Selected Agencies Use of Criminal Background Checks for 	 
Determining Responsibility (12-JAN-07, GAO-07-215R).		 
                                                                 
This letter and its enclosure respond to the Congressional	 
request for information on selected executive agencies' policies 
and practices for making responsibility determinations before	 
awarding contracts. Congress requested this information because  
of its continued concern for effective pre-contract screening to 
reduce fraudulent activities by contractors. On the basis of	 
discussions, GAO's objectives were to (1) identify agency	 
policies and practices for making contractor responsibility	 
assessments, and determine under what conditions agencies conduct
criminal background checks, (2) determine how contracting	 
officers use the Excluded Parties List System (EPLS) to make	 
responsibility assessments and identify planned improvements to  
the system, if any, and (3) determine the number of fraud	 
investigations in which the contractor or principals had a prior 
criminal background.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-215R					        
    ACCNO:   A64864						        
  TITLE:     Selected Agencies Use of Criminal Background Checks for  
Determining Responsibility					 
     DATE:   01/12/2007 
  SUBJECT:   Background investigations				 
	     Contract administration				 
	     Criminal background checks 			 
	     Eligibility determinations 			 
	     Fraud						 
	     Government contracts				 
	     Policy evaluation					 
	     Policies and procedures				 

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GAO-07-215R

January 12, 2007

The Honorable Carl Levin
Chairman
The Honorable Norm Coleman
Ranking Minority Member
Permanent Subcommittee on Investigations
Committee on Homeland Security and Governmental Affairs
United States Senate

Subject: Selected Agencies Use of Criminal Background Checks for
Determining Responsibility

This letter and its enclosure respond to your request for information on
selected executive agencies' policies and practices for making
responsibility determinations before awarding contracts. You requested
this information because of your continued concern for effective
pre-contract screening to reduce fraudulent activities by contractors.

On the basis of discussions with your office, our objectives were to (1)
identify agency policies and practices for making contractor
responsibility assessments, and determine under what conditions agencies
conduct criminal background checks, (2) determine how contracting officers
use the Excluded Parties List System (EPLS) to make responsibility
assessments and identify planned improvements to the system, if any, and
(3) determine the number of fraud investigations in which the contractor
or principals had a prior criminal background.

On August 31, 2006, we briefed your office on the information gathered
during our preliminary work. This letter summarizes and updates the
information presented at the briefing. The additional information you
requested regarding suspensions, debarments, and proposed debarments for
fiscal years 1996 through 2006 is included in the briefing at Enclosure I.

In developing the information for this report, you asked us to focus our
work in the following agencies: Department of Defense (DOD), General
Services Administration (GSA), Department of Justice (DOJ), and Department
of Homeland Security (DHS). We reviewed appropriate sections of the
Federal Acquisition Regulation (FAR); agency supplements for DOD, GSA,
DOJ, and DHS; and discussed our objectives with agency officials from
offices of policy and general counsel (debarment officials). We also
obtained data on fraud investigations and discussed agency efforts to
track whether the subjects of these investigations had prior criminal
backgrounds with agency officials in the Criminal Investigative Divisions
within the offices of Inspectors General.^1 In addition, we reviewed
relevant Comptroller General decisions discussing responsibility
determinations and documentation for an Army base services contract. We
obtained and analyzed fiscal year 1996-2006 data from GSA for EPLS, a
system that contains governmentwide data on suspensions, debarments, and
proposed debarments. We also obtained fiscal year 2003-2005 data on
procurements from GSA's Federal Procurement Data System-Next Generation
(FPDS-NG)^2 that contains governmentwide data on agency contract awards
and obligated funds. We conducted our work between June 2006 and October
2006 in accordance with generally accepted government auditing standards.

	Background

The Federal Acquisition Regulation (FAR) generally governs most executive
agencies' acquisitions. The FAR is issued and maintained jointly by the
Secretary of Defense, the Administrator of GSA, and the Administrator of
NASA.^3 However, agencies can supplement the FAR with agency-specific
regulations. For example, Navy regulations include Navy/Marine Corps
Acquisition Regulation Supplements, a supplement to the Defense Federal
Acquisition Regulation, which is, in turn, a supplement to the FAR. A few
agencies such as the Federal Aviation Administration and the
Transportation Security Administration are not subject to the FAR, but
have regulations that are similar in purpose to the FAR.

Under FAR, contracting officers are responsible for ensuring contracts are
awarded only to those contractors who are capable, responsible, and
ethical.^4 FAR, Part 9, prescribes policies, standards, and practices for
determining contractor responsibility and requires that agency contracting
officers make an affirmative determination of responsibility before
contract award.

