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

THE DO NOT PAY LIST

Rachel Cohn*1101 New Hampshire Ave., NW, Apt. 609

Washington, DC 20037rlcohn@law.gwu.edu

*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..................5C. The Do Not Pay List..................................9D. The Do Not Pay List is a Start, but Not Enough......10

II. Information Databases Repeatedly Fail to Reduce Improper Payments.................................................12A. Federal Procurement Data System.....................13B. Past Performance Information Retrieval System.......16C. Excluded Parties List System........................19D. Federal Awardee Performance and Integrity Information

System..............................................22III. Plagued by the Same Defects: The Do Not Pay List.........25

A. The Existing Databases Repeat the Same Mistakes.....26B. The Do Not Pay List Does Not Rectify Problems in

Existing Lists......................................26IV. Recommendation: A Two-Part Solution......................30

A. Improving the Do Not Pay List Through Private Sector Analytics...........................................30

B. Impose Sanctions to Improve Contracting Decisions and Decrease Improper Payments..........................36

V. Conclusion...............................................38

i

“In total, the government 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 GSA.3

One of the other agencies, 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

1 Dave Dantus, Agencies Must Erase Payment Errors to Cut Inefficiencies, FEDERAL 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). 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 GAO-09-174, supra note 2, at 10.

before exercising the option.4 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 GSA said

it researched the company before awarding the contract, a GAO

investigation revealed that the company in question did not

appear in 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. For example, in

September 2006, 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 made seven awards

to the company in 2007 totaling over $230,000.8 Interior failed

to check federal databases that should have listed the company as 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 GAO-09-174, supra note 2, at 10.6 Id. at 8. 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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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 latest attempt fails to improve upon past

endeavors. Part I will provide background on the causes and

amounts of improper payments. Part II will examine previous

efforts to reduce improper payments and identify the factors

which thwarted the success of those programs. Part III will

explain why the Do Not Pay List -– the federal government’s

current approach to reducing improper payments –- is unlikely to

result in a more successful solution to this ongoing challenge.

Part IV will propose a 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, CNN (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, CNN (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 $106 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.

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.15 Improper payments include both underpayments and

overpayments or erroneous transfers of federal funds.16 They

also encompass wrongful denials of payment or service, payments

made to an ineligible recipient or for an ineligible service, and

payments for which an agency is unable to discern the accuracy

due to lack of appropriate documentation.17 12 Improper Payments Overview, PAYMENT ACCURACY, http://www.paymentaccuracy.gov.13 Id.14 Cohen, supra note 10. 15 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). OMB is responsible for government-wide budget development and execution, as well as oversight of agency performance and financial management. See Office of Mgmt. & Budget, The Mission and Structure of the Office of Management and Budget, THE WHITE HOUSE, http://www.whitehouse.gov/omb/organization_mission/. 16 OMB M-10-13, supra note 15, at 4.17 Id.

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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 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.18 Improper payments typically 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.

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. Pursuant

to a 1986 executive order, GSA created a government-wide list of

companies excluded from federal procurement and non-procurement 18 PAYMENT ACCURACY, supra note 12. Pursuant to Executive Order 13,520, this website is maintained by the Director of the Office of Management and Budget. See id. 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.

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programs.19 In 1990 and 1993, respectively, Congress passed the

Chief Financial Officers Act20 and the Government Performance and

Results Act,21 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.22 In 2002, Congress

