Washington, DC – Senator Susan Collins, during a Subcommittee hearing today of the Senate Homeland Security and Governmental Affairs Committee, called for stricter regulations in the federal government procurement process in order to crackdown on civilian contractors who fail to pay federal taxes. She stressed that provisions must be put in place to prevent such contractors from continuing to receive high-paying government contracts.

The Government Accountability Office (GAO) had earlier reported that civilian contractors doing business with the Department of Defense owed an estimated $3 billion in back taxes at the end of the 2002 fiscal year. The tax delinquency of contractors doing business with other government agencies, including the Departments of the Treasury, Homeland Security, and NASA, is estimated to be in excess of $3.3 billion. In addition, under questioning by Senator Collins, GAO revealed that it also uncovered cases in which tax-evading contractors also received federal grants, including grant awards that were larger than the amount they owed in taxes. Among the 50 civilian agency contractors investigated by the GAO for a report that was revealed at the hearing today, all were found to have engaged in abusive or potentially criminal activity, including embezzlement and drug activity.

“These tax delinquencies are not the result of legitimate hardship. They are the result of these contractors willfully deciding that the laws of our country do not apply to them. Rather than pay their fair share of taxes on income derived from the taxes of others, they chose instead to inflate their own salaries, to purchase multi-million-dollar properties, and – in one case – to divert payroll taxes withheld from employees to an offshore bank to finance a luxury home overseas. This is outrageous,” said Senator Collins. “The case studies described in the GAO report do not merely tell a story of how a business, from time to time, can pull a fast one. In far too many cases, businesses pull fast ones repeatedly, chronically, and apparently without meaningful penalty.”

Senator Collins pointed out that contractors who cheat on their taxes and still get paid by the government do not just cheat taxpayers, they also pose unfair competition to legitimate companies who compete for federal contracts. “Under federal law, contracts are only supposed to be awarded to ‘responsible’ bidders,” said Senator Collins. “We need to focus not just on levying payments to those contractors that owe taxes but also improving our efforts on the front end by ensuring that such firms and individuals never receive federal contracts in the first place.”

As Chairman of the Senate Governmental Affairs Committee, Senator Collins had asked the GAO to create a special investigative, auditing, and analytic unit in order to better focus on agency and financial management high-risk areas. This new unit is responsible for the investigation that was the focus of today’s hearing. Senator Collins has asked GAO to look further into the problem of tax cheaters receiving federal grant money.