Background Personal property management is a complex undertaking, as federal agencies must track, evaluate, dispose of, and replace a vast array of items. Personal property is defined as any property that is not real property (land, buildings, and structures), with the exception of certain naval vessels (battleships, cruisers, aircraft carriers, destroyers, and submarines). Everything else that an agency owns is considered personal property: Desks, computers, vehicles, and laboratory equipment are common examples. Given the size and distribution of the federal workforceâmore than 4 million federal civilian and military full-time equivalents are housed at thousands of locations across the country and overseasâthe acquisition and maintenance of personal property has required sustained investment by the government. In FY2017, federal agencies reported $1.3 trillion in personal property assets. Effective management of federal personal property is necessary to prevent waste, fraud, and loss. Each agency is responsible for implementing policies and proceduresâknown as internal controlsâthat mitigate risk and promote the efficient use of federal assets. Internal controls help an agency answer fundamental questions about its personal property inventory, such as: Does the agency know what it owns? Does the agency need everything it has? Is the agency disposing of unneeded assets so that other agencies or the public may make use of them? Is the agency getting the best price on replacement items? What safeguards are in place to make it difficult to steal or misuse personal property? The Office of Management and Budget (OMB) provides agencies with broad guidance on establishing internal controls via Circular A-123. Specific guidance for agency personal property policies and procedures is primarily located in the Federal Management Regulation, which is promulgated by the General Services Administration (GSA). In addition, Appendix B of Circular A-123 establishes requirements for internal controls over the management of federal charge cards, which includes safeguards for the receipt of personal property acquired with purchase cards. Personal property management is a relatively decentralized process, and there is no government-wide source of data on agency inventories. Policymakers and federal auditors have shown particular interest in the disposal of personal property, as recent assessments demonstrate that agencies fail to identify and dispose of items they no longer need. Agencies must continually survey their property holdings, identify items that are not needed, and dispose of any unneeded property by transferring it at no cost to other federal agencies, donating it to state or local entities, selling it to the public, or abandoning or destroying it. Executive agencies use this process to dispose of tens of thousands of items a year. When agencies do not efficiently track, inventory, and dispose of unneeded (excess) property, agencies increase federal expenditures and waste the unused value of personal property assets. For example, an agency may purchase items they could have obtained at no cost from another agency's excess inventory, and property that is lost or stolen when not properly inventoried may need to be replaced. When federal agencies do not follow a sound property management process, state and local entities may lose the opportunity to acquire excess federal property at no charge, resulting in higher costs for them when serving the public. The federal government also incurs greater storage expenses when agencies hold onto excess property and loses revenue from potential sales. To address these concerns, Congress passed the Federal Personal Property Management Act of 2018 (Personal Property Act; P.L. 115-419 ), which establishes new inventory tracking and assessment requirements for federal agencies. This report begins with a discussion of federal personal property management guidance, then examines weaknesses in agency policies and procedures. Next, the report analyzes the Personal Property Act and how it may address weaknesses in the personal property disposal process. The report concludes with observations on the intersection of real property and personal property. The Personal Property Disposal Process The personal property disposal process begins when an agency determines it no longer needs certain items. To ensure that agencies are able to identify unneeded or "excess" personal property in a timely manner, they are required to maintain adequate property controls and continually survey their inventories to determine the utility of each item. When an agency identifies excess property, it has the option to transfer an item directly to another federal agency, provided the item had an acquisition cost of less than $10,000. Excess property with an acquisition cost of $10,000 or more may be transferred directly to another federal agency with verbal approval from the appropriate GSA regional office. Generally, direct transfers are made at no charge for the property itself, but the requesting agency is responsible for transportation and shipping costs. Agencies may also perform a direct transfer of computers or peripheral tools (e.g., modems and printers) to schools or educational nonprofits through the Computers for Learning Program, which was established pursuant to Executive Order 12999, "Educational Technology: Ensuring Opportunities for All Children in the Next Century," and encompasses educational institutions for children in pre-kindergarten through secondary school. If an agency does not perform a direct transfer of excess personal property, it must promptly report the property to GSA. Excess property may be reported online through the GSAXcess system, electronic batch, or hard copy. Once excess property is reported to GSA, it undergoes a 21-day screening process, during which the property may be viewed online (if it was entered into GSAXcess by the reporting agency) or inspected onsite (at the agency). During the 21-day period, excess personal property may be transferred to other federal agencies as well as to the Senate, the House of Representatives, the Architect of the Capitol, the District of Columbia government, and certain mixed-ownership government corporations. If no federal agency requests the excess property, then it is declared "surplus," and GSA has five days to donate it at no charge to eligible recipients. Such recipients include state and local governments; municipal agencies; and nonprofits that provide support for education, public health, or veterans groups. The surplus personal property is not transferred directly to the recipients. Rather, each state has a State Agency for Surplus Property (SASP), which receives the property and distributes it to qualified agencies and organizations. Surplus personal property that is not donated within the five-day period may be sold to the general public. GSA makes surplus property for sale available on its public auction website and may also sell property through live auctions, fixed price or negotiated sales, sealed bids, or spot bids. Generally, proceeds from the sale of surplus property are deposited into the U.S. Treasury, less the cost of disposition. Items that do not sell may be recycled, abandoned, or destroyed if they have no value or the estimated cost of their continued care and handling exceeds the estimated proceeds from sale. Disposal by Sale or Exchange to Purchase Replacement Items At times, agencies may need to replace personal property that is not excess or surplus. This occurs when an agency still needs a certain category of property to achieve its mission, but some items are no longer able to adequately perform the job, perhaps due to their age or lack of needed functionality. Vehicles that are near the end of their useful lives fit into this category, as does aging medical equipment. In this instance, executive branch agencies have the authority to exchange (trade in) or sell the old property and apply the exchange allowance or sales proceeds toward the purchase of similar items. The purpose of this authority is to reduce the cost of acquisition, and agencies are required to choose the optionâexchange or saleâthat results in the greatest savings. An agency that opts to sell personal property must use the proceeds to purchase a new similar item within one year. Federal agencies generated $3.1 billion in exchange allowances and sales proceeds that were applied to new purchases between FY2013 and FY2017. Of this total, sales accounted for $2.9 billion and exchanges accounted for $275 million. GSA accounted for 60% of the total allowances and sales proceeds ($1.9 billion), while four other agenciesâthe Departments of Homeland Security, Agriculture, Defense, and the Interiorâtogether accounted for $934 million. Vehicle sales were the primary source of exchange allowances and sales proceeds, accounting for 71% ($2.6 billion) of the total. Weaknesses in the Disposal Process While GSA plays a central role in screening and transferring excess personal property, each executive agency is responsible for continually surveying its own inventory and declaring unneeded property "excess" in a timely manner. When agencies do not fulfill these duties, government resources are not used efficiently, and public funds may be expended unnecessarily. A federal agency may purchase items that could have been obtained at no charge from another agency's excess inventory, for example, or a state government may expend public funds to acquire equipment it could have obtained for free from a federal warehouse. In addition, agencies did not always obtain the maximum exchange allowance or sales price when replacement items were needed. The variance in agency disposal policies and practices likely contributes to wasteful and inefficient use of federal personal property. Lack of Accountability Generally, agencies designate officials, known as property custodians, who are responsible for personal property management and disposal. A 2018 report by the Government Accountability Office (GAO) examined the personal property policies of five agencies and found that while all five had broad policies that required ongoing surveys of personal property, only one specified that their custodians were responsible for doing so. A separate audit of the Environmental Protection Agency (EPA) found that while EPA's policies required annual inventories, the agency did not provide adequate oversight of the contractors hired to perform them. As a consequence, the annual inventories were inaccurate and incomplete. When surveys are performed irregularly, or records are of poor quality, an agency is at risk of holding onto excess property that could be better used elsewhere. An audit of the Federal Aviation Administration (FAA) found that the agency's organizational structure created problems for implementing the continual survey requirement. Personal property policies at FAA were developed by the Aviation Logistics Organization, but the custodians who were supposed to follow those policies were not subject to the organization's authority. Moreover, auditors found that custodians were not evaluated by their direct supervisor on how well they performed their personal property duties. This lack of oversight may have contributed to the auditor's findings that FAA property custodians did not perform required inventories or maintain accurate records of equipment. Of the FAA's 2,330 cost centers (subdivisions with personal property), nearly 8% had never been inventoried, resulting in thousands of items worth tens of millions of dollars being retained by the agency regardless of FAA's need for them. The misalignment of policies and internal structure resulted in the agency potentially holding onto property it did not need, thereby limiting opportunities for other entities to access these assets and driving up storage costs unnecessarily. Lack of Adequate Guidance In some cases, agencies did not provide sufficiently detailed guidance on the types of personal property to survey. Agencies typically divide their inventories into three accounting categories: 1. Capitalized property generally has the highest original acquisition cost. Property in this category has the longest useful expected life and is depreciated and reported as an asset in an agency's annual financial statement. An example would be equipment with an original acquisition cost above the capitalization threshold. 