passed the Improper Payments Information Act (“IPIA”), which

required OMB to quantify the amount of improper payments reported

by individual agencies.23

Since taking office in 2008, President Obama has emphasized

reducing government waste and increasing accountability and

transparency.24 As part of his Accountable Government

Initiative, President Obama set an aggressive goal, challenging

his administration to reduce improper payments government-wide by

19 EXEC. ORDER NO. 12,549, 3 C.F.R. 1986 (1986). 20 Chief Financial Officers Act, 5 U.S.C. §§ 5313-5315; 31 U.S.C. §§ 501, 901, 1105, 3501, 9105, 9106 (2006).21 Government Performance and Results Act, 31 U.S.C. § 1101 nt. (2006).22 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO/AIMD-00-10, FINANCIAL MANAGEMENT: INCREASED ATTENTION NEEDED TO PREVENT BILLIONS IN IMPROPER PAYMENTS 5-7 (1999).23 IMPROPER PAYMENTS INFORMATION ACT OF 2002, PUB. L. NO. 107-300, 116 Stat. 2350, Nov. 26, 2002. 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, FIN. MGMT.: COORDINATED APPROACH NEEDED TO ADDRESS THE GOV’T’S IMPROPER PAYMENTS PROBLEMS 2 (2002). 24 OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, MEMORANDUM FOR THE CHIEF FINANCIAL OFFICERS OF EXECUTIVE DEPARTMENTS AND AGENCIES, CAMPAIGN TO CUT WASTE 1 (June 28, 2011).

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

2012.25

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, President Obama

required the OMB Director to identify high priority federal

programs –- those programs issuing the highest dollar amounts of

improper payments.26 OMB created a website where it publishes

information about these high priority programs, including targets

for reduction of improper payments.27 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.28

25 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 (Nov. 16, 2010).26 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 OMB M-10-13, supra note 15, at 5.27 PAYMENT ACCURACY, supra note 12. 28 MEMORANDUM ON FINDING AND RECAPTURING IMPROPER PAYMENTS, 75 Fed. Reg. 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 programs that are subject to the executive order, establishes reporting requirements under the order, and establishes procedures to identify outstanding improper payments. See generally OMB M-10-13, supra note 15. OMB issued Parts I and II of Appendix C to

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

Not Pay List” (the “DNP List”).29 Touted as “a single source

through which all agencies can check the status of a potential

contractor or individual,”30 Obama intended the DNP List to

provide information to federal agencies in a more timely and cost

effective manner.31 In addition, since the announcement of the

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

improper payments by enacting related legislation.32 While

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

the President and Congress seem to indicate a renewed focus on

reducing them.

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. 29 MEMORANDUM ON ENHANCING PAYMENT ACCURACY THROUGH A “DO NOT PAY LIST”, 75 Fed. Reg. 35,953 (June 18, 2010).30 OFFICE OF MGMT. & BUDGET, EXEC OFFICE OF THE PRESIDENT, FACT SHEET: DO NOT PAY LIST 1 (June 18, 2010). 31 Id.32 See generally Improper Payments Elimination and Recovery Act of 2010, Pub. L. No. 111-204, 124 Stat. 2224, July 22, 2010. Signed into law on July 22, 2010, the Improper Payments Elimination and Recovery Act (“IPERA”) amended IPIA and required OMB to issue guidance to federal agencies regarding the elimination of improper payments. Id. In response to IPERA, 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 (Apr. 14, 2011). See also Improper Payments Elimination and Recovery Improvement Act of 2011 (“IPERIA”), S.1409, 112th Cong. (1st Session). Companion bill HR 4053 was introduced in the House of Representatives in February, 2012.

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C. The Do Not Pay List

The goal of the DNP List is to prevent improper payments

from being made in the first place.33 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.34

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.35  The

Treasury Department has been compiling this information to make

it available through a “central portal” online.36 This online

DNP List currently includes information from seven contractor

databases, and other data sources are still being added.37 33 MEMORANDUM ON ENHANCING PAYMENT ACCURACY THROUGH A “DO NOT PAY LIST”, supra note 29.34 FACT SHEET: DO NOT PAY LIST, supra note 30, at 1.35 MEMORANDUM ON ENHANCING PAYMENT ACCURACY THROUGH A “DO NOT PAY LIST”, supra note 29. 36 Id.; S.1409, § 5(b)(1), 112th Cong. (1st Session), supra note 32; Jeff Zients, Moving Aggressively on Improper Payments, OMBLOG (Sept. 23, 2011, 2:55 PM), http://www.whitehouse.gov/blog/2011/09/23/moving-aggressively-improper-payments. 37 Zients, supra note 36; DO NOT PAY PORTAL, http://donotpay.treas.gov/portal.htm. 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

