner-Treworgy, supra note 11.46 PAYMENT ACCURACY, supra note 121212; Aigner-Treworgy, supra note 441111. Significant decreases in the amount of improper payments came from Medicare, Medicaid, Pell Grants, and Food Stamps. Aigner-Treworgy, supra note 4411. 47 As noted previously in this Section, in 2010 the Government avoided making improper payments in the amount of $3.8 billion. In 2011, the Government avoided making improper payments in the

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recover another $30 billion in the next year in order to meet

President Obama’s goal by the end of 2012.4849

[II.] Information Databases Repeatedly Fail to Reduce Improper Payments While the Ffederal Ggovernment has made some significant

progress in reducing the rate of improper payments, the

compilation of the DNP List is not an effective solution to this

end this ongoing problem. The DNP List is unlikely to solve the

problem of improper payments because it is simply the next in a

series of failed attempts to create centralized access to a list

of entities that should not receive payment.

The Ffederal Ggovernment has demonstrated a pattern of

creating ineffective lists intended to decrease improper

payments.50 Over the last 18 years, various agencies have

created numerous iterative lists that contracting officers and

other government officials must check before issuing an award or

payment. There are four major lists which exemplify this

pattern: (1)Federal Procurement Data System F(FPDS); (2) Past

Performance Information Retrieval System (PPIRS); (3) Excluded

Parties List System (EPLS); and (4) Federal Awardee Performance

and Integrity Information System (FAPIIS).51 Despite some

amount of $18 billion. When totaled, the total number avoided is approximately $21.8 billion. PAYMENT ACCURACY , supra note 12.48 See discussion supra Part I.B. (discussing President Obama’s goals). 49 PAYMENT ACCURACY, supra note 12.50 See discussion infra Parts II.A-D.51 See discussion infra Parts II.A-D.

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success, each list suffers similar flaws that have thwarted the

success of those programs, including: (i) inaccurate and

incomplete data; (ii) a flawed user interface; and (iii) a lack

of accountability or centralized management.52

A. Federal Procurement Data System

The FPDS Federal Procurement Data System (“FPDS”) is the

Ffederal Ggovernment’s “central archive of statistical

information on federal contracting.”53 FPDS aims to increase

trust and credibility among contracting professionals by

helpingallows contracting officials to examine data across

multiple agencies to make better contracting decisions.54

However, FPDS suffers from serious flaws which have prevented it

from serving as a single, useful database of federal contracting

information.55 FPDS contains incomplete data, has a flawed user

interface, and lacks accountability and standards for data

accuracy.56

52 See discussion infra Parts II.A-D.53 Government Contract Records, USA.GOV, http://answers.usa.gov/system/selfservice.controller?CONFIGURATION=1000&PARTITION_ID=1&CMD=VIEW_ARTICLE&ARTICLE_ID=11374&USERTYPE=1&LANGUAGE=en&COUNTRY=US (last visited Oct. 21, 2012).54 See id.55 FPDS was modernized between 2003 and 2005 to create FPDS-NG in an effort to allow for more frequent data updates. For the purposes of this Note, FPDS and FPDS-NG are functionally equivalent as the system flaws occurring in FPDS continue to exist in FPDS-NG. See ACQUISITION ADVISORY PANEL, OFFICE OF THE FED. PROCUREMENT POLICY OF THE U.S. CONG. , REPORT OF THE ACQUISITION ADVISORY PANEL TO THE OFFICE OF FEDERAL PROCUREMENT POLICY AND THE UNITED STATES CONGRESS 434, 438 (Jan. 2007).56 See, e.g., U.S. GOV’T ACCOUNTABILITY OFFICE, GAO/AIMD-94-178R, OMB AND GSA: FPDS IMPROVEMENTS 1-2 (1994) [hereinafter FDSP IMPROVEMENTS]

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FPDS data is inaccurate and incomplete because the

information coming it receives from its feeder systems is not

properly reported.57 Not all Ggovernment agencies that use

contractors are required to report information to FPDS.58 FPDS

data relies depends on individuals to prepare contract action

reports correctly and ; the system has no means to ensure that

such data, if prepared at all, is done accurately.59 Contracting

officials, therefore, lack cannot have confidence in the system

(explaining that FPDS has not kept up with user needs because it lacks a forum for identifying and addressing user needs, the system technology is inefficient, and the system lacks standards for accuracy and completeness of data); ACQUISITION ADVISORY PANEL, OFFICE OF THE FED. PROCUREMENT POLICY OF THE U.S. CONG., supra note 55 4849, at 445. The GAO has long reported concerns with FPDS almost since its inception. Id.57 See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-05-960R, IMPROVEMENTS NEEDED TO THE FEDERAL PROCUREMENT DATA SYSTEM-NEXT GENERATION 2-3 (2005)[hereinafter IMPROVEMENTS NEEDED TO THE FEDERAL PROCUREMENT DATA SYSTEM] . Like PPIRS, infra note 6361, tThe majority of the data comprising FPDS comes from the Department of Defense, which has repeatedly failed to input accurate data on a timely basis and has delayed time frames for updating data already in the system. Id. The Department of Defense represents 60% of the contracting actions in FPDS and is the largest contracting entity in the Ffederal Ggovernment. Id. A review of the Small Business Administration’s (SBA) FPDS data indicated that approximately 97% of the contract actions in the audit conducted by SBA system “contained one or more inaccurate or incomplete data elements.” U.S. SMALL BUS. ADMIN. OFFICE OF THE INSPECTOR G EN.E RAL, NO. 10- 08, SBA’S EFFORTS TO IMPROVE TH E QUALITY OF ACQUISITION DATA IN THE FEDERAL PROCUREMENT DATA SYST EM MEMORANDUM: AUDIT OF THE SBA'S EFFORTS TO IMPROVE THE QUALITY OF ACQUISITION DATA IN THE FED. PROCUREMENT DATA SYS., REPORT NO. 10-08 2 (Feb. 26, 2010).58 OFFICE OF THE FED. PROCUREMENT POLICY OF THE U.S. CONG., REPORT OF THE ACQUISITION ADVISORY PANEL ACQUISITION ADVISORY PANEL , supra note 55 4849, at 438.59 U.S. GOV’T ACCOUNTABILITY OFFICE, PSAD-80-33, THE FEDERAL . PROCUREMENT DATA SYSTEM . – MAKING IT WORK BETTER 9 (1980).