2. Accountable property is nonexpendable personal property with an expected useful life of two years or longer that an agency decides should be tracked in its property records based on its original acquisition cost and sensitivity. Agencies typically record capitalized property as accountable property because of its high acquisition costs, while laptops are considered accountable because of the sensitive information they may contain, regardless of original cost. Agency vehicles that fall below the capitalization threshold are typically considered accountable property. 3. Non-accountable property falls below the accountable property threshold and is not considered sensitive. Desks and chairs are common examples of non-accountable property, provided they fall below the accountability threshold. Agencies are allowed to set their own personal property capitalization and accountability thresholds, which vary across the government. EPA, for example, set its capitalization threshold at $25,000, while the FAA set its capitalization threshold at $100,000. Similarly, the Department of Housing and Urban Development set its threshold for accountable property at $5,000, while GSA set its accountable property threshold at $10,000. The variation in thresholds leads to a variation in inventory management, particularly as it relates to disposal: Agencies often do not track or assess the need for non-accountable items. Some agencies argue that the amount of manpower needed to track low-value items is too high to make it cost-effective, while others say it is not required by law, so they choose not to do so. OMB has taken the position that assessing non-accountable property is necessary for effective internal controls. For example, tracking non-accountable property may prevent unnecessary purchases. After an audit of EPA's Landover warehouse determined that the property stored there had not been fully assessed for need, the agency inventoried thousands of items of non-accountable personal property and transferred $90,000 in excess furniture and carpet to its Research Triangle Park campus and $137,000 in property to another federal agency. Additional cost savings may result from the reduced need for warehouse space. Auditors estimated that disposing of excess non-accountable property at EPA's Landover and Cincinnati warehouses could save $5.8 million in warehouse lease costs over a five-year period. Agencies may also lack policies that provide custodians with criteria for determining whether personal property is excess, which can result in inconsistent practices across the government. One exception is the Internal Revenue Service, which provides guidance on assessing need, such as whether an item is still needed in its current location and, if not, whether it would be cost-effective to transport the item to another location. Without clear criteria, it is possible that custodians have deemed property as non-excess that may, in fact, be unneeded by the agencyâthereby reducing disposals and increasing the likelihood that agencies will make unnecessary purchases and rent more warehouse space than they would have if the inventory had been performed with more specific guidance. Lack of Timely Reporting One consequence of failing to regularly survey accountable and non-accountable property is that agencies do not report excess property in a timely manner. Some unneeded property may sit in warehouses for long periods of time. EPA, for example, kept multiple refrigerators in storage at its Landover warehouse for seven years. During that time, the agency expended funds unnecessarily on storage space for the refrigerators and lost the opportunity to dispose of them to another government agency or nonprofit that serves the public. In many cases, agencies do not report excess property until a "triggering event" forces the issue, such as an office relocation, consolidation, or renovation. Typically, agencies try establish a plan to dispose of items such as unneeded furniture or computers during a triggering event to make the transition easier and to make space for new property that may be part of the move. A disposal plan sets milestones, identifies the staff and other resources needed, and gives specific directions on what needs to be done to complete disposition in a timely manner. The amount of excess personal property identified during a triggering event may grow as some agencies implement OMB's Reduce the Footprint (RTF) initiative. In an effort to decrease the amount of space federal agencies own and lease, RTF requires each agency subject to the Chief Financial Officers Act to submit an annual Real Property Efficiency Plan. The plan must include new design standards for employee workstations. GSA, for example, reduced its standard for usable square feet in new or renovated offices from 150 per person to 136. (Agencies do not have to retrofit existing buildings under RTF. ) When agencies relocate or renovate, their existing furniture may not fit the reduced space allotments, thereby rendering hundreds or thousands of items of personal property excess at one time. Without careful planning, agencies may find it challenging to dispose of their existing furniture and acquire new furniture during a transition. Exchange/Sale Authority As noted, executive agencies have the authority to exchange (trade in) or sell used property and apply the exchange allowance or sales proceeds to the cost of acquiring replacement items. According to federal auditors, not all agencies use this authority to maximize the benefits it affords, and many agencies use the authority sparingly, if at all. Knowledge of how to use the exchange/sale authority varies across and within agenciesâespecially when an agency has a decentralized disposal process. Each of the 172 medical centers of the Department of Veterans Affairs (VA), for example, monitors its needs and orders replacement equipment, but VA officials reported that the exchange/sale process was not well understood in some centers. As a consequence, some medical centers opted to exchange equipment that would have generated a greater monetary return had it been sold, while others were not clear on whether they were permitted to sell equipment when exchange was also an option. Some agencies may need additional guidance or training to facilitate greater use of the exchange/sale authority. GAO found that of the 27 agencies that reported exchange/sale transactions from FY2013 through FY2017, a subset of 10 agencies used the authority on a limited basis. While these agencies may not use the authority because they do not have suitable property to sell or exchange, GSA officials said they believe that a primary factor is lack of knowledge. Similarly, a VA official stated that if VA medical centers had better guidance, their use of the exchange/sale authority might increase. Auditors have found that some agencies, notably GSA and VA, have not monitored and reported their exchange/sale transactions correctly. GSA officials said they do not know the extent to which internal offices have, or should be using, the authority. Officials stated that the lack of monitoring has been due to the low level of priority that GSA has placed on personal property management in general. VA officials conducted limited monitoring of their use of the authority, and audits found widespread reporting errors. One medical center reported about 1,000 sales transactions under the exchange/sale authorityâall of which were incorrect. The medical center had mistaken sales of surplus property for sales of needed (non-excess, non-surplus) property that was being replaced. Another medical center reported no exchange transaction, but auditors found several, including one valued at $500,000. It may be difficult to assess the effectiveness of the authorityâincluding the savings it generatesâwhen monitoring is limited and reporting is inaccurate. Personal Property Legislation The Personal Property Act ( P.L. 115-419 ) was written to address the inconsistent standards in agency inventory practices and thresholds. To that end, Section 2 of the legislation requires the GSA administrator to issue guidance that will direct agencies to conduct an annual inventory and assessment of capitalized personal property to identify which items, if any, are no longer needed and should be declared excess. The guidance also requires agencies to regularly inventory and assess their accountable personal property. The evaluation of need for both capitalized and accountable personal property must consider: the age and condition of the personal property, the extent to which the executive agency uses the personal property, the extent to which the mission of the executive agency is dependent on the personal property, and any other aspect of the personal property that the administrator determines is useful or necessary for the executive agency to evaluate. Section 2 further requires agencies to establish capitalization and accountability thresholds for acquisitions of personal property. Agencies are also required to establish and maintain records of accountable property in a centralized system. The Personal Property Act was enacted in January 2019. GSA has not issued the required guidance as of the date of this report. Analysis The Personal Property Act is designed to address several weaknesses in the property disposal process. It requires GSA to give better guidance to agencies for inventorying and assessing their capitalized and accountable property. A concern repeatedly voiced by agency officials and auditors was the lack of clear direction on how to set up an effective property oversight program, particularly with regard to assessing items for continued need. The determination that property is in excess initiates the disposal process, so improving agency assessment policies and practices may reduce the amount of unneeded property that agencies store and result in cost savings for warehouse space. By moving more excess property through the screening process, federal agencies, state and local governments, and nonprofits may have more opportunities to acquire personal property items at no cost, thereby reducing their expenditures as well. While the new guidance requirements do not extend to non-accountable property, they focus on the highest-value items in an agency's inventory. Given that some agencies may lack the manpower to perform ongoing surveys of all of their property, emphasizing management of capitalized and accountable property may be seen as a cost-effective use of limited resources. The Personal Property Act also requires GSA to set capitalization and accountability thresholds. Currently, agency thresholds may vary widely. As a result, agencies may treat the same property differently. An item that cost $7,500 might be above the accountability threshold at one agencyâand be subject to more stringent inventory and assessment rules of the Personal Property Actâbut below the threshold at another. Similarly, capitalized property must be recorded on an agency's balance sheet as an asset. The higher the capitalization threshold, the fewer assets are reported, which in turn affects the representation of the agency's financial position. Capitalized assets must also be depreciatedâthat is, the cost of an asset must be allocated to the programs and operating periods benefitting from use of the asset. By