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....................4A. What Are Improper Payments?............................5B. Efforts to Reduce Improper Payments....................7C. The Do Not Pay List...................................10D. The Do Not Pay List is a Start, but Not Enough........12

II. Information Databases Repeatedly Fail to Reduce Improper Payments.................................................13A. Federal Procurement Data System.......................14B. Past Performance Information Retrieval System.........17C. Excluded Parties List System..........................21D. Federal Awardee Performance and Integrity Information

System..............................................24III. Plagued by the Same Defects: The Do Not Pay List.........27

A. The Existing Databases Repeat the Same Mistakes.......28B. The Do Not Pay List Does Not Rectify Problems in

Existing Lists......................................29IV. Recommendation: A Two-Part Solution.......................32

A. Improving the Do Not Pay List Through Private Sector Analytics...........................................33

B. Impose Sanctions to Improve Contracting Decisions and Decrease Improper Payments..........................38

V. Conclusion.................................................40

“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

1 Dave Dantus, Agencies Must Erase Payment Errors to Cut Inefficiencies, FED. TIMES (Nov. 27, 2011), http://www.federaltimes.com/article/20111127/ADOP06/111270303/.

In May 2007, the U.S. General 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

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

the company it continued to do business with was not the same 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 10.4 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).

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

it researched the company before awarding the contract, a U.S.

Government Accountability Office (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

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

were out of date.9 5 EXCLUDED PARTIES LIST SYSTEM, supra note 2, at 10.6 See id. The U.S. General Services Administration (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 the 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.9 Id.

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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

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

represents approximately $105 billion in improper payments in 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/.12 Improper Payments Overview, PAYMENT ACCURACY, http://www.paymentaccuracy.gov (last visited Nov. 1, 2012).

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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 as well as 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,” and payments for which an agency is unable to discern

the accuracy due to lack of appropriate documentation.18

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]. The Office of Management and Budget (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 4.18 Id.

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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.

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

wide list of companies excluded from federal procurement and non-

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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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

Initiative, President Obama set an aggressive goal, challenging

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 Improper Payments Information Act (IPIA) was passed in response to a U.S. Government Accountability Office (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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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) [hereinafter INTENSIFYING AND EXPANDING PAYMENT RECAPTURE AUDITS].28 Exec. Order No. 13,520, 74 Fed. Reg. 62201 (Nov. 20, 2009). In response to the Order, the 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 13520, supra note 16, at 5.29 PAYMENT ACCURACY, supra note 12. 30 Finding and Recapturing Improper Payments, 75 Fed. Reg. 12,119, 12,119 (Mar. 10, 2010). In response, the 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

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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

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

requirements under the order, and establishes procedures to identify outstanding improper payments. See REQUIREMENTS FOR IMPLEMENTING EXEC. ORDER 13520, supra note 16. The OMB issued Parts I and II of Appendix C to OMB Circular A-123 in August 2006 as implementing guidance for the IPIA, and section 831 of the Defense Authorization Act for Fiscal Year 2002, 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 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 (IPERA), 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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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,” 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

DNP List currently includes information from seven contractor

databases, and other data sources are still being added.39 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 Enhancing Payment Accuracy Through a “Do Not Pay List,” 75 Fed. Reg. at 35,953.38 Id.; S.1409 § 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. 39 Zients, supra note 38; Do Not Pay Portal, DO NOT PAY, http://donotpay.treas.gov/portal.htm (last visited Nov. 1, 2012). As of the date this Note was finalized, the online “Do Not Pay

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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%.40 This amounts

to $3.8 billion in avoided improper payments.41 “Agencies also

reported . . . recaptur[ing] $687 million in improper payments in

[fiscal year] 2010 — the highest amount recovered to date.”42

The overall amount of improper payments, however, still increased

in fiscal year 2010 to an all-time high of $125 billion.43

List” (the 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, DO NOT PAY, http://donotpay.treas.gov/portal.htm (last visited Nov. 1, 2012). In September 2011, the 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. The DNP online portal launched a Business Center in January 2012, which provides automated tools and single-entry access to three existing contractor databases. U.S. DEP’T OF THE TREASURY BUREAU OF THE PUB. DEBT, GOVERIFY BUSINESS CENTER 4 (2012) [hereinafter GOVERIFY], available at http://www.fms.treas.gov/sfc/GOVerify%20Improper%20Payments.pdf. 40 PAYMENT ACCURACY, supra note 12, at 2.41 Zients, supra note 38, at 1.42 Id. 43 Ed O’Keefe, Government Made $125 Billion In Improper Payments Last Year, WASH. 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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The Federal Government continued to make progress reducing