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because contractor names and dollar amounts are often listed

erroneously.60

FPDS also suffers from a flawed user interface. The current

FPDS website allows users to generate data reports through

standard reporting templates or through an “’ad hoc’ reporting

tool.”61 GAO analysts who were trained on these tools did not

find either one easy to use.62 System time-outs and delays

occurred frequently while trying to utilize either reporting

tool.63 Users were also unable to extract government-wide data

in a simple, machine readable format, and instead had to retrieve

data separately for each government agency from multiple archived

files.64

Finally, FPDS lacks accountability, hampering accurate and

timely reporting. In 1994, the GAO noted that FPDS “does not

have standards detailing the appropriate levels of accuracy and

completeness of FPDS data.”65 For example, there is no person or

entity responsible for overseeing the proper transmittal of

60 See id. Additional reports noted that much of the inaccurate or incomplete data existed as a result of flaws in the feeder systems. See id.61 IMPROVEMENTS NEEDED TO THE FEDERAL PROCUREMENT DATA SYSTEM GAO-05-960R, supra note 575151, at 3.62 Id. GAO trained analysts found that the ad hoc reports were time-consuming to build, and could not subsequently be saved, meaning they would have to be re-built by the user each time the feature is utilized. Id.63 Id.64 Id. at 4.65 FDSP IMPROVEMENTS GAO/AIMD-94-178R , supra note 565049, at 2.

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data.66 Instead, FPDS relies on voluntary contributions from

agencies for operational and enhancement funding.67 As a result,

it is incredibly difficult for FPDS to make changes and correct

flaws in its system, making it unlikely to improve contracting

decisions and decrease improper payments.

B. Past Performance Information Retrieval System

The goal of Past Performance Information Retrieval System

(“PPIRS”), a repository of government contractors’ prior

performance history, is to share that information across

government agencies to better inform contract award decisions.68

Created and run by the Naval Sea Logistics Center (NSLC), the

information in PPIRS is compiled from the Department of Defense,

the National Institute of Health, and the National Aeronautics

and Space Administration.69 66 See OFFICE OF THE FED. PROCUREMENT POLICY OF THE U.S. CONG. ACQUISITION ADVISORY PANEL , supra note 55 4849, at 443.67 Id. FPDS must rely on voluntary contributions because, as part of the Integrated Acquisition Environment, it is funded by agencies as a way to integrate and leverage the investments in automation across agencies. Id.68 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-09-374, FEDERAL . CONTRACTORS: BETTER PERFORMANCE INFORMATION NEEDED TO SUPPORT AGENCY CONTRACT AWARD DECISIONS 1 (2009) [hereinafter BETTER PERFORMANCE INFORMATION NEEDED] .69 GovWin Editor, Past Performance Information Retrieval System (PPIRS), GOVWIN (Nov. 23, 2010, 16:42), http://govwin.com/knowledge/past-performance-ppirs. Most of the information in PPIRS comes from the Department of Defense’s Contractor Performance Assessment Reporting System (“CPARS”) and the National Aeronautics and Space Administration’s feeder system. Id. The civilian information in PPIRS came primarily from the National Institute of Health’s Contractor Performance System before it was shut down in September, 2010 due to architectural problems and the Ffederal Ggovernment’s desire to consolidate further. Id.

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Despite the NSLC’s efforts to create a single, easily

accessible database for all past performance data, PPIRS suffers

from a number of flaws which prevent it from reducing improper

payments to contractors with poor past performance records:

incomplete data, flawed user interface, lack of guidance for how

agencies should use PPIRS information, and general lack of

oversight.

First, PPIRS provides incomplete data. Agencies

contributing information to PPIRS do not document and report all

relevant past performance information for each contract, and they

often fail to report any information for certain types of

contracts.70 For example, PPIRS data from fiscal years 2006 and

2007 indicates that “only a small percentage” of contracts were

accompanied by a performance assessment.71 Similarly, PPIRS data

typically fails to include helpful information such as

information about terminations for default and management of

subcontracts.72 A report by the Department of Defense Inspector

General found CPARS, which feeds into PPIRS, “to be so lacking in

completeness that . . . contracting officials [using PPIRS] ‘do

70 BETTER PERFORMANCE INFORMATION NEEDED GAO-09-374, supra note 686261, at 3. PPIRS lacked contractor past performance for contract actions involving task orders or deliveries placed against GSA’s Multiple Award Schedules, as well as for contracts above a certain monetary threshold, as required by the FAR. Id. at 3, 10-11; FAR 42.1502. 71 BETTER PERFORMANCE INFORMATION NEEDED GAO-09-374, supra note 686261, at 3.72 Id. at 3.