understating the number of assets an agency owns, high capitalization thresholds also reduce depreciation data, and the full cost of programs and operations may not be captured. Standardizing capitalization thresholds may improve agency financial reporting and program management by capturing a larger number of personal property assets. Standardizing accountability thresholds may also result in more consistent treatment of items with the same acquisition cost. Agencies with accountability thresholds above the level that GSA establishes may be required to expand the scope of their inventory surveys. If so, they may increase the number of items determined to be excess, resulting in reduced expenditures for storage, among other potential benefits. Personal Property Disposal and the Federal Assets Sale and Transfer Act The disposal of excess personal property is often initiated by "triggering events," such as relocation, reconfiguration, or consolidation. In such cases, agencies appear to be unaware of the full scope of excess property in their inventories until they are tasked with moving or replacing it. If an agency is unprepared to manage the disposal of excess property during a transition to new space, whether temporary or permanent, it may cause delays or increase the costs associated with the move. In August 2017, for example, GSA began the process of reconfiguring federally leased space at 26 Federal Plaza in New York City. The project, which has an estimated completion date of February 2020, required GSA to relocate several federal agencies to One World Trade Center during the reconfiguration. GSA did not have a plan to dispose of the excess personal property left behind at 26 Federal Plaza. Without a disposal plan in place, GSA did not ensure that sufficient staff were available to adequately manage the disposition of so many items. Moreover, GSA did not follow the required screening process in which unneeded property is first offered to federal agencies for 21 days, then offered to SASPs, then for put up for sale to the public, then considered for abandonment or destruction. Instead, GSA primarily relied on informal "word of mouth" communication with other federal agencies for disposition. The disposal process was further delayed by inadequate personal property records, which forced the relocated agencies to reassess their inventories. One year after the relocation was complete, "a large volume of excess personal property" remained at 26 Federal Plaza. This may delay the reconfiguration and increase the costs associated with the project. The issues observed during the 26 Federal Plaza reconfiguration may be experienced on a broader scale during implementation of the Federal Assets Sale and Transfer Act of 2016 (FASTA, P.L. 114-287 ), a sweeping piece of real property management legislation. FASTA requires federal landholding agencies to submit recommendations for the sale, transfer, conveyance, renovation, reconfiguration, or consolidation of unneeded real property. These recommendations are submitted to the GSA administrator, who reviews and edits them and then passes a government-wide list of proposals on to a newly established Public Buildings Reform Board. The board examines GSA's list of proposals, holds hearings on them, solicits additional proposals from the public, and compiles a revised list of recommendations to send to the director of OMB, who may approve or reject the board's recommendations in whole. If they are rejected, the board may resubmit its recommendations after reviewing the OMB director's explanation for the rejection. If the OMB Director approves either the initial or revised list, agencies must begin planning the implementation of all of the recommendations. Initial steps toward implementation must begin within two years and be completed within six years. The FASTA process could result in dozensâperhaps hundredsâof real property transitions taking place during the same time period. Many executive agencies may not have accurate inventories of their personal property, may not know the volume of excess inventory they may be required to dispose of, or may lack the resources to manage the disposal of excess personal property at multiple locations. Without adequate preparation, agencies may not be able to dispose of excess personal property in a timely manner, thereby disrupting the transition schedule. One possible way to mitigate these concerns would be for OMB and GSA to develop implementation guidance specific to managing personal property. The guidance might require agencies to prioritize property inventories at sites included in their FASTA recommendations and incorporate personal property disposal into their transition plans. In addition, the guidance might require agencies to request assistance from GSA if they lack the expertise or manpower to effectively dispose of excess property at given sites. In the future, policymakers might examine the potential benefits of expanding the Federal Real Property Profile (FRPP) to include personal property as well. The FRPP is a comprehensive, publicly accessible database of federally owned and leased buildings, structures, and land. Among other things, it provides data on the size and status of each property, such as square footage and whether it is needed, excess, or surplus. When populated with accurate data, the FRPP enhances the transparency of the federal real property inventory, facilitates policy analysis, and enables the public to search for information about properties that are currently or may become available for conveyance or purchase. Arguably, adding personal property data to the FRPP may provide similar benefits. An expanded FRPP could include agency inventories of capitalized property, thereby giving the public and policymakers a single source for data on much of the government's most expensive plant, property, and equipment investments. The Personal Property Act requires agencies to have complete inventories of accountable property. Typically, accountable property (e.g., cars, medical equipment) has a shorter useful life than capitalized property and becomes excess sooner. By including data on accountable property, an expanded FRPP might enable policymakers to better evaluate the funding needs of agencies that face aging assets. It might also assist certain government agencies and nonprofits, as they may use the information to estimate when accountable federal property might be declared excess and therefore become available to them. The expanded FRPP might also include information on excess property, although it would need to be updated regularly to reflect the movement of property through the disposal process. Publishing data on excess property in this manner might help hold agencies accountable for completing their inventories and ensuring that disposal is completed in a timely manner.


Background Pertinent Regulations Governing Federal Contractors and Tax Debt The FAR, among other things, sets forth requirements that must be met before agencies can award contracts to prospective contractors. Beginning February 26, 2016, contracting officers are required to include a provision in all contract solicitations that require contractors to report information about unpaid federal taxes regardless of the contract value. Specifically, FAR § 52.209-11 incorporates the language from the fiscal years 2015 and 2016 appropriations acts that prohibits the government from entering into contracts with corporations with unpaid federal taxes that have been assessed, for which all judicial and administrative remedies have been exhausted or have lapsed, and that are not being paid in a timely manner pursuant to an agreement with the authority responsible for collecting the tax liability, where the awarding agency is aware of the unpaid tax liability, unless an agency has considered suspension or debarment of the corporation and made a determination such action is not necessary to protect the interests of the government. If the prospective contractor reports having unpaid federal taxes under this provision, the contracting officer must request additional information from the prospective contractor; in accordance with agency procedures, notify the officials responsible for debarment and suspension actions, commonly referred to as the suspension and debarment officials (SDO); and not award to the corporation unless an agency SDO has considered suspension or debarment of the corporation and has made a determination that suspension or debarment is not necessary to protect the interests of the government. Additionally, the FAR requires that contracting officers include in certain contract solicitations another provision for prospective contractors to report delinquent taxes. Specifically, contracting officers are also required to include FAR § 52.209-5 in contract solicitations in which the contract value is expected to exceed the simplified acquisition threshold, which was generally $150,000 at the time of our review, under which prospective contractors report delinquent federal taxes owed. This requirement has been in place since 2008. Under this provision, the prospective contractor must report whether it or any of its principals have, within the preceding 3-year period, been notified of “delinquent federal taxes” in an amount that exceeds $3,500. For purposes of this provision, “delinquent federal taxes” are those for which the tax liability is finally determined and assessed, with no pending administrative or judicial challenge, and all judicial appeal rights are exhausted; and the taxpayer is delinquent in making payment, unless enforced collection action is precluded (the taxpayer is not delinquent if the taxpayer has entered into an installment agreement and is making timely payments in compliance with the agreement terms). If the prospective contractor reports having federal tax debt under this provision, the contracting officer must (1) request additional information from the prospective contractor and (2) in accordance with agency procedures notify the officials responsible for debarment and suspension actions. Further, the contracting officer is not required to receive a suspension and debarment determination before contract award for tax debt reported under this certification. In addition, the FAR generally requires prospective contractors to register in SAM before a contract can be awarded. As part of registering in SAM, prospective contractors must make up to 54 representations and certifications, which must be updated as necessary but at least annually. Included among these is the federal tax debt FAR § 52.209-11 representation and § 52.209-5 certification. The representations and certifications in SAM must be kept current, accurate, and complete. Unpaid federal tax debts reported under FAR § 52.209-11 and delinquent federal taxes reported under § 52.209-5 do not automatically disqualify the prospective contractor from receiving a contract, but rather are used as part of the contracting officer’s responsibility determination of the prospective contractor. Contracting officers rely on the contractors’ representations and certifications in SAM to identify qualifying federal tax debts. Federal tax law generally prohibits the IRS from disclosing taxpayer data to other federal agencies for the purpose of determining whether potential contractors owe qualifying federal tax debt. As a result, contracting officers cannot verify a contractor’s tax-debt status by obtaining taxpayer information directly from the IRS without the contractor’s prior consent. Pre–Contract Award Requirements Related to Tax Debt In general, the federal pre–contract award process consists of the agency identifying its needs for goods and services, creating an acquisition plan, posting a solicitation that allows interested contractors to submit bids or proposals, and assessing and selecting a prospective contractor