Responsibility determinations include an assessment of a number of
specific areas including a contractor's technical capability, past
performance, financial capability, and business ethics and integrity. The
contracting officer may also use information from pre-award surveys
conducted by an outside agency, such as the Defense Contract Management
Agency.

There are a number of tools, such as the EPLS and the Central Contractor
Registration System (CCR), to assist contracting officers in obtaining
information and determining responsibility. The EPLS is a web-based
listing of those entities that are suspended, debarred, or proposed for
debarment^5 and is maintained by GSA.

^1We were asked to obtain data specifically on fraud investigations by
contractors and the number of contractor principals who had previous
criminal convictions. We were not asked to identify the nature of the
previous criminal convictions to be reported, for example, such as those
for nonpayment of taxes or product substitution. Only two agencies, DOJ
and GSA, were able to provide us with data on the numbers of contractors
with previous convictions.

^2FPDS-NG is a computer-based system for collecting, developing, and
disseminating procurement data to the Congress, the Executive Branch, and
the private sector. The Federal Procurement Data Center, managed by GSA,
oversees the system. Fiscal Year 2005 information was the latest available
data at the time we completed our work.

^3Federal Acquisition Regulation (FAR)1.103(b) (2006) .

^4FAR 9.104-1.

^5Suspensions temporarily disqualify a contractor from doing business with
the government for a specified period of time--generally not to exceed 12
months. Debarments preclude a contractor from receiving further government
contracts or assistance from any federal agency and generally may be for
up to three years.

The contracting officer is required to check the contractor's name or
other identifying information against EPLS data to determine if the
contractor is eligible to receive a contract.^6

The CCR is the primary contractor registration database for the U.S.
federal government. CCR collects, validates, stores, and disseminates data
in support of agency acquisition missions, including federal agency
contract and assistance awards. The FAR requires prospective federal
government contractors to register in CCR in order to be awarded contracts
by the federal government.^7 In September 2006, these two tools were
integrated through the release of EPLS Version 3. The new system pulls
available data from CCR when the agency user enters a Data Universal
Numbering System (DUNS) number.

Summary of Findings

Federal Acquisition Regulation Governs Responsibility Determinations

Agencies base their policies and practices for making responsibility
determinations on the FAR and their own supplements to the FAR. The FAR
specifies a number of factors to consider in making responsibility
determinations, but it does not require any particular type of background
check.^8 Criminal background checks are neither required by the FAR nor
prohibited in making responsibility determinations.

Although procedures for making responsibility determinations do vary among
agencies, contracting officers we spoke with generally said they:

           o check the EPLS for debarments or suspensions, 
           o conduct pre-award surveys for larger contracts, and 
           o document other aspects of the contractor's ability to perform
           the contract, such as the contractors' technical, financial, and
           ethical capacity to perform the work required.

Agency officials and contracting officers stated that they rely on past
performance of the contractor to determine the extent of documentation
needed to determine responsibility.

However, according to agency officials, if contracting officers want a
criminal background check completed, they would need to request it through
their agency investigative components, such as in the office of Inspector
General. Apart from determining responsibility, a criminal background
check could be needed as a condition of the contract if the work under the
contract required contractor personnel to have access to federally
controlled facilities or federal information systems.^9 As another
example, contractors or contractor personnel may be required to undergo a
criminal background check, according to officials, if the work requires a
National Security clearance. National Security clearances include checks
of criminal databases as well as other background investigations. Agency
officials we spoke with stated that neither of these background checks is
normally a part of the contracting officer's determination of
responsibility.

^6FAR 9.405(d)(1) and (4).

^7FAR 4.1102(a).

^8FAR 9.104-1.

^9Criminal background checks could be required to implement Homeland
Security Presidential Directive 12. This Directive sets forth policy for a
common identification standard for federal employees and contractors who
need physical access to secure federal facilities, and logical access to
federally controlled information systems. In order to enhance security,
increase government efficiency, reduce identity fraud, and protect
personal privacy, the directive establishes a mandatory, governmentwide
standard for secure and reliable forms of identification issued by the
federal government to its employees and contractors.

Contracting Officers Use EPLS to Determine Eligibility

The FAR requires contracting officers to determine whether prospective
contractors are eligible (not suspended, debarred, or proposed for
debarment) to receive a contract as part of determining responsibility
before awarding the contract.^10 Contracting officers stated they
generally search the EPLS by using (1) an identifying number such as the
Data Universal Numbering System (DUNS) or a Taxpayer Identification
Number, and/or (2) the name of either the firm or an individual.