18

not have the . . . information they needed to make informed

decisions aboutrelated to . . . contract awards, and other

acquisition matters.’”73

Second, PPIRS has a flawed user interface. For instance,

PPRIS lacks the “tools and metrics that managers [require] to

properly oversee the timely documentation of past performance

evaluations.”74 The database also lacks standard evaluation

factors and rating scales, which makesmaking it difficult for

agency officials to compare data with meaningful aggregate

measures.75

Third, PPIRS does not guide agencies on how –- or even

whether -- to utilize the information in the system.76

Contracting officers frequently make award decisions based on

factors other than past performance.77 Further, contracting

officers have difficulty relying on the past performance

evaluations in PPIRS because there is no guidance on how to use

the past performance data objectively and assess its relevance to

a given award.78 73 Neil Gordon, Jeepers, Creepers… What’s the Deal with PPIRS?, PROJECT ON GOV’ ERNMEN T OVERSIGHT (May 26, 2009), http://pogoblog.typepad.com/pogo/2009/05/jeepers-creeperswhats-the-deal-with-ppirs.html (quoting ; INSPECTOR GEN. ERAL , U.S. DEP’T OF DEF. CONTRACTOR PAST PERFORMANCE INFORMATION 14 (1998)).74 BETTER PERFORMANCE INFORMATION NEEDED GAO-09-374, supra note 686261, at 3.75 Id.76 See id. at 2-3. For many years, agencies had broad discretion as to how to utilize PPIRS data, if at all. Id.77 Id. at 8.78 Id. at 9.

19

Fourth, PPIRS suffers from a general lack of oversight.79

Poor central management of the database prevents contracting

officials from correcting the flaws discussed above.80 In 2005,

the Office of Federal Procurement Policy, which “guide[s]s

federal agencies in establishing standards for to evaluatinge

past performance,”, created goals to improve PPIRS.81 “These

goals included standardizing the [PPIRS] ratings . . . and

developing a centralized questionnaire system” to improve data

consistency.82 Years later, however, these changes still have

not gone into effect, and no funding has been dedicated for this

purposeprovided.83 Furthermore, the incomplete and inaccurate

programs feeding data into PPIRS have not been updated or

corrected.84 The result is that PPIRS remains a flawed system,

providing minimal assistance to contracting officials to

accurately determine past performance data and failing to help

reduce improper payments.

C. Excluded Parties List System

The Excluded Parties List System (“EPLS”), maintained by

GSA, is the “official government-wide system of records of

debarments, suspensions[,] and other exclusionary actions.”85 79 Id. at 3.80 See id.81 Id.82 Id.83 Id. at 3-4.84 See Iid. at 43.85 Frequently Asked Questions, EXCLUDED PARTIES LIST SYSTEM, https://www.epls.gov/epls/jsp/FAQ.jsp (last visited Oct. 21, 2012).

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Contracting officers are required to review EPLS after opening

bids or receiving proposals, and again immediately prior to

contract award to ensure that no award is made to a listed

contractor.86 Contracting officers are also required to check

EPLS again prior to awarding “new work” as defined by the FAR.87

Like the other systems designed to avoid award of contracts

and payments made to ineligible recipients, EPLS suffers from

multiple flaws which have inhibited its efforts at preventing

improper payments: a flawed user interface and search

functionality, incomplete data, and poor management and

oversight.

EPLS has been plagued by flawed search functionality and

user interface. For instance, EPLS lacks significant advanced

search tips as part of its basic search capabilities.88 In

addition, many agencies use automated systems for routine

purchases, but EPLS is not compatible with these systems.89 Even

after modifications to EPLS, businesses excluded for “egregious

86 Id. (citing FAR 9.405(d)(1), 9.405(d)(4)). 87 Id. (citing FAR 9.405-1(b)). New work includes exercising options and/or otherwise extending the duration of current contracts or orders. FAR 9.405-1(b). 88 See EXCLUDED PARTIES LIST SYSTEM, supra note 2, at 21. U.S. GOV’T ACCOUNTABILITY OFFICE , GAO-09-174, EXCLUDED PARTIES LIST SYSTEM: SUSPENDED AND DEBARRED BUSINESSES AND INDIVIDUALS IMPROPERLY RECEIVE FEDERAL FUNDS 21 (2009)GAO-09-174, supra note 2, at 21. EPLS users noted difficulty in finding contractors without being able to use common search operators such as “and”, “not”, and “or”. Though EPLS added these search operators, it still lacks advanced search tips. Id. at 23.89 Id. at 19.

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offenses have . . . resurface[d] and continue to receive federal

contracts. . . .”90

EPLS also requires only a minimal amount of data to be

entered for each action, and lacks substantial helpful data.