to meet its needs. Agency contracting personnel have a variety of pre–contract award responsibilities. As one of these responsibilities, the contracting officer is to identify the FAR provisions and clauses required to be included in contract solicitations based on various criteria, such as the contract type and contract value. For example, contracts expected to be above the simplified acquisition threshold are required to include § 52.209-5 in the solicitation. After the solicitation is issued and prospective contractors’ offers are obtained, the contracting officer, among other tasks, generally must verify that the prospective contractor is registered in SAM, and that the contractor is not suspended or excluded from doing business with the federal government prior to contract award. The contracting officer must also determine whether the prospective contractor is “responsible.” FAR § 9.104-1 requires that to be determined responsible, prospective contractors must have adequate financial resources to perform the contract, or the ability to obtain them; have a satisfactory record of integrity and business ethics; and be otherwise qualified and eligible to receive an award under applicable laws and regulations, among other things. As part of the responsibility determination, the contracting officer must also access, review, and document the prospective contractor’s applicable representations and certifications, including qualifying federal tax debt reported under § 52.209-11 and § 52.209-5. See figure 1 for an overview of the pre– contract award requirements related to tax debt. IRS Levies to Collect Unpaid Taxes The IRS, which is located in the Department of the Treasury (Treasury) and led by a commissioner, may collect assets or payments, including federal contract payments to collect unpaid taxes, and these collections are referred to as a “levy.” The IRS will usually levy only after notifying the taxpayer in writing of the amount of the unpaid tax and the right of the taxpayer to request a hearing within a 30-day period before the levy occurs. However, if the taxpayer is a federal contractor, the taxpayer is given the opportunity for the hearing within a reasonable period after the levy. One way the IRS levies federal contractor payments is through the FPLP, which is an automated program that can collect overdue taxes through a continuous levy on certain federal payments processed by Treasury’s Bureau of the Fiscal Service (Fiscal Service). In addition to the FPLP, the IRS can also levy federal contractors manually. Specifically, the IRS may levy federal contractor payments directly from federal agencies to collect unpaid taxes. Selected Agencies Have Controls to Identify Contractors’ Reported Tax Debt, but the Controls Were Potentially Ineffective at Ensuring Compliance with Regulations Agencies Have Control Activities to Identify Contractors That Reported Qualifying Federal Tax Debt The five selected agencies we examined have established control activities to varying degrees to help contracting officers comply with federal laws and regulations related to identifying prospective contractors’ reported qualifying federal tax debt. These control activities include the following: Class Deviations: The five agencies issued class deviations from the FAR to implement the tax debt–related appropriations restriction prior to February 26, 2016. These class deviations generally required contracting officers to include an alternative provision in solicitations and, if a contractor reported having qualifying tax debt, to not award the contract without a written suspension and debarment determination from an agency SDO. For example, the Department of Defense, DOE, HHS, and VA issued class deviations as early as 2012 that required contracting officers to take two actions: (1) insert an alternate provision when issuing solicitations using appropriated funds and (2) obtain an SDO determination that suspension or debarment is not necessary to protect the interests of the government before awarding a contract to a contractor who reported qualifying tax debts. Policies and Procedures: VA, DOE, and HHS issued policies and procedures to varying degrees that generally direct contracting officers to the relevant sections of the FAR when assessing contractor responsibility. For example, both VA and DOE issued policies or guidance on determining contractor responsibility and including § 52.209-5 in solicitations where the value was expected to exceed the simplified acquisition threshold. In addition, agency officials who supervise contracting officers told us that contracting officers use contractors’ representations and certifications in SAM to identify qualifying federal tax debts and document their review of the information when determining contractor responsibility before contract award. For example, one of the Navy’s responsibility-determination templates requires contracting officers to notate that they verified, in SAM, that the prospective contractor did not report qualifying federal tax debts under FAR § 52.209-5. Further, the five agencies have also issued procedures outlining the SDO suspension and debarment referral and review process, as required by federal regulations. For example, HHS issued guidance on suspension and debarment that includes (1) relevant contact information, (2) required or optional documentation to include, and (3) potential causes for suspension or debarment, such as the contractor reported qualifying federal tax debt. Both the Army and Navy issued policy alerts informing contracting officers of the February 26, 2016, effective date of FAR § 52.209-11 and the requirement that an SDO determine that suspension or debarment is not necessary to protect the interests of the government before awarding a contract to a contractor who reported having tax debts under this provision. Contract-File Compliance Tools: The five agencies told us that contracting officers have tools available that help ensure required information, including information related to federal tax debt, is reviewed and documented in contract files. For example, contracting officer supervisors and policy officials at these agencies told us that contracting officers use agency contract-writing systems to assist with identifying and inserting required FAR provisions and clauses in the contract solicitation. HHS and VA contracting officer supervisors also told us contracting officers use contract-file checklists to ensure required FAR provisions and clauses are included in the contract solicitation. In addition, some of the five selected agencies’ contract- file checklists or memorandums we reviewed generally document that the contracting officer verified the prospective contractor’s SAM registration, and suspension and debarment status, and retrieved the relevant SAM representations and certifications before contract award. Further, some VA and DOE contract checklists we reviewed also document that the contracting officer considered tax debts reported under § 52.209-5 or federal tax debt in general (see fig. 2). Periodic Compliance Reviews of Samples of Contracts: The five agencies’ policy officials and contracting officer supervisors we interviewed told us they generally conduct compliance reviews on a sample of contract files before and after contract award to ensure that the required FAR provisions and clauses are inserted in contract solicitations, including peer-to-peer, management, and legal compliance reviews. Agency officials also told us this includes verifying that the contracting officer considered and documented the prospective contractors’ SAM representations and certifications before contract award. For example, the Army’s procurement management review program is designed to ensure regulatory and policy compliance, among other things, via oversight by a multilevel program that reviews each contracting activity every 3 years. Training: DOE and VA provide training that generally discusses contractor responsibility determinations and references the requirement that contracting officers inform the SDO when prospective contractors report that they have qualifying federal tax debt before contract award. The Department of Defense provides training on the causes for suspension, and the Navy SDO also provides training discussing the requirement to notify the SDO when prospective contractors report qualifying federal tax debt. HHS suspension and debarment staff we interviewed told us that they provide general suspension and debarment training that includes causes for suspension and debarment referrals, such as tax debt. Further, one Navy contracting office also provides training on inserting the tax-debt provision in all contract solicitations. Selected Agencies’ Control Activities Potentially Did Not Ensure Compliance with Requirements Related to Contractors’ Reported Qualifying Tax Debt We identified 1,849 contracts awarded by the five selected agencies in 2015 and 2016 to contractors that reported qualifying federal tax debt that potentially should have resulted in these agencies taking required follow- up actions before contract award, such as notifying the agency SDO of these tax debts. Specifically, according to our analysis of FPDS-NG and SAM data for this period, the five selected agencies potentially should have notified an SDO prior to awarding 1,849 contracts to contractors that reported having qualifying federal tax debt under their § 52.209-11 representation or § 52.209-5 certification, which we discuss further below. However, none of the five selected agencies’ SDOs we interviewed were notified of any instances in which a contracting officer identified a prospective contractor with these reported qualifying federal tax debts, and they did not receive any tax debt-related referrals within this period. Agency officials we interviewed were unable to explain why the SDOs were not notified without reviewing each of the 1,849 contract files. Because referrals were not made to an SDO before awarding the contract, agencies’ control activities do not appear to have operated effectively to identify contractors’ reported tax debt and to consider suspension and debarment when required. As a result, these contracts may have been awarded without required actions being taken—a potential violation of federal regulations and, in some cases, the Antideficiency Act. In addition, we reviewed a nongeneralizable sample of seven contracts where prospective contractors reported qualifying tax debts before receiving contract awards and identified two illustrative examples where agency control activities did not ensure regulatory compliance. The tax debts for these contractors were collectively more than $250,000, and historical IRS tax records include instances where the IRS had assessed a Trust Fund Recovery Penalty (TFRP), indicating willful failure to collect, account for, or pay taxes owed. Nonetheless, the contracting officers awarded these two contracts without taking required follow-up actions for these awards. These contractors were awarded more than $510,000 in contract obligations in total, in 2015 and 2016. Four Agencies Did Not Take Potentially Required Actions before Contract Award When Contractors Reported Qualifying Federal Tax Debt under FAR § 52.209-11 In our analysis of the five selected agencies, we identified 143 contracts at four of the agencies that were awarded to contractors who reported qualifying federal tax debt in SAM under § 52.209-11 from February 26, 2016, through December 31, 2016. Table 1 shows the number of contract awards to contractors who reported qualifying federal tax debt under § 52.209-11 from February 26, 2016, through December 31, 2016, by selected agency. We did not identify contracts awarded by DOE during this period to similar contractors, and thus did not assess the operational effectiveness of the agency’s controls activities for compliance with its