Why It Matters

Hundreds of billions of dollars in federal awards are vulnerable to fraud schemes that exploit the near-total absence of beneficial ownership disclosure requirements, according to a new GAO report. Illicit actors have used stolen identities, shell companies, professional enablers, and pass-through billing schemes to hide who actually controls or benefits from a company, then used that cover to fraudulently access contracts, grants, and Medicare payments.

In one, three purported hospice owners stole identities to register shell companies and defrauded Medicare for nearly $16 million between July 2019 and January 2023. In another, a foreign-based scam ring and U.S.-based conspirators directed legitimate federal contractors to a fake government website, causing the government to misdirect $23.5 million to fraudsters between June 2018 and September 2018. These cases share a common thread: the federal award process generally does not require disclosure of who the beneficial owners of a contracting entity actually are, giving fraudsters a structural opening to exploit.

The Big Picture

Beneficial ownership information identifies the individuals who ultimately benefit from or control a company, and while individuals listed as company owners in state incorporation records may be the beneficial owner, that is not always the case. Names of corporate officers and directors may be collected during the award process, but those individuals may not be the beneficial owners or exercise substantial control over the entity.

Beneficial ownership data is available to a limited extent through several sources: the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) company registry, the General Services Administration's (GSA) System for Award Management (SAM), and state incorporation registries. Changes in the scope of reporting requirements now exempt domestic entities from reporting beneficial ownership information in the FinCEN registry, a change that removed about 99 percent of entities previously required to report, making that source of limited use.

Beneficial ownership information is available to a limited extent in data sources such as the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) company registry, the General Services Administration's (GSA) System for Award Management, and state incorporation registries.

The National Defense Authorization Act (NDAA) for Fiscal Year 2021 includes a provision for the General Services Administration (GSA) to maintain a database containing beneficial ownership information for federal contractors, and a Federal Acquisition Regulation (FAR) case was opened in 2021 to implement this and other related provisions, but the FAR Council's deadline to draft a proposed rule has been extended until at least September 2026, and GSA had considered using FinCEN's beneficial ownership registry to develop that database, but that source is now of limited use.

GAO noted that awards such as contracts awarded to foreign businesses are among the categories vulnerable to beneficial ownership fraud risks.

The Bottom Line

GAO stated it will continue to monitor progress on GSA's efforts to implement the statutory provision. Until a centralized, reliable source of beneficial ownership data exists for federal award vetting, the structural gap the report describes will remain. The FAR rulemaking is the most immediate mechanism for change, but its repeated deadline extensions suggest the timeline for closing that gap is not fixed. The status of the FAR rulemaking and any related legislative action can be tracked at Legis1.

Access the Legis1 platform for comprehensive political news, data, and insights.

Spot something wrong? Report an issue with this article