EPLS does not require agencies to include compelling reasons

waivers for suspension or debarment determinations,91 or require

data on administrative agreements –- which serve as an

alternative to suspension or debarment and keep contractors

eligible for new contract awards —- which help contracting

officers in considering new agreements.92 While EPLS allows for

unique identification numbers to be recorded, many agencies fail

to include this information or simply fill in the field with non-

identifying information.93 As a result, businesses are able to 90 Id. at 2 (2009). The GAO found that agency officials frequently fail to search EPLS or their searches did not reveal the deficiencies as a result of system flaws. Id. at 3. Furthermore, businesses that are listed as ineligible in EPLS remain listed on the GSA Federal Supply Schedule, in violation of the FAR. Id. at 19. 91 The FAR generally excludes suspended or debarred contractors from receiving contracts unless there is a “compelling reason.” FAR 9.405.92 See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-05-479, FEDERAL PROCUREMENT: ADDITIONAL DATA AND REPORTING COULD IMPROVE THE SUSPENSION AND DEBARMENT PROCESS 3 (2005) [hereinafter ADDITIONAL DATA AND REPORTING] .93 See EXCLUDED PARTIES LIST SYSTEM GAO-09-174, supra note 2 822, at 18. The identifying number typically used is a Data Universal Numbering System (DUNS) number. Id. at 2. During the period from June 29, 2007 to January 23, 2008, GAO found that 38 of the 437 EPLS entries agencies made lacked anno entry in the DUNS field. Id. at 18. GAO 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 similar non-identifying information. Id. Therefore, 119 firms in total—27 percent— lacked an identifiable DUNS number during this seven

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circumvent a determination of exclusion by using different

identities.94

As with PPIRS and FPDS, EPLS suffers from ineffective

control and management.95 Under EPLS’s structure, the suspending

or debarring agency is independently responsible for entering

relevant data, leading to inconsistent data entry.96 Because

multiple federal agencies enter information, this leads to

inconsistent and inaccurate data entry.97 In a 2005 review, GAO

found that the EPLS data was incomplete, out of date, and

contained incorrect contact information for a company as a means

for following up and verifying such data.98 GSA has no incentive

or enforcement mechanism to ensure that agencies contributing

data to EPLS are doing so in an accurate or timely manner.99 As

a result, the data in EPLS is insufficient to ensure excluded

contractors do not unintentionally receive new contracts.100

month period.”. Id.94 Id. at 2. 95 See ADDITIONAL DATA AND REPORTING GAO-05-479 , supra note 928583, at 4-65. 96 Id.97 See id.98 See generally iId. at 13-14.id. at 13-16.99 For example, the EPLS website even acknowledges in a disclaimer that it “believe[s] the information to be reliable . . . the Government does not guarantee the accuracy, completeness, timeliness, or correct sequencing of the information.” Important Notice – System for Award Management, EXCLUDED PARTIES LIST SYSTEM, https://www.epls.gov/ (last visited Nov. 10, 2012).100 See ADDITIONAL DATA AND REPORTING GAO-05-479, supra note 9286, Id. at 3.

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D. Federal Awardee Performance and Integrity Information System

The Federal Awardee Performance and Integrity Information

System (“FAPIISS”) contains specific integrity and performance

information on federal agency contractors and grantees.101 FAPIIS

draws most of its data from EPLS, PPIRS, and CPARS, but also

accepts additional data from contracting officers and

contractors.102 The Ffederal Ggovernment intended for FAPIIS to

automatically notify the contractor when new information is

posted so that the contractor will have an opportunity to post

comments on the information.103

Like the other systems, FAPIIS has major flaws that prevent

it from solving the problem of improper payments. , such as its

search functionality. User reviews have referred to FAPIIS as

“the worst government website we’ve ever seen,”104 as well as “a

101 Federal Awardee Performance and Integrity Information System, FAPIIS , http://www.fapiis.gov/ (last visited Oct. 21, 2012).102 Lorraine M. Campos et al., , Melissa E. Beras & Joelle E.K. Laszlo., FAPIIS Flap-is: Transparency Advocates Hate It Now, Contractors Likely to Hate It Later, GLOBAL REG. ULATORY ENFORCEMENT BLOG (June 3, 2011),http://www.globalregulatoryenforcementlawblog.com/2011/06/articles/government-contracts/fapiis-flapis-transparency-advocates-hate-it-now-contractors-likely-to-hate-it-later/. FAPIIS accepts additional data via the Central Contractor Registration database on an ongoing basis. IId.103 FAR Case 2008-027, Federal Awardee Performance and Integrity Information System, 74 Fed. Reg. 45,579, 45,580 (Sept. 3, 2009) (proposed rule).104 Tom Lee, FAPIIS May Be the Worst Government Website We've Ever Seen, SUNLIGHT FOUND. ATION (Apr. 19, 2011, 5:49 PM), http://sunlightfoundation.com/blog/2011/04/19/fapiis-may-be-the-worst-government-website-weve-ever-seen/.

24

steaming pile” and “a monumental failure”.105 Its search

functionality is notably poor. Name searches in FAPIIS require

at least 4 characters, so users cannot effectively search for a

company that is typically abbreviated, such as “IBM”.106

Alternatively, a search for “Lockheed Martin” produces over 300

results of companies and subsidiaries with the same name.107 Like

EPLS, FAPIIS also struggles to maintain an effective listing of

DUNS numbers for searchability.108

Although one of the primary goals of FAPIIS is to provide

contracting officers and contractors an opportunity to comment on

the data being made available for review,109 FAPIIS’s challenging

user interface means it barely achieves this goal.110 FAPIIS

contains no guidance to help users figure out potential

problems.111 Users have noted significant difficulty in providing

expressed uncertainty on the limits on the parameters regarding

contractors an opportunity to comment and defending themselves

105 Greg Therkildsen, FAPIIS is a Steaming Pile, OMB WATCH (Apr. 25, 2011), http://www.ombwatch.org/node/11628; see also Campos, supra note 1029492.106 Neil Gordon, FAPIIS First Impressions, PROJECT ON GOVERNMENT OVERSIGHT (Apr. 18, 2011), http://pogoblog.typepad.com/pogo/2011/04/fapiis-first-impressions-.html.107 Id.108 Id. When searching for information about IBM’s 2008 suspension, for example, FAPIIS users were unable to “track down the company using the DUNS number provided in its suspension listing.” Id.109 See Campos, supra note 94.110 See Campos, supra note 10294.111 Id.

