Some companies doing business with the Defense Department have opaque ownership structures that may conceal who owns, controls, or benefits from the company.
The Government Accountability Office (GAO) recently identified fraud and national security risks to DoD from opaque ownership such as ineligible contractors receiving contracts and foreign firms receiving sensitive information through U.S.-based companies.
These risks, identified through GAO’s review of 32 adjudicated cases, include price inflation through multiple companies owned by the same entity to falsely create the appearance of competition, contractors receiving contracts they were not eligible to receive, and a foreign manufacturer receiving sensitive information or producing faulty equipment through a U.S.-based company.
For example, one case involved an ineligible foreign manufacturer that illegally exported sensitive military data and provided defective and nonconforming parts that led to the grounding of at least 47 fighter aircraft.
The GAO reports that DoD has taken some steps that could address some of the risks related to contractor ownership in the procurement process but has not yet assessed these risks across the department. DoD, in coordination with other agencies, revised the Federal Acquisition Regulation (FAR) in 2014 to require contractors to self-report some ownership information. In addition, DoD has taken steps to identify and use ownership information — for example, as part of its supply-chain risk analysis when acquiring critical components. DoD has also begun a department-wide fraud risk management program but, according to GAO, it has neither assessed risks of contractor ownership across the department nor identified risks posed by contractor ownership as a specific area for assessment.
GAO contends that assessing risks arising from contractor ownership would allow DoD to take a strategic approach to identifying and managing these risks, make informed decisions on how to best use its resources, and evaluate its existing control activities to ensure they effectively respond to these risks.
Keep reading this GAO report summary at: https://www.gao.gov/products/GAO-20-106#summary