relevant class deviation. However, none of the four agencies that awarded these 143 contracts took required follow-up actions that potentially should have resulted from the contractor’s reporting qualifying tax debt before contract award. As mentioned earlier, when prospective contractors report having qualifying federal tax debt under § 52.209-11, the FAR requires that contracting officers (1) request that the contractor provide such additional information as the contractor deems necessary in order to demonstrate responsibility; (2) notify, in accordance with agency procedures, the SDO of the contractor’s reported qualifying federal tax debt, before award, for suspension and debarment review; and (3) not award the contract unless an SDO determines that further action is not required to protect the interest of the government. The FAR also requires that contracting officers possess or obtain information sufficient to determine whether the prospective contractor is responsible. As mentioned above, qualifying federal tax debts reported under this representation do not automatically disqualify the prospective contractor from receiving a contract, but rather are used as part of the contracting officer’s responsibility determination of the prospective contractor. In our review of contract-file documentation for seven contract awards to contractors that reported they had qualifying tax debt under either provision, we could determine for one case under this representation that the contracting officer did not take required follow-up actions to ensure compliance with federal regulations. We highlight this example in the sidebar to the left. Agency contracting officer supervisors we interviewed from the four selected agencies that awarded the 143 contracts discussed earlier told us that they were not aware of any instances in which a contracting officer identified a prospective contractor’s reported qualifying federal tax debt under § 52.209-11 and notified the SDO during this period. As mentioned, the SDOs we interviewed at these four agencies told us that they did not receive, nor were they aware of, any notifications to review prospective contractors that reported having qualifying federal tax debt during this period. All four of these SDOs told us that they track notifications to the SDO manually or via a case-management tracking system. Further, none of the agency officials we interviewed at the selected agencies were able to identify specific reasons a contracting officer would not notify an SDO of reported qualifying federal tax debt as required. Five Agencies Did Not Take Potentially Required Actions before Contract Award When Contractors Reported Qualifying Federal Tax Debt under FAR § 52.209-5 Our analysis of the five selected agencies also identified 1,706 contracts awarded in 2015 and 2016 to contractors that reported having qualifying federal tax debt in SAM under § 52.209-5. Table 2 shows the number of contract awards to contractors that reported having qualifying tax debt under § 52.209-5 in 2015 and 2016, by selected agency. However, none of the five agencies that awarded these 1,706 contracts took required follow-up actions that potentially should have resulted from the contractor’s reporting qualifying tax debt before contract award. As mentioned above, as early as 2008, contractors were required to certify whether they had qualifying federal tax debt if, within the preceding 3-year period, they or any of their principals had been notified of “delinquent federal taxes” in an amount that exceeds $3,500 for which the liability remained unsatisfied. Also as previously mentioned, tax debts must only be reported under this provision if the tax liability is finally determined with no pending administrative or judicial challenge, all judicial appeal rights have been exhausted, enforcement action is not precluded, and the taxpayer is not in compliance with an installment repayment agreement. Qualifying federal tax debts reported under this certification do not automatically disqualify the prospective contractor from receiving a contract, but rather are used as part of the contracting officer’s responsibility determination. Further, contracting officers are to insert this FAR provision in solicitations where the value of the contract is expected to be greater than the simplified acquisition threshold. If a prospective contractor reports qualifying tax debt, contracting officers must request such additional information as the contractor deems necessary in order to demonstrate responsibility, and, prior to proceeding with the award, notify the agency’s SDO in accordance with agency procedures. While we cannot readily determine whether all 1,706 contract awards were out of compliance with federal regulations due to limitations in the data, as discussed earlier, our review of seven contract awards with reported qualifying tax debt under either provision identified an instance under this certification where we confirmed that the solicitation was above the simplified acquisition threshold and the contracting officer did not take follow-up actions to ensure compliance with federal regulations (see sidebar to the left). As mentioned, agency contracting officer supervisors we interviewed from the five agencies told us that they were not aware of any instances in which a contracting officer identified a prospective contractor’s reporting qualifying federal tax debt under § 52.209-5 and notified the SDO during this period. Further, SDOs we interviewed at these five agencies told us that they did not receive, nor were they aware of, any notifications identifying prospective contractors that reported qualifying federal tax debt under this FAR provision during this period. As mentioned earlier, four out of the five SDOs told us that they track SDO notifications, and none of the agency officials we interviewed identified specific reasons a contracting officer would not notify an SDO as required. When discussing these 1,849 contracts with agency officials, they were unable to explain whether or why their control activities did not operate effectively to ensure compliance with applicable federal laws and regulations. To do so, some of these officials told us that they would need to review the contract files for each of the 1,849 instances of potential noncompliance we identified. Specifically, the agency must confirm that (1) a solicitation was issued, and (2) the estimated value of the contract award was above the simplified acquisition threshold, when applicable, to determine whether the regulatory requirements applied. If the regulatory requirement applied to the contract award, the agency must then determine why their control activities did not operate effectively to ensure compliance. We plan to refer these contract awards to the appropriate agency’s Inspector General for review, and share them with the agencies at that time as well. Understanding why existing control activities potentially did not operate effectively will help these agencies ensure they are taking necessary steps to protect the interests of the government and avoid the misuse of appropriated funds in the future. The five selected agencies told us, in response to our review, they plan to take actions to improve control activities to identify contractors’ federal tax debts reported under § 52.209-11 and § 52.209-5. These planned actions include issuing new guidance, providing additional training, verifying that contracting officers considered reported tax debts in postaward compliance reviews, and updating preaward contract-file checklists to ensure compliance with federal laws and regulations. Some of the selected agencies also noted that the FAR requirements apply to all executive agencies and that a broader solution to accessing, identifying, and reviewing qualifying federal tax debt reported in SAM representations and certifications could be useful. Agency officials explained that contracting officers have to individually identify and review each relevant representation and certification—up to 54 representations and certifications—to become aware of the prospective contractor’s response before contract award. Further, agency officials told us that contractors’ responses are not easily identifiable in SAM and contracting officers can miss the contractor’s reported qualifying federal tax debt under § 52.209-11 and § 52.209-5. As mentioned earlier, accessing, reviewing and documenting the SAM representations and certifications is one part of the preaward contracting process and is one of the actions contracting officers are required to take as part of the contract award process. The SAM tax-related representations and certifications that must be reviewed before contract award are determined by various factors, including contract award value. See figure 3 for an overview of the general process to access, review, and identify prospective contractors’ qualifying tax debts reported in SAM. As mentioned earlier, GSA manages SAM, and while the GSA official we interviewed acknowledged the challenges raised by the selected agencies, this official noted that SAM representation and certification data are accessible to contracting officers for the purpose of reviewing qualifying federal tax debt reported by prospective contractors and taking any required follow-up actions. Nevertheless, this official noted that GSA is in the process of upgrading SAM, which may include changes to the representations and certifications. Standards for Internal Control in the Federal Government state that management should use high-quality information to achieve its objectives and that management should consider the accessibility of information and make revisions when necessary so that the necessary information is accessible. As GSA makes planned upgrades to SAM, it is in a position to consider improvements to SAM users’ experience with representations and certifications that may help executive-branch agency contracting officers more easily identify contractors’ reported qualifying federal tax debt under § 52.209-11 and § 52.209-5. Federal Contracts Were Awarded to Thousands of Contractors with Potentially Qualifying Federal Tax Debt Of the 120,000 federal contractors that were awarded contracts in 2015 and 2016, our analysis found that over 4,600 of them had unpaid taxes at the time they received the award. These contractors collectively owed $1.8 billion in unpaid taxes as of December 15, 2016, and received contract award obligations totaling $17 billion. We could not confirm, however, whether at the time of the contract awards these contractors’ unpaid taxes met the relevant legal definitions of qualifying federal tax debt under § 52.209-11 and § 52.209-5 due to limitations in the data. However, we were able to determine which debts likely met the definition of qualifying tax debt, and to determine those that did not meet the definition, as of December 15, 2016—a date after the contract award. Specifically, over 2,700 of these contractors had unpaid taxes that were all likely qualifying federal tax debt as of December 15, 2016. In addition, about 1,900 had unpaid taxes that were not qualifying federal tax debt. As previously noted, agencies are required by the FAR to consider contractors’ reported qualifying federal tax debt before awarding contracts. Generally, as mentioned earlier, agencies are not restricted from awarding contracts to contractors that report having qualifying federal tax debt if an agency SDO determines suspension and debarment of the contractor is not necessary to protect the interests of the government. We describe characteristics of the unpaid taxes and contract awards for these 4,600 contractors with unpaid taxes below. (See fig. 4.) Contractors Owed Unpaid Taxes at the Time They Received Contract Awards We identified over 4,600 federal contractors that had unpaid taxes at the time they received a contract award