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against on reviews being posted about them.112 While contractor

comments are supposed to be posted in FAPIIS along with the

Ggovernment’s review, it is unclear how many characters the

contractor can use to comment and how quickly a contractor must

act to protest the content so that it may protest the loss of a

contract based on the FAPIIS review of a posted review.113 The

result is a huge burden on the contractor bears the weighty

burden of to continuecontinually monitoring the site for updated

reviews of its performance and eligibility.114

In addition, because FAPIIS draws its data from other

existing systems, the content of the data found in FAPIIS is

necessarily incomplete and unreliable. Further, FAPIIS suffers

from a lack of inter-database communicationcentralization and

accountability.115 The system was initially created as “a one-

stop shop for contracting officers to review information about

prospective contractors' business ethics, integrity, and

112 Campos, supra note 9492Id.113 Id.114 See id.115 See Joseph D. West et al., The Federal Awardee Performance Integrity Information System, BRIEFING PAPERS, Oct. 2011, at 2. Peter J. Eyre, Public Access to FAPIIS, GOVERNMENT CONTRACTS LEGAL FORUM (Apr. 15, 2011), http://www.governmentcontractslegalforum.com/2011/04/articles/reporting-and-disclosure/public-access-to-fapiis/.

26

performance.”116 EPLS and PPIRS are linked to FAPIIS,117 so

incomplete data in those systems likely creates the same data

holes in FAPIIS. FAPIIS’s broad scope is also undercut by its

failure to include other databases which have subsequently been

incorporated into the DNP List, such as Social Security databases

of ineligible recipients.118

II.[III.] Plagued by the Same Defects: The Do Not Pay List

The DNP List is likely to suffer the same fate downfalls as

the existing databases and will fail to create significant

improvements in reducing improper payments. The DNP List already

suffers from many of the same common flaws that these other

databases have not been able to overcome. Moreover, the DNP List

fails to rectify the most important of these recurring problems:

(i) incomplete and inaccurate data and (ii) lack of

accountability.

116 Peter J. Eyre, Public Access to FAPIIS, GOV ’ T CONT . LEGAL FORUM (Apr. 15, 2011), http://www.governmentcontractslegalforum.com/2011/04/articles/reporting-and-disclosure/public-access-to-fapiis/.Eyre supra note . Id.117 FAR Case 2008-027, Federal Awardee Performance and Integrity Information System, 75 Fed. Reg. 14,05963, 14,066 (March 23, 2010) (final rule) (codified at FAR pts. 2, 9, 12, 42, and 52); see also Matthew Weigelt, Homework: Describe the Elements that Make Up FAPISS, FED. ERAL COMPUTER WEE K. (May 27, 2011, 11:26 AM), http://fcw.com/blogs/acquisitive-mind/2011/05/fapiis-gao-homework-assignment.aspx.118 See Matthew Weigelt, Homework: Describe the Elements that Make Up FAPISS, FEDERAL COMPUTER WEEK (May 27, 2011, 11:26 AM), http://fcw.com/blogs/acquisitive-mind/2011/05/fapiis-gao-homework-assignment.aspx.supra note 117108.

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A. The Existing Databases Repeat the Same Mistakes

The existing databases each fail to effectively prevent

federal agencies from paying money to ineligible recipients in

the form of contracts or benefits.119 Because each list is only

partially effective, the Ggovernment continues to create new

databases with the hope that each will be better than the last.

Instead, however, each existing list is absorbed as a feeder for

a new list.120 The most recent list, the DNP List, is the next

step in this series of failed attempts.

Ultimately, tThese databases exemplify a pattern of failure

because they each, in turn, suffer from similar defects which

prevent them from serving as effective tools in reducing improper

payments. Each list provides incomplete or inaccurate data,

suffers from its own presents a flawed search functionality or

user interface, and lacks appropriate oversight and

accountability.121 The databases frequently do not communicate

with each other beyond feeding each other incorrect and

incomplete information, nor do they communicate with other lists

maintained by other federal agencies.122

B. The Do Not Pay List Does Not Rectify Problems in Existing Lists

119 See discussion supra Part II. 120 See, e.g., discussion supra Part II.D. (noting that EPLS and PPIRS are linked to FAPIIS). 121 See discussion supra Part II. 122 See discussion supra Part II.

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The DNP List lacks the necessary accountability because it

does not help agencies identify the root causes of their improper

payments. “[A]bout half of all federal agencies. . . have [not]

identified the root causes of their improper payments.”123 The

Improper Payments Elimination and Recovery Act (IPERIA), the

proposed legislation that would mandateing creation of the DNP

List, attempts to penalize agencies for failure to improve their

improper payment rates, but the DNP List does not help these

agencies figure out the root cause of the improper payments.124

The DNP List does not improve the accountability for data

accuracy beyond that of the previous, ineffective databases.

