Fraud in Federal Programs: Limited Beneficial Ownership Information Available on Awardees

Executive Summary

GAO found that beneficial ownership information for federal awardees is limited across federal datasets and registries, creating high fraud risk across multiple market segments. The review highlights real-world fraud examples (including schemes that led to nearly $16 million in Medicare fraud and a pass-through billing scam that misdirected $23.5 million) and notes that changes to FinCEN reporting have removed about 99 percent of entities previously required to report. GAO also notes that a statutory provision in the National Defense Authorization Act for Fiscal Year 2021 requires GSA (General Services Administration) to maintain a contractor beneficial-ownership database, but a FAR (Federal Acquisition Regulation) case opened in 2021 to implement related provisions has a FAR Council drafting deadline extended until at least September 2026.

Contractors should pay attention because (1) hundreds of billions in federal awards were identified as vulnerable to beneficial-ownership-related fraud risks in GAO’s analysis, (2) commonly used sources (FinCEN registry, SAM, state incorporation records) are incomplete or now of limited utility, and (3) implementation of a centralized GSA database and FAR rulemaking are delayed. Organisations that provide healthcare services, professional services, IT services, manage grants, or work across federal contracting with shell or foreign entities are particularly affected and should prioritize strengthened ownership verification, enhanced due diligence, and close monitoring of SAM, GSA, and FAR developments.

Impact Matrix

Healthcare Services

• Risk Level: Critical
• Opportunity: Elevated need for robust ownership verification and billing controls; market demand for compliance and audit support services. Specific opportunities TBD pending solicitation language. Relevant NAICS codes (from Tags): 621610.
• Timeline: Timeline TBD pending source review. (GAO notes examples from July 2019–January 2023 showing active fraud.)
• Action Required: Tighten beneficiary and owner identity checks, strengthen internal billing and subcontractor oversight, verify SAM registrations and associated ownership disclosures, and document enhanced due-diligence processes.
• Competitive Edge: Develop and market demonstrable, audit-ready ownership-validation and anti-fraud controls (e.g., documented KYB/KYC workflows) to reassure buyers and prime contractors.

Professional Services

• Risk Level: High
• Opportunity: Demand for advisory, compliance, and due-diligence services to support contractor ownership vetting and remediation. Specific opportunities TBD pending solicitation language. Relevant NAICS codes (from Tags): 541611, 541990, 541219.
• Timeline: Timeline TBD pending source review.
• Action Required: Offer or adopt standardized beneficial-ownership discovery practices, integrate corporate ownership checks into onboarding and procurements, and track FAR/GSA rulemaking affecting ownership reporting.
• Competitive Edge: Package ownership-vetting services with contract readiness assessments to win work from primes and agencies seeking to reduce award risk.

IT Services

• Risk Level: High
• Opportunity: Need for technology solutions that improve identity verification, data linking across SAM, state registries, and commercial sources; Specific opportunities TBD pending solicitation language. Relevant NAICS codes (from Tags): 541990.
• Timeline: Timeline TBD pending source review.
• Action Required: Enhance supplier- and subcontractor-identity controls, secure SAM account management, and monitor GSA/FAR developments around contractor ownership data.
• Competitive Edge: Offer integration tools that reconcile SAM and public registry data and provide audit trails showing ownership verification steps.

Grants Management

• Risk Level: High
• Opportunity: Increased need for grantor-side and recipient-side controls to verify beneficial ownership and prevent pass-through billing; Specific opportunities TBD pending solicitation language.
• Timeline: Timeline TBD pending source review.
• Action Required: Strengthen recipient vetting, require clearer disclosures where permitted, implement enhanced payment controls, and document steps to detect shell-company structures.
• Competitive Edge: Build domain expertise in detecting pass-through billing and demonstrate successful detection/remediation case studies.

Federal Contracting

• Risk Level: Critical
• Opportunity: Agencies and primes will need compliance, audit, and source-verification capabilities; Specific opportunities TBD pending solicitation language. Relevant vehicle listed in Tags: SAM. Compliance surfaces to watch (from Tags): FAR, System for Award Management (SAM), FinCEN Beneficial Ownership Reporting, Corporate Transparency Act.
• Timeline: FAR case opened in 2021; FAR Council drafting deadline extended until at least September 2026.
• Action Required: Monitor GSA and FAR rulemaking related to the NDAA (National Defense Authorization Act) provision on a GSA-maintained beneficial-ownership database; revise SAM registrations and internal procurement policies to anticipate new disclosure requirements; enhance third-party due diligence.
• Competitive Edge: Position your firm as a low-risk partner by proactively adopting robust ownership-disclosure practices and documenting compliance-ready processes that align with likely future FAR requirements.

Shell Companies

• Risk Level: Critical
• Opportunity: Vendors providing ownership transparency services, investigative support, and fraud-detection analytics. Specific opportunities TBD pending solicitation language.
• Timeline: Timeline TBD pending source review.
• Action Required: Screen counterparties for shell-company indicators, require more granular ownership verification from subcontractors, and maintain documentation to demonstrate reasonable steps taken to confirm beneficial ownership.
• Competitive Edge: Invest in specialized analytics and relationships with reputable data providers to detect opaque ownership structures faster than competitors.

Foreign Entities

• Risk Level: High
• Opportunity: Need for cross-border ownership vetting and enhanced compliance programs for foreign-awarded contracts. Specific opportunities TBD pending solicitation language.
• Timeline: Timeline TBD pending source review. (GAO cites foreign-based scam rings as an example.)
• Action Required: Apply heightened due diligence for foreign awardees and foreign-involved supply chains, validate identity and controls of U.S.-based intermediaries, and maintain stronger audit and payment safeguards.
• Competitive Edge: Offer certified cross-border ownership verification and demonstrate capability to identify foreign-linked pass-through schemes.

Cross-Segment Implications

• Limited beneficial-ownership visibility creates cascading risk across procurement, grants, healthcare payment systems, and vendor supply chains: failures in one segment (e.g., pass-through billing) can cause downstream misdirected payments and reputational damage across primes and subs.
• Delays in implementing GSA’s statutory database and extended FAR drafting timelines (to at least September 2026) mean segments must rely on internal controls and commercial data sources in the near term; the recent FinCEN reporting changes that removed about 99 percent of previously reporting entities reduce reliance on that source.
• Increased scrutiny and likely future rulemaking will raise compliance costs and create opportunities for firms providing verification, analytics, and remediation services; primes that adopt stronger ownership-validation practices early will be better positioned to win work and reduce contract risk.