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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%.38 This amounts

to avoiding $3.8 billion in improper payments.39 Agencies also

reported recapturing $687 million in improper payments in fiscal

year 2010 —- the highest amount recovered to date.40 The overall

amount of improper payments, however, still increased in fiscal

year 2010 to an all-time high of $125 billion.41

The federal government continued to make progress reducing

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

Registration, and The Work Number. DO NOT PAY PORTAL, http://donotpay.treas.gov/portal.htm. The online DNP List was intended to be completed by the end of 2011. Zients, supra note 36. In September 2011, OMB announced that the system was “in production right now and will be available government-wide in a few months.” 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. DEPT. OF THE TREASURY BUREAU OF THE PUBLIC DEBT 4 (Jan. 11, 2012). 38 PAYMENT ACCURACY, supra note 12.39 Zients, supra note 36.40 Id. 41 Ed O’Keefe, Government Made $125 Billion In Improper Payments Last Year, WASHINGTON 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.

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

payments by $50 billion by fiscal year 2012.42 In 2011, OMB

reported that the federal government cut $17.6 billion in

wasteful and improper payments, and recaptured $1.2 billion in

improper payments.43 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%.44 Since the start of the Accountable Government

Initiative, the federal government has avoided improperly paying

out over $20 billion, but still needs to recover another $30

billion in the next year in order to meet President Obama’s goal

by the end of 2012.45

II. Information Databases Repeatedly Fail to Reduce Improper Payments While the federal government has made some progress in

reducing the rate of improper payments, the compilation of the

DNP List is not an effective solution to this ongoing problem.

The DNP List is unlikely to solve the problem of improper

payments because it is simply the next failed attempt to create

centralized access to a list of entities that should not receive

payment.42 See Adam Aigner-Treworgy, supra note 11.43 Id.44 PAYMENT ACCURACY, supra note 12; Aigner-Treworgy, supra note 11. Significant decreases in the amount of improper payments came from Medicare, Medicaid, Pell Grants, and Food Stamps. Aigner-Treworgy, supra note 11. 45 PAYMENT ACCURACY, supra note 12.

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The federal government has demonstrated a pattern of

creating ineffective lists intended to decrease improper

payments. 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) FPDS; (2) PPIRS; (3) EPLS; and (4) FAPIIS. Despite

some 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.

A. Federal Procurement Data System

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

government’s central archive of statistical information on

federal contracting.46 FPDS aims to increase trust and

credibility among contracting professionals by helping

contracting officials examine data across multiple agencies to

make better contracting decisions.47 However, FPDS suffers from

serious flaws which have prevented it from serving as a single,

useful database of federal contracting information.48 FPDS 46 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.47 See id.48 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

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contains incomplete data, has a flawed user interface, and lacks

accountability and standards for data accuracy.49

FPDS data is inaccurate and incomplete because the

information coming from its feeder systems is not properly

reported.50 Not all government agencies that use contractors are

required to report information to FPDS.51 FPDS data relies on

individuals to prepare contract action reports correctly; the

system has no means to ensure that such data, if prepared at all,

is done accurately.52 Contracting officials therefore lack

equivalent as the system flaws occurring in FPDS continue to exist in FPDS-NG. See OFFICE OF THE FED. PROCUREMENT POLICY OF THE U.S. CONG., REPORT OF THE ACQUISITION ADVISORY PANEL 434 (Jan. 2007).49 See, e.g., U.S. GOV’T ACCOUNTABILITY OFFICE, GAO/AIMD-94-178R, OMB AND GSA: FPDS IMPROVEMENTS 1 (1994) (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); OFFICE OF THE FED. PROCUREMENT POLICY OF THE U.S. CONG., supra note 48, at 445. The GAO has reported concerns with FPDS almost since its inception. Id.50 See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-05-960R, IMPROVEMENTS NEEDED TO THE FEDERAL PROCUREMENT DATA SYSTEM-NEXT GENERATION 2-3 (2005). Like PPIRS, infra note 61, the 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 federal government. Id. A review of the Small Business Administration’s FPDS data indicated that approximately 97% of the contract actions in the system contained one or more inaccurate or incomplete data elements. U.S. SMALL BUS. ADMIN. OFFICE OF THE INSPECTOR GENERAL, MEMORANDUM: AUDIT OF THE SBA'S EFFORTS TO IMPROVE THE QUALITY OF ACQUISITION DATA IN THE FED. PROCUREMENT DATA SYS., REPORT NO. 10-08 (Feb. 26, 2010).51 OFFICE OF THE FED. PROCUREMENT POLICY OF THE U.S. CONG., REPORT OF THE ACQUISITION ADVISORY PANEL, supra note 48, at 438.52 U.S. GOV’T ACCOUNTABILITY OFFICE, PSAD-80-33, THE FED. PROCUREMENT DATA SYS. – MAKING IT WORK BETTER 9 (1980).

