Waste and fraud among federal government contractors and vendors is nothing new. Congress after Congress has tried to put an end to the abuses to no avail. Although the number of contractors added to the Excluded Parties List System (identifying parties excluded from receiving federal contracts and other benefits, usually as a result of fraudulent or improper behavior) has increased in recent years, an October 2010 Government Accountability Office (GAO) report revealed that the lack of diligence by several federal agencies to root out waste and fraud is costing taxpayers billions of dollars.

In 2010, the federal government spent more than $535 billion on contracted goods and services, which is a 150 percent increase over the $208 billion that was spent in 2000. Federal agencies have the right to suspend or block fraudulent or ineffective contractors from receiving government work, but the GAO report determined that these tools are broadly underutilized and often ignored.

The GAO study analyzed data from 2006 to 2010, with a specific focus on a mix of 10 agencies with more than $1 billion in contract obligations in 2009. While certain agencies such as U.S. Immigration and Customs Enforcement, the General Services Administration, and the Navy all have effective suspension and debarment processes, the Department of Health and Human Services (HHS), the Department of State, the Department of the Treasury, along with other departments, have minimal systems or no framework at all for detecting and reporting the bad actors in the contracting community.

An October 6, 2011 House Oversight and Government Reform Subcommittee on Technology, Information Policy, Intergovernmental Relations, and Procurement Reform hearing titled, “Protecting Taxpayer Dollars: Are Federal Agencies Making Full Use of Suspension and Debarment Sanctions?” demonstrated that agency laxity is beginning to draw congressional scrutiny. An October 6, 2011 Government Executive article published after the conclusion of the hearing noted that despite awarding massive contracts, many agencies conduct no oversight whatsoever:

“HHS, [Rep. Gerry] Connolly and Republican members pointed out, did not post a single contractor suspension or debarment in the past five years, despite a 2010 budget that included $368 billion in grants and $19 billion in contracts.”

To correct this problem, the GAO recommended that ineffective agencies attempt to model themselves after agencies with successful suspension and debarment procedures. The GAO found that effective agencies all had a dedicated suspension and debarment program with full-time staff, clearly outlined policies and procedures, and senior officials who communicated the importance of an active referral process. Although there would be some cost associated with adding staff at several agencies, spending money to save money does not qualify as wasteful spending.

The use of private sector recovery audit contractors (RACs), in which auditors are paid a percentage of the improper payments located, would be another cost-effective method through which taxpayers could save billions. As Citizens Against Government Waste wrote in a 2008 WasteWatcher, this approach to trimming fraudulent and ineffective spending has a demonstrated track record of success in cutting improper Medicare payments. A RAC demonstration program that began in March 2005 focused on three states; California, New York, and Florida, and looked only at medical claims from inpatient hospital providers. As of March 2008, the program uncovered more than $1.03 billion in improper payments, approximately 96 percent of which were overpayments collected from providers, and was subsequently implemented nationwide.

Regardless of which methods are implemented to ferret out fraud and abuse among government contractors, it is clear that the time for talk is over. The tools are available for every federal agency to dramatically reduce this type of waste, and both the White House and Congress should be pushing harder to quickly get the solutions in place.

  -- PJ Austin