improper payments in fiscal year 2011,44 but the Government does

is not appear to be on track to meet President Obama’s goal of

reducing improper payments by $50 billion by fiscal year 2012.45

The administration reported that, in fiscal year 2011, “the

[F]ederal [G]overnment cut improper payments by $18 billion and

recaptured $1.2 billion” in improper payments.46 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%.47 Since the start of the

Accountable Government Initiative, the Federal Government has

avoided improperly paying out over $20 billion,48 but still needs

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

President Obama’s goal by the end of 2012.49

II. Information Databases Repeatedly Fail to Reduce Improper Payments

44 Aigner-Treworgy, supra note 11.45 See generally INTENSIFYING AND EXPANDING PAYMENT RECAPTURE AUDITS, supra note 27, at 1 (detailing President Obama’s goals for 2012). See Aigner-Treworgy, supra note 11; INTENSIFYING AND EXPANDING PAYMENT RECAPTURE AUDITS, supra note 27, at 1.46 Aigner-Treworgy, supra note 11.47 PAYMENT ACCURACY, supra note 12; Aigner-Treworgy, supra note 11. 48 As noted previously in this Part, 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 amount of $18 billion. When totaled, the Government avoided approximately $21.8 billion in improper payments. 49 See discussion supra Part I.B. (discussing President Obama’s goals).

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While the Federal Government has made significant progress

in reducing the rate of improper payments, the compilation of the

DNP List is not an effective solution to end this ongoing

problem. 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 Federal Government has demonstrated a pattern of

creating ineffective lists intended to decrease improper

payments.50 Over the last eighteen 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 (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

success, each list suffers from similar flaws that have thwarted

the success of those programs, including inaccurate and

incomplete data, a flawed user interface, and a lack of

accountability or centralized management.52

A. Federal Procurement Data System

50 See discussion infra Part II.51 See discussion infra Part II.52 See discussion infra Part II.

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The FPDS is the Federal Government’s “central archive of

statistical information on federal contracting.”53 The FPDS

allows contracting officials to examine data across multiple

agencies to make better contracting decisions.54 However, the

FPDS suffers from serious flaws, which have prevented it from

serving as a single, useful database of federal contracting

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

user interface, and lacks accountability and standards for data

accuracy.56

FPDS data is inaccurate and incomplete because the

information it receives from its feeder systems is not properly

reported.57 Not all government agencies that use contractors are 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 Nov. 1, 2012).54 See id.55 The Federal Procurement Data System (FPDS) was modernized between 2003 and 2005 to create the FPDS-NG in an effort to allow for more frequent data updates. For the purposes of this Note, the FPDS and FPDS-NG are functionally equivalent as the system flaws occurring in the FPDS continue to exist in the FPDS-NG. See ACQUISITION ADVISORY PANEL, REPORT OF THE ACQUISITION ADVISORY PANEL TO THE OFFICE OF FEDERAL PROCUREMENT POLICY AND THE UNITED STATES CONGRESS 434, 438 (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] (explaining that the 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, supra note 54, at 445. The GAO has long reported concerns with the FPDS. 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].