A 2005 GAO report^11 identified several limitations with reporting data on
suspensions, debarments and administrative agreements:

           o an identifying number such as the DUNS was not a required field
           when officials added suspension and debarment data to the EPLS;
           o there was no common forum for sharing information on
           administrative agreements and compelling reason waivers;^12 and
           o searches using names might not identify an excluded contractor
           or person because of name changes.

GAO recommendations included making a contractor identification number a
required data element in reporting suspensions and debarments and
providing information about administrative agreements to contracting
officers. As we noted above, and in response to the reported limitations,
GSA released an updated version of EPLS in September 2006 that provides a
required data field for the DUNS number and pulls in data from the CCR
system. The Interagency Suspension and Debarment Committee is discussing
how to make information on administrative agreements more readily
available to agencies.

Enclosure I contains data you asked for on the number of suspensions,
debarments, and proposed debarments from the four agencies. The data we
reviewed from the 1996-2006 time period did not show any trends.

Data on Instances of Previous Fraud by Contractor Principals Not Readily
Available

According to officials, agencies receive allegations of irregularities
from many sources including contracting officers, oversight organizations
such as the Defense Contract Management Agency, agency or contractor
employees, competitors, other federal agencies, whistleblower cases, and
hotlines. Agencies assign investigations of fraud to criminal
investigative units within the within the agencies, such as the office of
Inspector General. The investigative offices coordinate with offices of
General Counsel to report indictments or evidence to initiate suspensions;
they report convictions for debarment proceedings. According to agency
officials, detailed information on whether investigations include
employees or principals of the company or whether the parties had a prior
criminal history may be contained in the case files if it is a part of the
information collected in developing the investigation. For example, an
official at DOJ told us that prior criminal history checks are a routine
part of case development. However, the case files are narrative in nature
and, therefore, obtaining the information requires a case-by-case
analysis.

^10FAR 9.104-1 and 9.405(d)(1) and (4).

^11Federal Procurement: Additional Data Reporting Could Improve the
Suspension and Debarment Process, GAO-05-479 (Washington, D.C.: July 29,
2005).

^12Administrative agreements are actions to be taken by a contractor in
place of other remedies such as suspension or debarments. A contractor
might agree to pay a fine or institute an ethics program, for example, in
order to remain eligible to receive contracts. A compelling reason
determination, which is an exception that allows the award of a contract
to a debarred or suspended entity, may be sought from the head of an
agency if there is an urgent need for supplies or services or if the
debarred or suspended contractor is the only known source.

Two agencies, DOJ and GSA, did perform such a review and were able to tell
us in addition to the number of investigations, the number of principals
and the number of principals with prior convictions. Together the agencies
reported six principals with prior criminal histories who had been
investigated for fraud over the 3-year period. DHS and DOD officials said
that they were unable to provide the number of principals who had previous
criminal histories within the timeframe of this work.

Table 1 shows the number of cases of fraud by agency closed in fiscal
years 2003 - 2006 from the Office of Inspector General investigative
offices at DHS, GSA, DOJ, and DOD.

Table 1: Closed Investigations for Fiscal Years 2003-2006

Agency                                 Closed Investigations 
DHS                                    41                    
GSA                                    33                    
DOJ                                    33                    
DOD^a                                                        
Defense Criminal Investigative Service 856                   
Air Force                              536                   
Department of Navy                     394                   
Army                                   168                   

Agency Comments and Our Evaluation

We provided a draft of this report to DOD, DHS, DOJ and GSA. DOD, DHS, and
GSA provided technical comments which we incorporated as appropriate. DOJ
stated that it did not have any comments.

As we agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this report. At that time we will send copies to the
Secretaries of the Departments of Defense, Justice, and Homeland Security;
the Administrator of the General Services Administration; appropriate
congressional committees; and other interested parties. We will also make
this report available at no charge on GAO's Web site at
http://www.gao.gov.

^aWe do not total cases for DOD because joint cases are counted in each
component, and we could not obtain an unduplicated total.

Major contributors to this report included Michael J. Hesse, Letisha T.
Jenkins, John A. Krump, Carol T. Mebane, and Carol Dawn Petersen. If you
have any questions about the report, please contact me at (202) 512-4841.

Cristina T. Chaplain
Acting Director,
Acquisition and Sourcing Management

Enclosure I

(120562)

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