Although IPERIA states that “each agency shall, before payment

and award, check the following databases . . . to verify

eligibility,”125 this only mandates an existing requirement. Each

existing database imposes this requirement, often through an

amendment to the FAR requiring contracting officers to check the

123 Jason Miller, OMB Hangs Hopes on New Tools to Cut $50B in Improper Payments, FED. ERAL NEWS RADIO (Feb. 8, 2012, 10:038:52 AM), http://www.federalnewsradio.com/?nid=513&sid=2738888. The Department of Health and Human Services, which has the largest incidence of improper payments, has not met the 2002 improper payments law mandate to determine the root cause of improper payments in eight years. Id.124 See Improper Payments Elimination and Recovery Improvement Act of 2011, S. 1409 § 5, 112th Cong. (1st Sess. 2011). generally IPERIA, S. 1409, 112th Cong. (1st Session), supra note 3233. 125 Id. at § 5(a)(2).

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respective list for ineligible recipients or negative past

performance reviews.126

In addition, like all the databases that came before it,

IPERIA notes that a potential recipient’s presence on the DNP

List does not require that the person or entity be denied payment

of federal funds.127 This vague language leaves the door open for

the DNP List to experience the same user error that plagues the

existing lists when users either fail to check the database

before issuing payment, or pay funds to recipients despite their

presence on a list indicating they should not be paid.

Another key flaw in the DNP List is that it, like the lists

before it, does not require contracting officials to rely solely

on the DNP List.128 This undermines the goal of the DNP List

serving as the “single source” for agencies.129 If contracting

126 See, e.g., FAR 9.104-6 (“Before awarding a contract in excess of the simplified acquisition threshold, the contracting officer shall review the . . . FAPIIS”).127 S. 1409 Id. at § 5(b)(4). “When using the Do Not Pay List, an agency shall recognize that there may be circumstances under which the law requires a payment or award to be made to a recipient, regardless of whether that recipient is on the Do Not Pay List.” Id. Furthermore, section§ 5(f) of the Act calls for the creation of yet another database – a database of individuals incarcerated at federal and state facilities. Id. § 5(f) The additional database, which will only be updated on a weekly basis, indicates that the DNP List is not all-inclusive, and there is room for the pattern of additional, iterative lists to continue being developed as the Ffederal Ggovernment expands the scope of individuals and entities that need to be monitored via database so they do not receive improper payments. See Iid. 128 See id. § a(2) (noting that “at a minimum” an agency must check five other databases). 129 See FACT SHEET: DO NOT PAY LIST, supra note 32, at 1.

30

officials can go elsewhere to verify payments, the DNP List does

not have to cannot serve asbe the final word on accurate data.

The DNP List also does not address the problem of agencies’

failure to communicate with each other. Privacy issues

frequently prevent agencies from sharing information with one

another that could decrease improper payments.130 For example,

Social Security and Internal Revenue Service Information is

generally not accessible to other agencies as a source of

identifying information.131 Allowing other agencies to access

such information to verify the identity of a potential recipient

of government funds would likely help reduce improper payments,

but such access is currently not permitted due to privacy

concerns.132 Rather than confront these privacy challenges, the

DNP List continues to retrieve information from agencies and

other contractor information databases one at a time,

perpetuating this problem.133

The DNP List’s lack of oversight and consequences for

failure to cross reference information compounds this information

sharing problem. Beginning inAs of fiscal year 2011, “agencies

are required to annually report annually information related to .

130 Miller, supra note 123110107; Michael O’Connell, Agencies Must Work Together to Reduce Improper Payments, F ED.E RAL NEWS RADIO (Nov. 28, 2011, 119:2214 AM), http://www.federalnewsradio.com/?nid=513&sid=2648525. 131 O’Connell, supra note 130114111.132 Id.133 See discussion supra Part I.C. Id.

31

. . tracking and recovery of improper payments . . . to the

improper payments website.”134 At the same time, the OMB

guidelines allow an agency that cannot meet the reporting

requirements to request relief by simply explaining why the

agency cannot report this data and how it plans to do so in the

future.135 This guideline does not even attempt to address the

recurring problem of agencies failing to make their information

available to other agencies checking the list in a timely manner

and, in fact, compounds the problem by making allowances for late

data submissions.

III.[IV.] Recommendation: A Two-Part Solution

Instead of continuing repeating the cycle pattern of

creating iterative lists that do not effectively combat the

improper payments problem, the Ffederal Ggovernment should

consider a novel two-part solution: (1) utilizing analytics

technology from the private sector to develop a single working

database with sorting and searching functionality; and (2)

imposing sanctions or similar compliance incentives for agencies

issuing award or payment to an entity on the DNP List, absent

written justification.

A. Improving the Do Not Pay List Through Private Sector Analytics

134 REQUIREMENTS FOR IMPLEMENTING EXEC. ORDER 13520 OMB M-10-13 , supra note 161515, at 14.135 OMB M-10-13 , supra note 1515, Id. at 10.

32

The Government government has long acknowledged that there

is a significant technology gap between the Ffederal Ggovernment

and the private sector which contributes to a substantial

productivity gap.136 As it has in other contexts, the Ffederal

Ggovernment has looked to the public and private sector for

solutions to improper payments.137 For example, GAO suggested

specific strategies such as control activities, risk assessment,

and monitoring to reduce improper payments.138 However, these

proposals have had little practical effect on the Ggovernment’s

improper payment reduction initiatives. Rather than adopt a new

approach to managing payments, agencies have continued to build

new databases on top of existing ones.139

Private sector analytics companies are now tailoring their

technology to meet the needs of various agencies and reduce

errors in fund disbursement systems. For instance, consulting

companies utilize advanced analytics in the form of predictive

models to quantify the performance of agency’s payables and

procurement data, as well as design an automated system to help

prevent erroneous payments by discovering key patterns in the

136 Peter Orszag, Director, OFFICE OF MGMT. AND BUDGET, EXEC. OFFICE OF THE PRESIDENT, REMARKS BY PETER R. ORSZAG AT CENTER FOR AMERICAN PROGRESS 3-4 (June 8, 2010).Peter R. Orszag, Remarks to the Center for American Progress, at 3-4 (June 8, 2010) (on file with author). 137 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-02-69G, STRATEGIES TO MANAGE IMPROPER PAYMENTS: LEARNING FROM PUBLIC AND PRIVATE SECTOR ORGANIZATIONS, 1, 8 (2001). 138 Id.See iId. at 10-11.139 See discussion supra Part I.C.