in 2015 and 2016. However, we could not confirm whether these contractors’ unpaid taxes met the relevant legal definitions under § 52.209-11 and § 52.209-5 at the time of the contract award due to limitations in the data we obtained, as previously described. These 4,600 contractors received about $17 billion in contract awards and owed $1.8 billion in unpaid taxes as of December 15, 2016. The characteristics of these 4,600 federal contractors with unpaid taxes in December 15, 2016, are discussed below: Average and Total Debt Associated with Contractors with Unpaid Taxes: About 1,000 contractors had unpaid taxes of at least $51,000 each. These contractors collectively owed about 98 percent of the $1.8 billion in unpaid taxes we identified. About 1,900 contractors each had unpaid taxes between $3,500 and $51,000. They collectively owed about $30 million in taxes. About 1,700 contractors each had unpaid taxes over $100 but less than $3,500. They collectively owed about $2 million in taxes. Chief Financial Officers (CFO) Act Agencies Associated with Contractors with Unpaid Taxes: The 4,600 contractors with unpaid taxes as of December 15, 2016, received contract awards in our 2- year period from one or more of all 24 CFO Act agencies. Almost 1,500 contractors received contract awards from more than one agency. These contractors owed almost $600 million in unpaid taxes as of December 15, 2016 (see sidebar to the left). Although, as discussed above, we reviewed the control activities of five agencies, all executive-branch agencies are required by the FAR to consider the qualifying federal tax debt of prospective contractors before making an award. If a contractor is receiving awards from multiple federal agencies, the suspension and debarment determination of any agency SDO is relevant to other agencies considering the same contractor for an award. For example, as discussed earlier, we identified 1,849 contract awards by five selected agencies to contractors that reported qualifying tax debt before contract award, and none of these agency SDOs were notified. There were some instances where more than one agency made a contract award to the same contractor that reported having qualifying tax debts. These obligations might not have been made by multiple agencies if one of these agencies’ SDOs had been notified of the reported tax debt as required. Contractors with Unpaid Taxes and Associated with TFRP: We also identified about 600 contractors whose tax records indicate the IRS assessed a TFRP to the owner or officers associated with the contractor, as shown in the sidebar to the left. As mentioned previously, a TFRP indicates willful failure to collect, account for, or pay certain taxes owed. These 600 contractors had $200 million in unpaid taxes in December 2016. Having a TFRP does not disqualify a contractor from obtaining a contract, but it can be considered when the agency determines a prospective contractor’s responsibility under the FAR, according to agency contracting and suspension and debarment officials (SDO) we spoke with. Over 2,700 Federal Contractors Likely Had Qualifying Federal Tax Debt on December 15, 2016, but Few Reported Qualifying Tax Debt in SAM We found that over 2,700 contractors owed about $350 million in unpaid taxes that likely met the relevant legal criteria for qualifying federal tax debt on December 15, 2016. However, few of those contractors reported having qualifying tax debts in SAM. Because the contracts were awarded before December 2016, we cannot determine whether these unpaid taxes met the relevant legal criteria under § 52.209-11 and § 52.209-5 for qualifying federal tax debt at the time of the contract award. However, because these tax debts were unpaid as of December 15, 2016, we determined they were likely qualifying tax debts because they were not being timely paid consistent with a collection agreement and appeared to be finally determined. These tax debts amounted to about 20 percent of the $1.8 billion in unpaid taxes we identified. The 2,700 contractors received almost $5 billion of the $17 billion in federal contract obligations for awards made to contractors with unpaid taxes. We examined the SAM § 52.209-11 representations and § 52.209-5 certifications for these over 2,700 contractors to determine whether they reported this debt as qualifying federal tax debt. We identified about 2,000 contractors that had completed a representation or certification, and, when applicable, met the tax-debt threshold for § 52.209-5. Of those 2,000, 93 percent (1,848) did not report their debt as qualifying federal tax debt, compared to fewer than 150 who did report qualifying federal tax debt under one or both tax-debt provisions (see sidebar to the left). Specifically: Over 1,300 contractors completed the § 52.209-11 representation in SAM (which took effect on Feb. 26, 2016), and less than two dozen of these contractors reported having qualifying federal tax debt under § 52.209-11 before receiving contract awards. Nearly 1,400 contractors completed the § 52.209-5 certification in SAM and as of December 15, 2016, had unpaid taxes over the certification threshold. Fewer than 140 of these contractors reported under § 52.209-5 that they had been notified of qualifying federal tax debt above $3,500 before receiving a contract award. The accuracy of contractors’ reported tax-debt status in SAM is critical to federal agencies’ ability to identify reported qualifying federal tax debt owed by prospective contractors. As described earlier, contracting officers generally rely on the contractors’ representations and certifications in SAM to identify qualifying federal tax debts. Contracting officers generally cannot verify a contractor’s tax-debt status by obtaining taxpayer information directly from the IRS without the contractor’s prior consent, because federal tax law generally prohibits the IRS from disclosing taxpayer data for this purpose. While contracting officers cannot independently verify whether federal contractors accurately report qualifying federal tax debt, any qualifying federal tax debt may be available for levy by the IRS, as discussed further below. About 1,900 Federal Contractors Owed Unpaid Taxes That Were Not Qualifying Federal Tax Debt as of December 15, 2016 We found that about 1,900 contractors had about $1.4 billion in unpaid taxes that did not meet the relevant criteria for qualifying federal tax debt on December 15, 2016, a date after which their contracts were awarded. Specifically, these unpaid taxes were not finally determined or were being paid in a timely manner consistent with a collection agreement as of December 15, 2016. If the status of these debts was the same at the time of contract award, then the contractors did not need to report them during the contracting process and agencies were not required to consider the debts before awarding the contract. Although we were able to determine that these unpaid taxes did not meet the legal definitions of qualifying federal tax debt as of December 15, 2016, we could not determine whether this was also the case at the time of the contract award. Federal agencies obligated $12 billion to these 1,900 contractors between 2015 and 2016, for awards made while the contractors owed taxes. Of these 1,900 contractors, about 1,400 owed $1.3 billion in unpaid taxes that were not finally determined on December 15, 2016. About 700 contractors owed $90 million in unpaid taxes that were being timely paid consistent with a collection agreement in December 15, 2016, due to installment agreements or offers-in-compromise accepted by the IRS. The IRS Identified Most Federal Contractors with Unpaid Taxes for Levy, but the FPLP Cannot Comprehensively Identify All Federal Contractors for Levy Through its FPLP, the IRS identified for levy most contractors we found to have likely qualifying federal tax debt, according to our analysis of IRS data. Specifically, of the over 2,700 executive-branch agency contractors with likely qualifying federal tax debt as of December 15, 2016, discussed above, the IRS identified over 2,000 for levy through the FPLP, a program administered by Treasury’s Fiscal Service. These 2,000 contractors collectively owed about $300 million of the roughly $350 million in likely qualifying federal tax debt. According to IRS data, the FPLP did not identify almost 700 of the 2,700 contractors we found to have likely qualifying federal tax debt as of December 15, 2016. These 700 contractors owed about $50 million in likely qualifying federal taxes. IRS officials responsible for the FPLP told us that they would need to review these instances to determine whether the contractors were eligible for levy as of December 15, 2016, and if so why they were not identified by the FPLP. We plan to share these cases with the IRS to determine whether the contractors were eligible for levy at that time and take any appropriate enforcement action. It is possible that the IRS did not identify these 700 contractors for levy through the FPLP because the IRS did not have access to their payments. The FPLP was developed as an automatic and efficient means for the IRS to collect delinquent taxes as payments were processed through the Fiscal Service. Accordingly, the FPLP can only levy federal agency payments processed by the Fiscal Service, but not all federal agencies process their payments through the Fiscal Service. As a result, payments disbursed by other means—such as payments that agencies make directly to contractors—are not included in the FPLP, although they can be levied by the IRS through other manual methods (see fig. 5). The IRS cannot readily identify which payments are made outside of the Fiscal Service, and such payments cannot be levied through the FPLP. While the IRS receives some information about contractor payments from agencies, it does not receive information that would allow it to comprehensively determine which payments are processed by the Fiscal Service and can be levied through the FPLP and which payments are not and must be levied manually. Specifically, executive-branch agencies, including those that do and do not process payments through the Fiscal Service, are required to report information to the IRS about some federal contracts through the IRS Form 8596 information return. Reporting agencies identify themselves on the Form 8596, and the IRS uses data from this form to identify federal contractors for potential levy. However, the Form 8596 information return lacks information on whether payments to federal contractors are processed by the Fiscal Service or through some other means. Without visibility into the payments made outside the Fiscal Service, the IRS is limited in its ability to identify nonparticipating agencies for outreach about the efficiencies of leveraging the FPLP to collect contractors’ unpaid taxes, as opposed to manual levies. Further, without information on agencies’ payment methods, the IRS cannot quickly identify payments that must be levied through manual methods. Expanding Form 8596 to include payment-method information could help the IRS identify which agencies to target for outreach and avoid delays in identifying contractor payments requiring manual levy. IRS officials told us the IRS has the legal authority to expand Form 8596 reporting requirements and would have to determine whether a change to add information on Fiscal Service processing of agency payments was warranted. In addition, we found the IRS is missing an opportunity to further enhance the FPLP levy process for certain contractor payments. Within the FPLP, the IRS has an expedited process to levy federal contractors and, as noted above, the IRS uses data from Form 8596 to identify federal contractors for potential levy. However, Form 8596 reporting requirements do not apply to federal contracts for which the amount obligated is $25,000 or less. When Form 8596 reporting requirements