Bloomberg News

U.S. Government Probes Company Hired to Investigate Its Workers

June 21, 2013

The U.S. government is investigating the company it hired to investigate the people it hires.

The probe targets USIS, the biggest supplier of federal background checks and the company that a U.S. watchdog official said performed a 2011 investigation of national-security contractor Edward Snowden. USIS is part of Altegrity Inc., owned by Providence Equity Partners LLC.

Snowden leaked secret documents describing two U.S. surveillance programs. His disclosures have drawn attention to the government’s vetting process and to the companies that gain from reviewing the backgrounds of some 4.9 million workers authorized to access classified materials.

“It always takes two to tango,” said Larry Allen, president of Allen Federal Business Partners, a consulting firm in McLean, Virginia. “There is some culpability for the government here as well.”

Patrick McFarland, inspector general of the federal Office of Personnel Management, said yesterday at a congressional hearing that he believes problems may have occurred with USIS’s review of Snowden.

The inspector general is probing the company’s “systemic failure to adequately conduct investigations,” Senator Claire McCaskill, a Missouri Democrat, said at the hearing of two Senate subcommittees. She said the company is under criminal investigation.

USIS received a subpoena in January 2012 from the inspector general, though it has “never been informed that it is under criminal investigation,” according to a company statement.

It complied with the subpoena and has “cooperated fully with the government’s civil investigative efforts,” according to the statement.

Background Checks

USIS conducts about 45 percent of the background investigations contracted out by the federal personnel office. Closely held Altegrity was awarded $451 million in federal contracts last year, according to a Bloomberg Government study.

Passing a background check is a requirement before a federal employee or contractor can be granted a security clearance. The personnel office is responsible for most of them, conducting more than 2 million investigations a year. The government spends more than $1 billion annually on background checks, according to McCaskill.

Snowden, who held a top-secret clearance, is a former National Security Agency contractor who had worked for Booz Allen Hamilton Holding Corp. (BAH:US)

Snowden Check

While the inspector general’s office is investigating USIS, McFarland after the Senate hearing declined to say whether it was a criminal probe and whether it was related to Snowden.

USIS was responsible for a “re-investigation” of Snowden that was tied to his clearance renewal, McFarland said. It isn’t clear who conducted Snowden’s original background check, which wasn’t done by the personnel office, according to the inspector general’s office.

The company has been under investigation since late 2011, said Michelle Schmitz, assistant inspector general for investigations.

“A complicated contract fraud case typically takes several years,” she said at the hearing of the two Senate Homeland Security and Governmental Affairs subcommittees. She declined to offer details on why the 2011 probe was initiated.

Little Oversight

The government conducted background investigations in-house until the mid-1990s, according to a 2011 report by the Congressional Research Service. In 1996, that work was privatized, with about 700 federal employees forming a for-profit company that would become USIS.

“The idea was to harness the efficiencies of the private sector to get rid of the backlog of security clearances,” said Dan Gordon, a former top procurement official in President Barack Obama’s administration.

The Carlyle Group LP (CG:US), a Washington-based private equity firm, and New York-based Welsh, Carson, Anderson & Stowe LP invested in USIS. They agreed in 2007 to sell USIS to Providence, Rhode Island-based Providence Equity Partners for about $1.5 billion.

McFarland said he has been alarmed about the lack of oversight of the background investigations. “Our resources remain woefully inadequate, preventing us from performing the level of oversight that such an important program requires,” he said.

In one case, a worker fabricated 1,600 credit checks before it was discovered her own background investigation had been falsified, according to McFarland’s prepared testimony. The company wasn’t identified.

Of 3,500 investigative reports the Pentagon used to make security clearance decisions, 87 percent were missing required documents, a review by the U.S. Government Accountability Office found in 2008.

While 18 investigators, including contract and government employees, have been convicted of falsifying reports since 2006, McFarland said the inspector general’s office lacks the resources to clear a backlog of an additional 36 cases.

To contact the reporters on this story: Nick Taborek in Washington at ntaborek@bloomberg.net; Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net


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