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confidence in the system because contractor names and dollar

amounts are often listed erroneously.53

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.54 GAO analysts who were trained on these tools did not

find either one easy to use.55 System time-outs and delays

occurred frequently while trying to utilize either reporting

tool.56 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.57

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.”58 For example, there is no person or

entity responsible for overseeing the proper transmittal of

53 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.54 GAO-05-960R, supra note 51, at 3.55 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.56 Id.57 Id. at 4.58 GAO/AIMD-94-178R, supra note 49, at 2.

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data.59 Instead, FPDS relies on voluntary contributions from

agencies for operational and enhancement funding.60 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.61

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.62 59 OFFICE OF THE FED. PROCUREMENT POLICY OF THE U.S. CONG., supra note 48, at 443.60 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.61 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-09-374, FED. CONTRACTORS: BETTER PERFORMANCE INFORMATION NEEDED TO SUPPORT AGENCY CONTRACT AWARD DECISIONS 1 (2009).62 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 federal government’s desire to consolidate further. Id.

15

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.63 For example, PPIRS data from fiscal years 2006 and

2007 indicates that only a small percentage of contracts were

accompanied by a performance assessment.64 Similarly, PPIRS data

typically fails to include helpful information such as

information about terminations for default and management of

subcontracts.65 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 not have

63 GAO-09-374, supra note 61, 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. 64 GAO-09-374, supra note 61, at 3.65 Id. at 3.

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the information they need to make informed decisions about

contract awards and other acquisition matters.66

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.67 The database also lacks standard evaluation

factors and rating scales, which makes it difficult for agency

officials to compare data with meaningful aggregate measures.68

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

whether -- to utilize the information in the system.69

Contracting officers frequently make award decisions based on

factors other than past performance.70 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.71

Fourth, PPIRS suffers from a general lack of oversight.72

Poor central management of the database prevents contracting 66 Neil Gordon, Jeepers, Creepers… What’s the Deal with PPIRS?, PROJECT ON GOVERNMENT OVERSIGHT (May 26, 2009), http://pogoblog.typepad.com/pogo/2009/05/jeepers-creeperswhats-the-deal-with-ppirs.html; INSPECTOR GENERAL, U.S. DEP’T OF DEF. CONTRACTOR PAST PERFORMANCE INFORMATION 4 (1998).67 GAO-09-374, supra note 61, at 3.68 Id.69 See id. at 2-3. For many years, agencies had broad discretion as to how to utilize PPIRS data, if at all. Id.70 Id. at 8.71 Id. at 9.72 Id. at 3.

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officials from correcting the flaws discussed above.73 In 2005,

the Office of Federal Procurement Policy, which guides federal

agencies in establishing standards to evaluate past performance,

created goals to improve PPIRS.74 These goals included

standardizing the PPIRS ratings and developing a centralized

questionnaire system to improve data consistency.75 Years later,

however, these changes still have not gone into effect, and no

funding has been dedicated for this purpose.76 Furthermore, the

incomplete and inaccurate programs feeding data into PPIRS have

not been updated or corrected. 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.”77

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

73 See id.74 Id.75 Id.76 Id. at 3-4.77 Frequently Asked Questions, EXCLUDED PARTIES LIST SYSTEM, https://www.epls.gov/epls/jsp/FAQ.jsp.