were initially established, this threshold was consistent with Federal Procurement Data System (FPDS) contract reporting requirements for agencies at the time. However, subsequent FAR amendments revised the reporting threshold from contracts over $25,000 to contracts over the micropurchase amount, which is currently set at $10,000. Because the Form 8596 reporting threshold is higher than FPDS reporting requirements, information about contracts in the $10,000 to $25,000 range is available in FPDS, but is not required to be shared with the IRS. Such information could help the IRS identify and use expedited levy procedures on federal contractors with contract obligations in the $10,000–$25,000 range. According to the IRS, an amendment to its regulations would be needed to align the Form 8596 reporting threshold with FPDS reporting requirements. Standards for Internal Control in the Federal Government state that management should use high-quality information to achieve the entity’s objectives. To do this, management obtains relevant data from reliable internal and external sources, processes the obtained data into high- quality information, and uses high-quality information to make informed decisions and evaluate the entity’s performance in achieving key objectives. Without additional information about and from the agencies making these payments, the IRS may be missing opportunities to identify federal contractors for levy to enhance tax collections. Conclusions Considering prospective contractors’ reported qualifying federal tax debt—in accordance with federal regulations—helps ensure federal agencies comply with federal appropriations law, supports the integrity of the contracting process, and protects the interests of the government. The five federal agencies we reviewed had control activities, such as policies, procedures, and training, to help ensure contracting officers consider prospective contractors’ reported qualifying federal tax debt before making an award. However, these controls were not always effective in ensuring that potentially required actions were taken. Determining the reasons the contracts we identified were awarded without appropriate consideration of contractors’ reported qualifying federal tax debt and taking additional steps to ensure tax debts are appropriately considered in future contract award decisions is necessary to ensure contracting opportunities are appropriately awarded. Improving accessibility of SAM representation and certification data to allow contracting officers to more easily identify and consider reported qualifying federal tax debt before contract award can help contracting officers meet required steps, such as referring them to the SDO. Federal tax law generally prohibits the IRS from disclosing taxpayer data to other federal agencies for the purpose of determining whether potential contractors owe qualifying federal tax debt. Consequently, federal agencies generally rely on contractors’ reported qualifying federal tax debt to detect any tax debt owed by their potential contractors. However, agencies cannot independently verify the accuracy of contractors’ reported qualifying federal tax debts when awarding contracts. This limitation heightens the importance of the IRS’s levy process for recouping revenue from businesses that have failed to pay their taxes in a timely way but are receiving federal contract dollars, and the recoupment of revenue can help reduce the tax gap. Accordingly, the IRS has opportunities to use available data to improve its detection and collection of qualifying federal tax debts owed by federal contractors, which can help enhance revenue collection and compliance. Recommendations for Executive Action We are making 12 recommendations—two each to the Army, HHS, the Navy, and VA; one each to DOE and GSA; and two to the IRS. The Senior Procurement Executive for the Department of the Army should review the contracts we identified as being awarded to contractors that reported qualifying federal tax debt under FAR § 52.209-11 and (1) determine whether the contracting officer was required to consider the contractor’s reported tax debt; if so, (2) determine the reasons controls to identify and refer these contractors to the SDO before contract award did not operate effectively; and (3) design or modify controls to help ensure compliance with applicable regulations. (Recommendation 1) The Senior Procurement Executive for HHS should review the contracts we identified as being awarded to contractors that reported qualifying federal tax debt under FAR § 52.209-11 and (1) determine whether the contracting officer was required to consider the contractor’s reported tax debt; if so, (2) determine the reasons controls to identify and refer these contractors to the SDO before contract award did not operate effectively; and (3) design or modify controls to help ensure compliance with applicable regulations. (Recommendation 2) The Senior Procurement Executive for the Department of the Navy should review the contracts we identified as being awarded to contractors that reported qualifying federal tax debt under FAR § 52.209-11 and (1) determine whether the contracting officer was required to consider the contractor’s reported tax debt; if so, (2) determine the reasons controls to identify and refer these contractors to the SDO before contract award did not operate effectively; and (3) design or modify controls to help ensure compliance with applicable regulations. (Recommendation 3) The Senior Procurement Executive for VA should review the contracts we identified as being awarded to contractors that reported qualifying federal tax debt under FAR § 52.209-11 and (1) determine whether the contracting officer was required to consider the contractor’s reported tax debt; if so, (2) determine the reasons controls to identify and refer these contractors to the SDO before contract award did not operate effectively; and (3) design or modify controls to help ensure compliance with applicable regulations. (Recommendation 4) The Senior Procurement Executive for the Department of the Army should review the contracts we identified as being awarded to contractors that reported qualifying federal tax debt under FAR § 52.209-5. Specifically, the Senior Procurement Executive should determine whether each contract value was expected to exceed the simplified acquisition threshold when the solicitation was issued and, if so, (1) determine the reasons controls to identify and notify the SDO of these contractors before contract award did not operate effectively and (2) design or modify controls to help ensure compliance with applicable regulations. (Recommendation 5) The Senior Procurement Executive for DOE should review the contracts we identified as being awarded to contractors that reported qualifying federal tax debt under FAR § 52.209-5. Specifically, the Senior Procurement Executive should determine whether each contract value was expected to exceed the simplified acquisition threshold when the solicitation was issued and, if so, (1) determine the reasons controls to identify and notify the SDO of these contractors before contract award did not operate effectively and (2) design or modify controls to help ensure compliance with applicable regulations. (Recommendation 6) The Senior Procurement Executive for HHS should review the contracts we identified as being awarded to contractors that reported qualifying federal tax debt under FAR § 52.209-5. Specifically, the Senior Procurement Executive should determine whether each contract value was expected to exceed the simplified acquisition threshold when the solicitation was issued and, if so, (1) determine the reasons controls to identify and notify the SDO of these contractors before contract award did not operate effectively and (2) design or modify controls to help ensure compliance with applicable regulations. (Recommendation 7) The Senior Procurement Executive for the Department of the Navy should review the contracts we identified as being awarded to contractors that reported qualifying federal tax debt under FAR § 52.209-5. Specifically, the Senior Procurement Executive should determine whether each contract value was expected to exceed the simplified acquisition threshold when the solicitation was issued and, if so, (1) determine the reasons controls to identify and notify the SDO of these contractors before contract award did not operate effectively and (2) design or modify controls to help ensure compliance with applicable regulations. (Recommendation 8) The Senior Procurement Executive for VA should review the contracts we identified as being awarded to contractors that reported qualifying federal tax debt under FAR § 52.209-5. Specifically, the Senior Procurement Executive should determine whether each contract value was expected to exceed the simplified acquisition threshold when the solicitation was issued and, if so, (1) determine the reasons controls to identify and notify the SDO of these contractors before contract award did not operate effectively and (2) design or modify controls to help ensure compliance with applicable regulations. (Recommendation 9) The Administrator of GSA should coordinate with the appropriate SAM users, such as agency procurement officials, to identify potential updates to facilitate contracting officers’ identification of contractors that report qualifying federal tax debt under the § 52.209-11 representation and § 52.209-5 certification. (Recommendation 10) The Commissioner of the IRS should evaluate options to identify which contract payments federal agencies expect to be processed by the Fiscal Service, including amending the reporting requirements for Form 8596 to require federal agencies to include information about whether contractor payments are expected to be processed by the Fiscal Service. If the IRS amends Form 8596 reporting requirements, the IRS should (1) systematically note this information on taxpayer accounts to help the IRS identify which payments may be available for levy through the FPLP and which payments may be available for other (i.e., manual) levies and (2) analyze these data to help identify agencies that do not participate in the FPLP and inform its efforts to expand the number of agencies participating in the FPLP. (Recommendation 11) The Commissioner of the IRS should evaluate options to obtain comprehensive contract payment data above the existing FPDS-NG reporting threshold of $10,000, including assessing the costs and benefits of changing the current threshold for contracts that agencies are required to report to the IRS through Form 8596 information returns to be consistent with the existing reporting threshold for FPDS-NG, determine whether regulatory revisions are necessary, and change the reporting threshold, if appropriate. (Recommendation 12) Agency Comments We provided a draft of this report to the Department of Defense (for the Army and Navy), HHS, VA, DOE, GSA, the IRS and the Office of Management and Budget for review and comment. In written comments (reproduced in appendixes II–VI), the Department of Defense, HHS, VA, DOE, and GSA agreed with our recommendations. The IRS generally agreed with our recommendations (see appendix VII). The Office of Management and Budget had no comments. HHS and the Navy provided technical comments, which we incorporated as appropriate. The Department of Defense, HHS, VA, and DOE noted that they plan to review the contract awards identified in our review. In addition, several agencies described steps they will be taking to address our recommendations. For example, the Department of Defense noted that it plans to take corrective actions or add controls as necessary. HHS noted that it will assess internal controls and take appropriate action. VA noted that it will provide an action plan. DOE noted that it will design or modify controls for regulatory compliance, if necessary. GSA noted that it will work with the procurement community through established governance channels to identify potential approaches for drawing contracting officers’ attention to qualifying federal tax-debt information reported in SAM. The IRS noted its commitment to obtaining accurate information on potential levy sources and, accordingly, indicated it will review the benefits of expanding the information included on its Form 8596, along with other alternatives, to determine their feasibility, effectiveness, and relative burden. The IRS further noted that it will review the potential benefits and costs that would result from changing the current reporting threshold for contract payments, and submit its findings to the Office of IRS Chief Counsel to consider this addition to the IRS Priority Guidance Plan. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of Health and Human Services, the Secretary of Veterans Affairs, the Secretary of Defense, the Secretary of the Navy, the Secretary of the Army, the Secretary of Energy, the Administrator of GSA, the Commissioner of Internal Revenue, the Director of the Office of Management and Budget, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6722 or shear@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VIII. Appendix I: Objectives, Scope, and Methodology This report first examines the extent to which, in calendar years 2015 and 2016, (1) selected federal agencies had control activities that ensured contractors’ reported federal tax debts were considered before contract award. The remainder of the report assesses the same period; however, it focuses on all executive-branch agencies and examines the extent to which (2) federal contracts were awarded to contractors with federal tax debt, including the characteristics of those contracts and contractors, and (3) the Internal Revenue Service (IRS) identified selected federal contractors’ payments for levy. To identify the extent to which selected federal agencies had control activities that ensured contractors’ reported federal tax debts were considered before contract award (including task orders), we analyzed contract obligation information from the Federal Procurement Data System–Next Generation (FPDS-NG) and selected for our review the five agencies with the highest contract obligations associated with contract awards for 2015 and 2016, which is the period when contract award data were available at the time of our review. In addition, the revised FAR tax-debt provision went into effect during this period. Specifically, we selected the three civilian agencies with the highest obligations—the Departments of Energy (DOE), Health and Human Services (HHS), and Veterans Affairs (VA)—and, within the Department of Defense, the two agencies with the highest obligations—the Departments of the Army and Navy. The results of our review of these five selected agencies are not generalizable to all federal agencies. However, these five selected agencies awarded about 51 percent of contract obligations associated with contract awards for 2015 and 2016, which were the most-recent contract award data available at the time of our review, and during this period the newest Federal Acquisition Regulation (FAR) tax-debt provision was implemented. We reviewed selected agencies’ policies and procedures related to awarding contracts to prospective contractors that report they owe certain tax debts and met with agency officials to discuss how their agencies consider contractors’ reported federal tax debt before awarding a federal contract. Specifically, we met with agency officials who supervise contracting officers, such as the Head of Contracting Activity, Director of Contracts, or other contracting managers, policy and procurement officials, and suspension and debarment officials from the selected agencies. Additionally, we reviewed and analyzed applicable laws and regulations, as well as applicable policies and procedures from DOE, HHS, VA, the Navy, and the Army for considering contractors’ reported federal tax debt when awarding federal contracts. In addition, we interviewed staff from the Office of Management and Budget’s Office of Federal Procurement Policy and officials from the Interagency Suspension and Debarment Committee, and the Civilian Agency Acquisition Council to obtain an understanding of how the law is implemented through the FAR. We also met with the General Services Administration (GSA) to obtain an understanding of the System for Award Management (SAM), including the registration of prospective contractors and their reporting of certain federal tax debt to the representation requirement of FAR § 52.209-11 and the certification of § 52.209-5. As part of this work, we analyzed FPDS-NG contract award and SAM contractor registration data to identify instances where contractors reported having certain qualifying federal tax debt and received a contract award (including task orders). Specifically, we electronically matched FPDS-NG contract award data from 2015 and 2016 to the relevant contractors’ SAM registration. We then analyzed the relevant contractors’ representations and certifications most recently updated in SAM before the relevant contract award to identify all instances where contractors reported that they had a federal tax debt as defined in FAR § 52.209-11 or § 52.209-5 within our time frame. From the resulting list, we identified the contracts that selected agencies awarded to contractors that reported these qualifying federal tax debts. In addition, we reviewed a nongeneralizable sample of 15 contract awards selected from the five selected agencies to provide illustrative examples of the extent to which these agencies’ control activities ensured required actions were taken before contract award. These 15 contract awards were selected based on numerous criteria, including the prospective contractors’ (1) responses under FAR § 52.209-11 or § 52.209-5 in SAM before the new contract award, and (2) having tax debts as of December 15, 2016, that were not in a repayment agreement with the IRS. Further, when selecting contract awards that had a § 52.209-5 certification, we considered only contractors having at least $3,500 in tax debts as of December 15, 2016. We identified the relevant contractor population and then considered the following factors simultaneously to select the 15 case examples: unique contractor Taxpayer Identification Number across selected agency contracting office locations, the amount of tax debt owed by the prospective contractor, the amount of award obligations, and IRS assessment of a Trust Fund Recovery Penalty (TFRP). We selected case examples that represent a variety of these factors. We reviewed seven contract awards made to contractors that reported that they had certain tax debts and eight contract awards made to contractors that reported that they did not have certain tax debts as part of their § 52.209-11 representations and § 52.209-5 certifications in SAM. For these 15 contract awards, we reviewed pre–contract award documentation, which included tax debt–related representations and certifications retrieved by the selected agencies from SAM, and copies of historical tax transcripts and other records, such as revenue officers’ notes obtained from the IRS. For the case examples presented in this report, we rounded tax debt and contract obligation amounts, did not identify the awarding agency, and did not meet with awarding agency officials to discuss each contract award to protect sensitive taxpayer information. To determine the extent to which executive-branch agency contracts were awarded in 2015 and 2016 to federal contractors with federal tax debt, and characteristics of those contract awards and contractors, we electronically matched data from FPDS-NG on contract awards (including task orders) for all executive agencies with (1) data from SAM on contractors’ representations and certifications of their tax debt, and (2) data from the IRS on tax debts owed by these contractors. Specifically, we used the Data Universal Numbering System number to match data from FPDS-NG with contractor registration data from SAM to obtain additional information on these contractors, such as the contractors’ Taxpayer Identification Numbers and their representations and certifications of tax debt. Using the contractor Taxpayer Identification Number from SAM, we then matched our list of contractors with IRS data to identify our population of contractors that received a contract award and had unpaid federal tax debts. Our analysis included all of the executive-branch agencies. Further, our analysis describes some of characteristics of these debts, including the total amount of unpaid taxes, whether the contractors had a TFRP, and whether or not contractors had unpaid taxes that were timely paid or appeared to be finally determined, as of December 15, 2016, which was the time of our data extract. We also analyzed whether contractors that were assessed unpaid taxes in the IRS data reported having certain tax debts as part of their § 52.209- 11 representations and § 52.209-5 certifications in SAM. We reviewed the most-recent § 52.209-11 representation and § 52.209-5 certification prior to the relevant contract award. Our analysis may understate the population of contractors with tax debt to the extent that contractors repaid their tax debts before the timing of our data extract. Specifically, our analysis does not include any contractors that may have owed federal taxes at the time of a new contract award during this period, but that paid or otherwise resolved their tax debts before December 15, 2016. Additionally, our analysis focuses on contract awards made in 2015 and 2016, and not contract modifications made during this period. In 2015 and 2016, federal agencies obligated $400 billion in modifications to contracts made in 2014 or earlier, almost half of all federal contract obligations in this period. We identify contractors who potentially may have had federal tax debt meeting the definitions of tax debt under FAR § 52.209-11 and § 52.209-5 before the contract award, but cannot verify whether that was the case. To determine the extent to which the IRS identified selected federal contractors’ payments made for levy in 2015 and 2016, we identified the population of contractors that owed taxes at the same time they received a contract award during our period by matching FPDS-NG, SAM, and IRS Unpaid Assessment data, as described above. We then determined whether the tax debt had ever been levied or blocked by the Federal Payment Levy Program (FPLP) as of December 15, 2016, according to IRS data. We also interviewed IRS officials about levying federal contractor payments and reviewed Internal Revenue Manual sections and other relevant documents from the IRS. We assessed the reliability of FPDS-NG, SAM, and IRS Unpaid Assessment data by reviewing relevant documentation, interviewing knowledgeable agency officials, and performing electronic testing to determine the validity of specific data elements in the databases. We determined that these databases were sufficiently reliable for the purposes of our reporting objectives. Appendix II: Comments from the Department of Defense Appendix III: Comments from the Department of Health and Human Services Appendix IV: Comments from the Department of Veterans Affairs Appendix V: Comments from the Department of Energy Appendix VI: Comments from the General Services Administration Appendix VII: Comments from the Internal Revenue Service Appendix VIII: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In additional to the individual named above, Jonathon Oldmixon (Assistant Director), Gloria Proa (Analyst-in-Charge), Jennifer Felder, and Albert Sim made significant contributions to this report. Also contributing to this report were Scott Hiromoto, Barbara Lewis, Heather Miller, James Murphy, and Elizabeth Wood.