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required to report information to the FPDS.58 FPDS data 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 compiled accurately.59 Contracting officials, therefore,

cannot have confidence in the system because contractor names and

dollar amounts are often listed erroneously.60

The 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

The majority of the data comprising the 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 sixty percent of the contracting actions in the FPDS and is the largest contracting entity in the Federal Government. Id. A review of the Small Business Administration’s (SBA) FPDS data indicated that approximately ninety-seven percent of the contract actions in the audit conducted by SBA “contained one or more inaccurate or incomplete data elements.” U.S. SMALL BUS. ADMIN. OFFICE OF THE INSPECTOR GEN., NO. 10-08, SBA’S EFFORTS TO IMPROVE THE QUALITY OF ACQUISITION DATA IN THE FEDERAL PROCUREMENT DATA SYSTEM 2 (2010).58 ACQUISITION ADVISORY PANEL, supra note 54, at 438.59 U.S. GOV’T ACCOUNTABILITY OFFICE, PSAD-80-33, THE FEDERAL PROCUREMENT DATA SYSTEM – MAKING IT WORK BETTER 9 (1980).60 See id. 61 IMPROVEMENTS NEEDED TO THE FEDERAL PROCUREMENT DATA SYSTEM, supra note 56, 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.

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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, the FPDS lacks accountability, hampering accurate

and timely reporting. In 1994, the GAO noted that the 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 data.66 Instead, the FPDS relies on voluntary

contributions from agencies for operational and enhancement

funding.67 As a result, it is incredibly difficult for the 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 the PPIRS, a repository of government

contractors’ prior performance history, is to share that

information across government agencies to better inform contract

63 Id.64 Id. at 4.65 FDSP IMPROVEMENTS, supra note 55, at 2.66 See ACQUISITION ADVISORY PANEL, supra note 54, at 443.67 Id. The 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.

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award decisions.68 Created and run by the Naval Sea Logistics

Center (NSLC), the information in the PPIRS is compiled from the

Department of Defense (DoD), the National Institute of Health,

and the National Aeronautics and Space Administration.69

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

accessible database for all past performance data, the 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, the PPIRS provides incomplete data. Agencies

contributing information to the 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 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 Past Performance Information Retrieval System (PPIRS), GOVWIN (Nov. 23, 2010, 16:42), http://govwin.com/knowledge/past-performance-ppirs. Most of the information in the Past Performance Information Retrieval System (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 the 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.70 BETTER PERFORMANCE INFORMATION NEEDED, supra note 67, at 3. The PPIRS lacked contractor past performance for contract actions

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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 that the Contractor Performance Assessment

Reporting System (CPARS), which feeds into the PPIRS, “to be so

lacking in completeness that . . . contracting officials [using

the PPIRS] ‘do not have the . . . information needed to make

informed decisions related to . . . contract awards, and other

acquisition matters.’”73

Second, the PPIRS has a flawed user interface. For

instance, the PPRIS lacks the “tools and metrics that managers

[require] to oversee the timely documentation of past performance

evaluations.”74 The database also lacks standard evaluation

factors and rating scales, making it difficult for agency

officials to compare data with meaningful aggregate measures.75

involving task orders or deliveries placed against the 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, supra note 67, at 3.72 Id.73 Neil Gordon, Jeepers, Creepers . . . What’s the Deal with PPIRS?, PROJECT ON GOV’T OVERSIGHT (May 26, 2009), http://pogoblog.typepad.com/pogo/2009/05/jeepers-creeperswhats-the-deal-with-ppirs.html (quoting INSPECTOR GEN., U.S. DEP’T OF DEF. CONTRACTOR PAST PERFORMANCE INFORMATION 1 (1998)).74 BETTER PERFORMANCE INFORMATION NEEDED, supra note 67, at 3.75 Id.

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Third, the 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 the PPIRS because there is no guidance on how to

use the past performance data objectively and assess its

relevance to a given award.78

Fourth, the 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] federal agencies in establishing standards for

evaluating past performance,” created goals to improve the

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

provided.83 Furthermore, the incomplete and inaccurate programs

76 See id. at 2-3. For many years, agencies had broad discretion as to how to utilize the PPIRS data, if at all. Id.77 Id. at 8.78 Id. at 9.79 Id. at 3.80 See id.81 Id.82 Id.83 Id. at 3-4.

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feeding data into the PPIRS have not been updated or corrected.84

The result is that the 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 EPLS, maintained by the GSA, is the “official

government-wide system of records of debarments, suspensions[,]

and other exclusionary actions.”85 Contracting Officers are

required to review the 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 the 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, the 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.