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contractor.78 Contracting officers are also required to check

EPLS again prior to awarding “new work” as defined by the FAR.79

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.80 In

addition, many agencies use automated systems for routine

purchases, but EPLS is not compatible with these systems.81 Even

after modifications to EPLS, businesses excluded for egregious

offenses have resurfaced and continue to receive federal

contracts.82

78 Id. (citing FAR 9.405(d)(1), 9.405(d)(4)). 79 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). 80 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.81 Id. at 19.82 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. 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.

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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 for

suspension or debarment determinations, 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.83 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.84 As a result, businesses are able to circumvent a

determination of exclusion by using different identities.85

As with PPIRS and FPDS, EPLS suffers from ineffective

control and management.86 Under EPLS’s structure, the suspending

or debarring agency is independently responsible for entering

relevant data.87 Because multiple federal agencies enter

83 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-05-479 FEDERAL PROCUREMENT: ADDITIONAL DATA AND REPORTING COULD IMPROVE THE SUSPENSION AND DEBARMENT PROCESS 3 (2005).84 GAO-09-174, supra note 2, at 18. During the period from June 29, 2007 to January 23, 2008, GAO found that 38 of the 437 EPLS entries agencies made lacked an entry in the DUNS field. Id. 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 month period. Id.85 Id. at 2. 86 See GAO-05-479, supra note 83, at 4-5. 87 Id.

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information, this leads to inconsistent and inaccurate data

entry.88 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.89 GSA has no incentive or enforcement

mechanism to ensure that agencies contributing data to EPLS are

doing so in an accurate or timely manner. As a result, the data

in EPLS is insufficient to ensure excluded contractors do not

unintentionally receive new contracts.90

D. Federal Awardee Performance and Integrity Information System

The Federal Awardee Performance and Integrity Information

System (“FAPIIS”) contains specific integrity and performance

information on federal agency contractors and grantees.91 FAPIIS

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

accepts additional data from contracting officers and

contractors.92 The federal government intended for FAPIIS to

88 See id.89 Id. at 13-14.90 Id. at 3.91 Federal Awardee Performance and Integrity Information System, http://www.fapiis.gov/.92 Lorraine M. Campos, Melissa E. Beras & Joelle E.K. Laszlo., FAPIIS Flap-is: Transparency Advocates Hate It Now, Contractors Likely to Hate It Later, GLOBAL REGULATORY 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. Id.

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automatically notify the contractor when new information is

posted so that the contractor will have an opportunity to post

comments on the information.93

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,”94 as well as “a

steaming pile” and “a monumental failure”.95 Name searches in

FAPIIS require at least 4 characters, so users cannot effectively

search for a company that is typically abbreviated, such as

“IBM”.96 Alternatively, a search for “Lockheed Martin” produces

over 300 results of companies and subsidiaries with the same

name.97 Like EPLS, FAPIIS also struggles to maintain an

effective listing of DUNS numbers for searchability.98

93 FAR Case 2008-027, Federal Awardee Performance and Integrity Information System, 74 Fed. Reg. 45579, 45580 (Sept. 3, 2009).94 Tom Lee, FAPIIS May Be the Worst Government Website We've Ever Seen, SUNLIGHT FOUNDATION (Apr. 19, 2011, 5:49 PM), http://sunlightfoundation.com/blog/2011/04/19/fapiis-may-be-the-worst-government-website-weve-ever-seen/.95 Greg Therkildsen, FAPIIS is a Steaming Pile, OMB WATCH (Apr. 25, 2011), http://www.ombwatch.org/node/11628; Campos, supra note 92.96 Neil Gordon, FAPIIS First Impressions, PROJECT ON GOVERNMENT OVERSIGHT (Apr. 18, 2011), http://pogoblog.typepad.com/pogo/2011/04/fapiis-first-impressions-.html.97 Id.98 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.

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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, FAPIIS’s challenging

user interface means it barely achieves this goal. FAPIIS

contains no guide to help users figure out potential problems.99

Users have noted significant difficulty in providing contractors

an opportunity to comment on reviews being posted about them.100

While contractor comments are supposed to be posted in FAPIIS

along with the government’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 of a posted review.101

The result is a huge burden on the contractor to continue

monitoring the site for updated reviews of its performance and

eligibility.102

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 communication.103 The system was

initially created as a one-stop shop for contracting officers to

review information about prospective contractors' business 99 Id.100 Campos, supra note 92.101 Id.102 See id.103 See 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/.

