What Happened?

Hundreds of billions of dollars in federal awards are vulnerable to fraud schemes because the federal award process generally does not require companies to disclose who actually owns or controls them. Fraudsters have exploited that gap using stolen identities, shell companies, and pass-through billing schemes to collect federal money while hiding the real people behind the businesses receiving it.

A new report from the Government Accountability Office (GA) describes two cases: three purported hospice owners who stole identities to register shell companies and defrauded Medicare of nearly $16 million between July 2019 and January 2023, and a foreign-based scam ring and U.S.-based conspirators who 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.

Both cases share the same root cause: no one in the federal award process was required to verify who actually stood behind the companies collecting the money.

Why Does it Matter to Me?

The GAO report found that the federal award process generally does not require companies to disclose their beneficial owners, meaning the people who ultimately control or benefit from them, which gives fraudsters a structural opening to exploit.

Names of corporate officers and directors may be collected during the federal award process, but the GAO report says those individuals may not be the company's beneficial owners or exercise substantial control over it.

Every dollar lost to fraud is a dollar that does not reach the road project, hospital, or school the contract was meant to fund. The GAO report does not estimate a total annual loss figure, but the two cases it highlights alone account for nearly $40 million in diverted federal money.

Both Sides, Now

The National Defense Authorization Act for Fiscal Year 2021 includes a provision for the General Services Administration (GSA) to maintain a database of beneficial ownership information for federal contractors, and a Federal Acquisition Regulation case was opened in 2021 to implement that provision.

The Federal Acquisition Regulation Council's deadline to draft a proposed rule has been extended until at least September 2026, and the General Services Administration (GSA) had considered using the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) company registry for its database, but that source is now of limited use because a change exempted domestic entities from reporting, which removed about 99 percent of the entities previously required to report.

The GAO report does not record opposition to the ownership disclosure requirement. The delays reflect administrative and regulatory timelines, not a recorded policy dispute between parties. Congress passed the underlying law requiring the database more than five years ago, and the rule to carry it out has yet to be finalized.

What Happens Next?

The Government Accountability Office (GAO) said it will continue to monitor the General Services Administration's progress on implementing the law that calls for a database of beneficial ownership information for federal contractors, and the deadline for the Federal Acquisition Regulation (FAR) Council to draft a proposed rule has been extended until at least September 2026.

Until a centralized, reliable ownership database exists, the GAO report concludes the structural gap will remain open. Congress could act to set a firm deadline or expand requirements, but no vote on that is currently scheduled.

The FinCEN registry setback means the GSA cannot simply plug into an existing data source. The agency will need to build or identify a new one, a step that adds time and uncertainty to a process already years behind schedule.

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