84 See id. at 4.85 Frequently Asked Questions, EXCLUDED PARTIES LIST SYSTEM, https://www.epls.gov/epls/jsp/FAQ.jsp (last visited Nov. 1, 2012). 86 Id. (citing FAR 9.405(d)(1), .405(d)(4)). 87 Id. (citing FAR 9.405-1(b)).

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The EPLS has been plagued by flawed search functionality and

user interface. For instance, the 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 the EPLS is not compatible with these systems.89

Even after modifications to the EPLS, businesses excluded for

“egregious offenses have . . . resurface[d] and continue to

receive federal contracts. . . .”90

The EPLS also requires only a minimal amount of data to be

entered for each action, and lacks substantial helpful data. The

EPLS does not require agencies to include compelling reason

waivers for suspension or debarment determinations,91 or require

data on administrative agreements92 – which serve as an

88 See EXCLUDED PARTIES LIST SYSTEM, supra note 2, at 21. The Excluded Parties List System (EPLS) users noted difficulty in finding contractors without being able to use common search operators such as “and”, “not”, and “or”. Though the EPLS added these search operators, it still lacks advanced search tips. Id. at 23.89 Id. at 19.90 Id. at 2. The GAO found that agency officials frequently fail to search the 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 the 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 Administrative Agreements serve as an alternative to suspension or debarment, and keep contractors eligible for new contract awards. See Jessica Tillipman, A House of Cards Falls: Why "Too Big to Debar" is All Slogan and Little Substance, 80 FORDHAM L. REV. RES GESTAE 49, 54-55 (2012).

21

alternative to suspension or debarment, and keep contractors

eligible for new contract awards — which help Contracting

Officers in considering new agreements.93 While the 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.94 As a result, businesses are able

to circumvent a determination of exclusion by using different

identities.95

As with the PPIRS and the FPDS, the EPLS suffers from

ineffective control and management.96 Under the EPLS’s

structure, the suspending or debarring agency is independently

responsible for entering relevant data, leading to inconsistent

data entry.97 In a 2005 review, the GAO found that EPLS data was

incomplete, out of date, and contained incorrect contact

information for a company as a means for following up and

93 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]. 94 See EXCLUDED PARTIES LIST SYSTEM, supra note 2, 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, the GAO found that 38 of the 437 EPLS entries agencies made no entry in the DUNS field. Id. at 18. The GAO also found that “for 81 additional firms entered into the EPLS during the same period, the excluding agency entered a DUNS number of ‘000000000’ or some other nonidentifying information. Therefore, 119 firms in total—27 percent— lacked an identifiable DUNS number.” Id.95 Id. at 2. 96 See ADDITIONAL DATA AND REPORTING, supra note 91, at 4-6. 97 Id.

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verifying such data.98 The GSA has no incentive or enforcement

mechanism to ensure that agencies contributing data to the EPLS

are doing so in an accurate or timely manner.99 As a result, the

data in the EPLS is insufficient to ensure excluded contractors

do not unintentionally receive new contracts.100

D. Federal Awardee Performance and Integrity Information System

FAPIIS contains specific integrity and performance

information on federal agency contractors and grantees.101 FAPIIS

draws most of its data from the EPLS, the PPIRS, and the CPARS,

but also accepts additional data from Contracting Officers and

contractors.102 The Federal Government intended for FAPIIS to

automatically notify the contractor when new information is

98 See 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. 1, 2012).100 See ADDITIONAL DATA AND REPORTING, supra note 91, at 3.101 Federal Awardee Performance and Integrity Information System, FAPIIS, http://www.fapiis.gov/ (last visited Nov. 1, 2012).102 Lorraine M. Campos et al., FAPIIS Flap-is: Transparency Advocates Hate It Now, Contractors Likely to Hate It Later, GLOBAL REG. 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/. The Federal Awardee Performance and Integrity Information System (FAPIIS) accepts additional data via the Central Contractor Registration database on an ongoing basis. Id.