33

data.140 Many prominent companies have already demonstrated that

technology from the private sector can drastically improve the

Ggovernment’s ability to reduce improper payments.141

Some state and local governments have started to take

advantage of advanced analytics, demonstrating that the methods

employed in the private sector can and do work to achieve

government goals. Other while some agencies have instead tried

to create their own analytics tools with less success. For

example, the Treasury Department recognizes that data analytics

can help reduce improper payments and is offering its own form of

predictive analysis service, Data Analytic Services (DAS), in

conjunction with the DNP List.142 DAS is offered for free to

agencies “to help reduce fraud, errors[,] and payments . . . made

to ineligible recipients.”143 DAS is handled by the DNP List’s

staff at Treasury, however, rather than provided by a private

analytics company.144 Though DAS is still a relatively new

application, Treasury has already released multiple updated

versions this year,145 but to date has failed to provide any 140 See IBM GLOBAL BUS. INESS SERVICE S. , THE POWER OF ANALYTICS FOR PUBLIC SECTOR: BUILDING ANALYTICS COMPETENCY TO ACCELERATE OUTCOMES 2 (2011).141 See, e.g., OVERSIGHT SYSTEM S., , Addressing the Do Not Payy Mandate Tthrough Automated Technology: Continuous Transaction Monitoring 3 (2011); IBM GLOBAL BUS. INESS SERVICE S. , The Power of Analytics for Public Sectorsupra note 140 123, at 2 (2011).142 Data Analytics Services, DO NOT PAY, http://donotpay.treas.gov/dataanalytics.htm.143 Id.144 See generally GOVERIFY GoVerify Business Center, supra note 393837, at 2.145 See id. at 12.

34

verifiable results of the program’s success. Thus, Treasury’s

attempt to incorporate its own analytics service into the DNP

List is well-intentioned, but fails to achieve the unique

benefits of private sector technology.

On the other hand, the New York State Department of Taxation

and Finance reduced its improper payments with a program

developed by IBM that used predictive data to allow employees to

process refunds more efficiently.146 The tax department processes

24 million business and personal tax returns annually, and had

problems determining which refunds should not be paid and which

returns should be audited and investigated.147 To help improve

these determinations, IBM designed an analytics program to

“leverage information to and transform the department’s

operations.”148 IBM’s plan led to the creation of a new program

which identifies pending tax cases where the outcome may be

questionable.149 The automated system, which predicts the

questionability of tax returns, builds on itself by saving

results of previous cases and adding those to its data rules.150

The new system “has saved the state more thanover $889 million,

while allowing it to process refunds faster . . . [a]nd

146 IBM GLOBAL BUS. INESS SERV VICE S. , supra note 141123120, at 15.147 Id.148 Id.149 Id.150 Id.

35

increas[ing] the percentage of audits that found questionable

refunds.”151

Similarly, Alameda County, California’s Social Service

Agency also reduced improper payments with IBM analytics.152

Alameda County implemented the Social Services Integrated

Reporting System (“SSIRS”), which included built-in analytics but

was also customizable to their unique needs and easy to use.153

SSIRS provided more accurate status of clients and their

activities, automatic updates sent to case workers, and payment

eligibility checks, providing an ultimate return on investment of

631% and vastly improving the county’s social services improper

payment issues.154

The Ffederal Ggovernment has taken small steps to put

private sector analytics to work in various agencies, but only

through individual agencies and not in a government-wide

capacity. For example, the Department of Defense has been

reducing improper payments with the information technology

company Oversight Systems.155 Oversight Systems helped the DoD

implement a unique analytical tool called Business Activity

151 Id.152 NUCLEUS RESEARCH, ROI CASE STUDY: IM BM B SSIRS ALAMEDA COUNTY SOCIAL SERVICES AGENCY 1 (2010).153 See Iid. at 2.154 Id. at 4-5.155 Oversight Systems, Improper Payments and the IPIA; PAYMENT ACCURACY, Success Stories, http://www.paymentaccuracy.gov/content/success-stories (last visited Nov. 10, 2012).