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ethics, integrity, and performance.104 EPLS and PPIRS are linked

to FAPIIS,105 so incomplete data in those systems 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.106

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

The DNP List is likely to suffer the same fate 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.

A. The Existing Databases Repeat the Same Mistakes

104 Id.105 FAR Case 2008-027, Federal Awardee Performance and Integrity Information System, 75 Fed. Reg. 14063, 14066 (March 23, 2010); see also 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.106 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.

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The existing databases each fail to effectively prevent

federal agencies from paying money to ineligible recipients in

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

partially effective, the government 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. The most recent list, the DNP List, is the next step

in this series of failed attempts.

Ultimately, these databases exemplify a pattern of failure

because they each 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 flawed search functionality or user interface, and lacks

appropriate oversight and accountability. 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.

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

The DNP List lacks the necessary accountability because it

does not help agencies identify the root causes of their improper

payments. About half of all federal agencies have not identified

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the root causes of their improper payments.107 IPERIA, the

legislation mandating 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.108

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,”109 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

respective list for ineligible recipients or negative past

performance reviews.

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.110 This vague language leaves the door open for 107 Jason Miller, OMB Hangs Hopes on New Tools to Cut $50B in Improper Payments, FEDERAL NEWS RADIO (Feb. 8, 2012, 8:52 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.108 See generally IPERIA, S.1409, 112th Cong. (1st Session), supra note 32. 109 Id. at § 5(a)(2).110 Id. at § 5(b)(4). “When using the Do Not Pay List, an agency shall recognize that there may be circumstances under which the

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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. This undermines the goal of the DNP List

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

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

not have to serve as 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.111 For example,

Social Security and Internal Revenue Service Information is

generally not accessible to other agencies as a source of

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, § 5(f) of the Act calls for the creation of yet another database – a database of individuals incarcerated at federal and state facilities. Id. 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 federal government expands the scope of individuals and entities that need to be monitored via database so they do not receive improper payments. Id. 111 Miller, supra note 107; Michael O’Connell, Agencies Must Work Together to Reduce Improper Payments, FEDERAL NEWS RADIO (Nov. 28, 2011, 9:14 AM), http://www.federalnewsradio.com/?nid=513&sid=2648525.

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identifying information.112 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.113 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.114

The DNP List’s lack of oversight and consequences for

failure to cross reference information compounds this information

sharing problem. Beginning in fiscal year 2011, agencies are

required to report annually information related to tracking and

recovery of improper payments to the improper payments website.115

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.116 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.

112 O’Connell, supra note 111.113 Id.114 Id.115 OMB M-10-13, supra note 15, at 14.116 OMB M-10-13, supra note 15, at 10.

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IV. Recommendation: A Two-Part Solution

Instead of continuing the cycle of creating iterative lists

that do not effectively combat the improper payments problem, the

federal government should consider a 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

The government has long acknowledged that there is a

significant technology gap between the federal government and the

private sector which contributes to a substantial productivity

gap.117 As it has in other contexts, the federal government has

looked to the public and private sector for solutions to improper

payments.118 For example, GAO suggested specific strategies such

as control activities, risk assessment, and monitoring to reduce

improper payments.119 However, these proposals have had little

practical effect on the government’s improper payment reduction

initiatives. Rather than adopt a new approach to managing 117 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).118 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-02-69G, STRATEGIES TO MANAGE IMPROPER PAYMENTS: LEARNING FROM PUBLIC AND PRIVATE SECTOR ORGANIZATIONS, 1, 8 (2001). 119 Id.

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payments, agencies have continued to build new databases on top

of existing ones.

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

data. Many prominent companies have already demonstrated that

technology from the private sector can drastically improve the

government’s ability to reduce improper payments.120

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 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.121 DAS is offered for free to 120 See, e.g., Oversight Systems, Addressing the Do Not Pay Mandate through Automated Technology: Continuous Transaction Monitoring 3 (2011); IBM Global Business Services, The Power of Analytics for Public Sector 2 (2011).121 Data Analytics Services, DO NOT PAY, http://donotpay.treas.gov/dataanalytics.htm.