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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. User reviews

have referred to FAPIIS as “the worst government website we’ve

ever seen,”104 as well as “a steaming pile” and “a monumental

failure”.105 Its search functionality is notably poor. Name

searches in FAPIIS require at least four 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 the EPLS, FAPIIS also

struggles to maintain an effective listing of Data Universal

Numbering System (DUNS) numbers for searchability.108

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. (Apr. 19, 2011, 5:49 PM), http://sunlightfoundation.com/blog/2011/04/19/fapiis-may-be-the-worst-government-website-weve-ever-seen/.105 Greg Therkildsen, FAPIIS is a Steaming Pile, OMB WATCH (Apr. 25, 2011), http://www.ombwatch.org/node/11628; see also Campos et al., supra note 100.106 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.

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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.109 FAPIIS

contains no guidance to help users figure out potential

problems.110 Users have expressed uncertainty regarding the

parameters of contractors commenting and defending themselves

against reviews posted about them.111 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 so that it may protest the loss of a contract based on

FAPIIS review.112 The contractor bears the weighty burden of

continually monitoring the site for updated reviews of its

performance and eligibility.113

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 centralization and accountability.114 The system

was initially created as “a one-stop shop for [C]ontracting

109 See Campos et al., supra note 100.110 Id.111 Id.112 Id.113 See id.114 See Joseph D. West et al., The Federal Awardee Performance Integrity Information System, BRIEFING PAPERS, Oct. 2011, at 2.

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[O]fficers to review information about prospective contractors'

business ethics, integrity, and performance.”115 The EPLS and the

PPIRS are linked to FAPIIS,116 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,117

such as Social Security databases of ineligible recipients.118

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

The DNP List is likely to suffer the same 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:

(1) incomplete and inaccurate data and (2) lack of

accountability.

115 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/.116 FAR Case 2008-027, Federal Awardee Performance and Integrity Information System, 75 Fed. Reg. 14,059, 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. COMPUTER WK. (May 27, 2011, 11:26 AM), http://fcw.com/blogs/acquisitive-mind/2011/05/fapiis-gao-homework-assignment.aspx.117 Currently, the FAPPIS database includes only the EPLS, the CPARS, PPIRS, and the CCR. Weigelt, supra note 114.118 See Weigelt, supra note 114.

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

step in this series of failed attempts.

These 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, 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 the EPLS and the 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 (IPERA), proposed

legislation that would mandate 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

determine 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 the IPERA 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

respective list for ineligible recipients or negative past

performance reviews.126 123 Jason Miller, OMB Hangs Hopes on New Tools to Cut $50B in Improper Payments, FED. NEWS RADIO (Feb. 8, 2012, 10:03 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 (IPERA), S. 1409 § 5, 112th Cong. (1st Sess. 2011). 125 Id. § 5(a)(2).126 See, e.g., FAR 9.104-6 (“Before awarding a contract in excess of the simplified acquisition threshold, the [C]ontracting

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

IPERA 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

officials can go elsewhere to verify payments, the DNP List

cannot be the final word on accurate data.

[O]fficer shall review the . . . FAPIIS”).127 S. 1409 § 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 Federal Government expands the scope of individuals and entities that need to be monitored via database so they do not receive improper payments. See id. 128 See id. § 5(a)(2) (noting that “[a]t a minimum” an agency must check five other databases). 129 See FACT SHEET: DO NOT PAY LIST, supra note 32, at 1.

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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 failure to cross

reference information compounds this information sharing problem.

As of fiscal year 2011, “agencies are required to annually report

information related to . . . tracking and recovery of improper

payments . . . to the improper payments website.”134 At the same

130 Miller, supra note 120; Michael O’Connell, Agencies Must Work Together to Reduce Improper Payments, FED. NEWS RADIO (Nov. 28, 2011, 11:22 AM), http://www.federalnewsradio.com/?nid=513&sid=2648525. 131 O’Connell, supra note 127.132 Id.133 See discussion supra Part I.C. 134 REQUIREMENTS FOR IMPLEMENTING EXEC. ORDER 13520, supra note 16, at 14.

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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.