36

Monitoring (“BAM”) that flags “potential improper payment

transactions for further closer review before [the transactions]

is are completed and the money is spent.”156 This system also

helps identify the conditions that contributed to improper

payment so they can be addressed for the future.157 As a result,

BAM has prevented an estimated $2.3 billion in improper payments

since August 2008.158

Other agencies, including the United States Census Bureau,

and the Internal Revenue Service have also sought to reduce

improper payments and reduce fraud through private analytics

companies.159 Agencies that have used these services have seen

significant results in the reduction of improper payments, as

well as general improvements in recordkeeping and operations.160

It is clear that use of private sector analytics on a larger

scale would result in preventing greater numbers of improper

payments made by Ffederal Ggovernment agencies, and

156 PAYMENT ACCURACY , Success Stories, PAYMENT ACCURACY , http://www.paymentaccuracy.gov/content/success-stories (last visited Nov. 10, 2012).157 OVERSIGHT SYSTEMS SYS. , ADDRESSING THE DO NOT PAY MANDATE THROUGH AUTOMATED TECHNOLOGY 8 (2011). 158 PAYMENT ACCURACY , Success Stories, supra note 156139135; Press Release, Oversight Systems, US Department of Defense Selects Oversight Systems to Extend the Oversight BAM Software Program for Improper Payments Reduction and Audit Assertion (May 17, 2012).159 PRWeb, US Census Bureau Selects Oversight Systems to Monitor Vendor Payments and Excluded Parties, PRWEB ( Nov. 30, 2011),, http://www.prweb.com/releases/2011/11/prweb8999975.htm. (Nov. 30, 2011last visiting Oct. 21, 2012).160 See iId.

37

simultaneously improve the quality of the data being supplied to

the existing databases of ineligible recipients, rendering

improvements to the current systems feeding the DNP List.161

B. Impose Sanctions to Improve Contracting Decisions and Decrease Improper Payments

In order to effectively crack down on improper payments, the

Ffederal Ggovernment should sanction agencies that issue an award

or payment to an entity on the DNP List, absent written

justification. Improper payments persist in part because

agencies are not penalized for this behavior, so there is no

incentive to reduce errors.162 Agencies that continue to award

contracts and issue improper payments to contractors should be

penalized for this behavior such that they are deterred from

making these improper payments in the future.

Currently, IPERA provides for only the most basic

remediation in the event of agency non-compliance with the 161 It is also noteworthy that the Ffederal Ggovernment and various prominent institutions maintain similar lists of entities that American companies should avoid doing business with, such as (1) Specially Designated Nationals List (Maintained by the US Dept of Treasury’s OFAC); (2)the World Bank Listing of Ineligible Firms and Individuals. ; and (3) US Dept of Commerce Bureau of Industry and Security Denied Persons List. See , e.g., THE WORLD BANK, World Bank List of Ineligible Firms and Individuals, THE WORLD BANK, http://web.worldbank.org/external/default/main?theSitePK=84266&contentMDK=64069844&menuPK=116730&pagePK=64148989&piPK=64148984 (last visited Oct. 21, 2012). Though these entities are not designed to reduce the Ffederal Ggovernment’s improper payments, they serve analogous roles in various industries and could provide guidance on a more effective database to prevent the payment of funds to ineligible recipients. See id.162 See Improper Payments Elimination and Recovery Act of 2010, Pub. L. No. 111-204 § 3(c)(2), 124 Stat. 2224, 2233.

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statutory requirements.163 The Act only requires that if the

agency has not complied, it must submit a revised plan outlining

how it will comply.164 After two years, if the agency is still

found to be non-compliant, the OMB Director may find that it

needs additional funds in order to effectuate a plan to become

compliant and may request those funds from Congress.165 Thus, the

agency that cannot comply with requirements to identify and

attempt to reduce its improper payments may actually get more

money in its budget for failing to operate more efficiently as

required.166

There is noIPERIA currently does not create incentives for

agencies to comply, especially when improper payments only make

up a relatively small proportion of their total program

disbursements.167 IPERIA does not account for agency failure to

comply with its directives, and does not appear to contemplate

sanctions of any kind.168 Even if formal sanctions cannot be

immediately implemented in these situations, the Ffederal

Ggovernment should contemplate forcing agencies, or divisions of

agencies, who maintain high improper payment rates to undergo an 163 Id. § 3(c)(2)(A).IPERA, Pub. L. No. 111-204, § 3(c), 124 Stat. 2224 (2010), supra note 3332. 164 Id..165 Id.166 See id.167 PAYMENT ACCURACY, supra note 1212. In fiscal year 2010, the government-wide improper payment rate was 5.29%. Id.168 See Improper Payments Elimination and Recovery Improvement Act of 2011 (IPERIA), S. 1409, 112th Cong. (1st Sess. 2011).generally S. 1409, 112th Cong. (1st Session), supra note 3332.

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evaluation by an outside party. Whether this third party is

actually a private sector analytics company, or another type of

auditor or consultant, federal agencies who fail to comply the

first time cannot be left to their own devices to try again with

more funding. The Ffederal Ggovernment must recognize this

problem, and take steps to incentivize government agencies to

reduce improper payments.

IV.[V.] Conclusion

While the DNP List will likely help to eliminate many

instances of improper payments, it will not solve the problem to

the degree that President Obama is likely anticipating. Instead

of fixing the flaws of previous databases, the DNP List receives

data from these incomplete and inaccurate lists. Additionally,

the DNP List lacks accountability by failing to address the root

cause of such inaccuracies. These flaws mean that instead of

providing an effective, one-stop solution to improper payments,

the DNP List will only continue the cycle of providing

contracting officials with erroneous data.

Incorporating private sector analytics technology and

sanctions for noncompliance are necessary to separate the DNP

List from its predecessors. Even though Treasury has taken steps

to include its own analytics to the DNP List, this is

insufficient to provide the individualized problem-solving to

agencies that can make using the DNP List worthwhile. Similarly,

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a sanctions program will incentivize contracting officials to

contribute accurate information to and properly utilize the DNP

List. With these changes, the Ffederal Ggovernment can make

significant progress at eliminating improper payments.

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