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agencies to help reduce fraud, errors, and payments made to

ineligible recipients.122 DAS is handled by the DNP List’s staff

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

company.123 Though DAS is still a relatively new application,

Treasury has already released multiple updated versions this year

but has failed to provide any verifiable results of the program’s

success.124 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.125 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.126 To help improve

these determinations, IBM designed an analytics program to

leverage information and transform the department’s operations.127

IBM’s plan led to the creation of a new program which identifies

122 Id.123 See generally GoVerify Business Center, supra note 37.124 See id. at 12.125 IBM Global Business Services, supra note 120, at 15.126 Id.127 Id.

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pending tax cases where the outcome may be questionable.128 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.129 The new system has saved the

state over $889 million while allowing it to process refunds

faster and increasing the percentage of audits that found

questionable refunds.130

Similarly, Alameda County, California’s Social Service

Agency also reduced improper payments with IBM analytics.131

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.132

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.133

The federal government 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

128 Id.129 Id.130 Id.131 Nucleus Research, ROI Case Study: IMB SSIRS Alameda County Social Services Agency 1 (2010).132 Id. at 2.133 Id. at 4-5.

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example, the Department of Defense has been reducing improper

payments with the information technology company Oversight

Systems.134 Oversight Systems helped the DoD implement a unique

analytical tool called Business Activity Monitoring (“BAM”) that

flags potential improper payment transactions for further review

before the transaction is completed and money is spent.135 This

system also helps identify the conditions that contributed to

improper payment so they can be addressed for the future.136 As a

result, BAM has prevented an estimated $2.3 billion in improper

payments since August 2008.137

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.138 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.139 134 Oversight Systems, Improper Payments and the IPIA; PAYMENT ACCURACY, Success Stories, http://www.paymentaccuracy.gov/content/success-stories.135 PAYMENT ACCURACY, Success Stories, http://www.paymentaccuracy.gov/content/success-stories.136 Oversight Systems, Addressing the Do Not Pay Mandate through Automated Technology 8 (2011). 137 PAYMENT ACCURACY, Success Stories, supra note 135; 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).138 PRWeb, US Census Bureau Selects Oversight Systems to Monitor Vendor Payments and Excluded Parties, http://www.prweb.com/releases/2011/11/prweb8999975.htm (Nov. 30, 2011).139 See Id.

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

scale would result in preventing greater numbers of improper

payments made by federal government agencies, and 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.140

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

In order to effectively crack down on improper payments, the

federal government 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. 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.140 It is also noteworthy that the federal government 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) 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, http://web.worldbank.org/external/default/main?theSitePK=84266&contentMDK=64069844&menuPK=116730&pagePK=64148989&piPK=64148984. Though these entities are not designed to reduce the federal government’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.

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Currently, IPERA provides for only the most basic

remediation in the event of agency non-compliance with the

statutory requirements.141 The Act only requires that if the

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

how it will comply.142 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.143 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.144

There is no incentive for agencies to comply, especially

when improper payments only make up a relatively small proportion

of their total program disbursements.145 IPERIA does not account

for agency failure to comply with its directives, and does not

appear to contemplate sanctions of any kind.146 Even if formal

sanctions cannot be immediately implemented in these situations,

the federal government should contemplate forcing agencies, or

divisions of agencies, who maintain high improper payment rates 141 IPERA, Pub. L. No. 111-204, § 3(c), 124 Stat. 2224 (2010), supra note 32. 142 Id.143 Id.144 See id.145 PAYMENT ACCURACY, supra note 12. In fiscal year 2010, the government-wide improper payment rate was 5.29%. Id.146 See generally S.1409, 112th Cong. (1st Session), supra note 32.

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to undergo an 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 federal government must recognize

this problem, and take steps to incentivize government agencies

to reduce improper payments.

V. Conclusion

While the DNP List will likely 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,

36

a sanctions program will incentivize contracting officials to

contribute accurate information to and properly utilize the DNP

List. With these changes, the federal government can make

significant progress at eliminating improper payments.

37