IV. Recommendation: A Two-Part Solution

Instead of repeating the pattern of creating iterative lists

that do not effectively combat the improper payments problem, the

Federal Government 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

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.136 As it has in other contexts, the Federal Government has 135 Id. at 10.136 Peter R. Orszag, Remarks to the Center for American Progress, at 3-4 (June 8, 2010), available at

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looked to both the public and private sector for solutions to

improper payments.137 For example, the 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 Government’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 agencies’ payables and

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

prevent erroneous payments by discovering key patterns in the

data.140 Many prominent companies have already demonstrated that

technology from the private sector can drastically improve the

Government’s ability to reduce improper payments.141

http://www.whitehouse.gov/sites/default/files/omb/assets/blog/OrszagCAPspeechJune82010.pdf. (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. at 10139 See discussion supra Part I.C, II.140 See IBM GLOBAL BUS. SERVS., THE POWER OF ANALYTICS FOR PUBLIC SECTOR: BUILDING ANALYTICS COMPETENCY TO ACCELERATE OUTCOMES 2 (2011).141 See, e.g., OVERSIGHT SYS., Addressing the Do Not PayMandate Through Automated Technology: Continuous Transaction Monitoring 3 (2011); IBM GLOBAL BUS. SERVS., supra note 137, at 2.

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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, while some agencies have tried to create their

own analytics tools with less success. For example, the Treasury

Department (Treasury) 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

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

142 Data Analytics Services, DO NOT PAY, http://donotpay.treas.gov/dataanalytics.htm.143 Id.144 See GOVERIFY, supra note 39, at 2.145 See id. at 12.

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developed by IBM that used predictive data to allow employees to

process refunds more efficiently.146 The tax department processes

twenty-four 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 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 than $889 million, while

allowing it to process refunds faster . . . [a]nd increas[ing]

the percentage of audits that found questionable refunds.”151

Similarly, Alameda County, California’s Social Service

Agency 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

146 IBM GLOBAL BUS. SERVS., supra note 138, at 15.147 Id.148 Id.149 Id.150 Id.151 Id.152 NUCLEUS RESEARCH, ROI CASE STUDY: IBM SSIRS ALAMEDA COUNTY SOCIAL SERVICES AGENCY 1 (2010).

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customizable to their unique needs and easy to use.153 The SSIRS

provided a 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 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

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 Monitoring (BAM) that

flags “potential improper payment transactions for closer review

before [the transactions] 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

153 See id. at 2.154 Id. at 4-5.155 Oversight Systems, Improper Payments and the IPIA; PAYMENT ACCURACY, http://www.paymentaccuracy.gov/content/success-stories (last visited Nov. 1, 2012).156 Success Stories, PAYMENT ACCURACY, http://www.paymentaccuracy.gov/content/success-stories (last visited Nov. 1, 2012).

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future.157 As a result, BAM has prevented an estimated $2.3

billion in improper payments since August 2008.158

Other agencies, including the U.S. Census Bureau, 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 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.161 157 OVERSIGHT SYS., ADDRESSING THE DO NOT PAY MANDATE THROUGH AUTOMATED TECHNOLOGY 8 (2011). 158 Success Stories, supra note 153; 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 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.160 See id.161 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 the World Bank Listing of Ineligible Firms and Individuals. See 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 Nov. 1, 2012). Though these entities are not designed to reduce the Federal Government’s improper payments, they serve analogous roles in various

36

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

In order to effectively minimize 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.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, the IPERA provides only the most basic

remediation in the event of agency non-compliance with the

statutory requirements.163 The IPERA 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

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, 2233.163 Id. § 3(c)(2)(A).164 Id.165 Id.

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attempt to reduce its improper payments may actually get more

money in its budget for failing to operate more efficiently as

required.166

The IPERA 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 The IPERA 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 Federal

Government should contemplate requiring agencies, or divisions of

agencies, who maintain high improper payment rates to undergo an

evaluation by an outside party. Whether this third party is a

private sector analytics company, or another type of auditor or

consultant, federal agencies who fail to comply the first time

should not 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

166 See id.167 PAYMENT ACCURACY, supra note 12. 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 (IPERA), S. 1409, 112th Cong. (1st Sess. 2011).

38

While the DNP List may help reduce improper payments, it

will not solve the problem to the degree that President Obama is

likely anticipating. Instead of addressing 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 suggest that instead of providing an

effective, one-stop solution to improper payments, the DNP List

will only perpetuate 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,

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.

39