Bloomberg News

Security Firm Sued for Fraud by U.S. Over Background Checks (2)

January 23, 2014

United States Investigations Services LLC, whose background checks helped National Security Agency leaker Edward Snowden and Washington Navy Yard shooter Aaron Alexis get security clearances, was accused of fraud by the government in a whistle-blower lawsuit.

The U.S. joined the case in October and filed its complaint yesterday, accusing the company of breaking its contract with the U.S. by failing to provide adequate background checks in at least 665,000 instances. The government claims mirror those of the whistle-blower in the case made public last year.

The case doesn’t involve the background investigations of either Snowden or Alexis, a Justice Department official who wasn’t authorized to speak publicly on the case previously said. The two aren’t mentioned in the government’s complaint in federal court in Montgomery, Alabama.

USIS management, beginning at least in March 2008, started “dumping” or “flushing” cases to boost profit and revenue, which involved releasing the investigations to the government for payment and saying they were complete when they hadn’t received quality reviews as required by the contract, the U.S. said in the complaint, which cites internal company e-mails. A USIS employee said in one of the e-mails, “Shelves are as clean as they could get. Flushed everything like a dead goldfish.”

‘Small Group’

“These allegations relate to a small group of individuals over a specific time period and are inconsistent with the strong service record we have earned since our inception in 1996,” Ellen Davis, a USIS spokeswoman at Sard Verbinnen & Co. in New York, said in an e-mailed statement. USIS has “fully cooperated” with the investigation, she said.

USIS, created as part of an initiative to reduce the size of the civil service, is facing questions from lawmakers about the company’s vetting of Snowden, who exposed top-secret U.S. spying programs last year, and Alexis, who killed 12 people at the Navy Yard on Sept. 16 and died in a shootout with police.

Senator Tom Carper, a Democrat from Delaware and chairman of the Senate Committee on Homeland Security and Governmental Affairs, said after the Navy Yard shooting that the panel would take a closer look at the background check procedure for security clearances.

‘Antiquated’ Process

“Many national security experts have long argued the security clearance process is antiquated and in need of modernization,” Carper said at an Oct. 31 hearing. “Given recent events, I think we have to ask whether the system is fundamentally flawed.”

USIS employs more than 2,500 field investigators and other employees, the U.S. said in its complaint yesterday. The company breached the federal False Claims Act by seeking payments for background investigations even though it knew the required quality reviews hadn’t been conducted on those probes, the U.S. said.

Agencies for which investigations were dumped included the departments of Defense, Justice, Treasury and Homeland Security, according to the complaint.

The government “accepted and paid for background investigations it would not otherwise have accepted or paid for had it known the truth,” the U.S. said.

Private Companies

The U.S. Office of Personnel Management, or OPM, conducts more than 2.2 million background investigations a year, according to the filing. Some of the checks are conducted by the government while others are contracted out to various private companies. USIS has been conducting background checks for the government since 1996.

OPM paid USIS $95 to $2,500 for background investigations, depending on the type of check required, according to the filing. The company also was eligible for annual bonuses for meeting certain goals. From 2008 to 2010, USIS received $11.8 million in bonus payments, according to the complaint.

The company’s chief executive officer at the time set internal revenue goals in March 2008, with the chief financial officer then determining how many cases needed to be reviewed or dumped, according to the filing.

The two executives are no longer with the company, according to a person familiar with the matter.

“The more cases USIS completed each month, the more money it received from OPM,” the U.S. said.

The government filing cited an undated internal document with a USIS employee writing: “They will dump cases when word comes from above.”

‘Ugly Baby’

In another e-mail, the director of national quality assurance wrote: “Come EOM (end of month), if they’re going to tell us to just dump all those cases anyways without a proper review, which will only make that ugly baby even uglier.”

The same person wrote in a separate e-mail, “We dumped all we could to try and hit the 1100 mark but fell short,” according to the complaint.

“Since first learning of these allegations nearly two years ago, we have acted decisively to reinforce our processes and management to ensure the quality of our work and adherence to OPM requirements,” said Davis, the company spokeswoman. “We appointed a new leadership team, enhanced oversight procedures, and improved control protocols.” 

Blake Percival, a former USIS employee, filed the whistle-blower lawsuit under seal in 2011. The case was brought under the False Claims Act, which lets citizens sue on behalf of the government and share in any recovery. Percival’s suit was unsealed Oct. 30 with the Justice Department’s decision to join the case.

$253 Million

USIS won $253 million in work from the OPM in fiscal 2012, according to data compiled by Bloomberg Government. The company is a unit of Falls Church, Virginia-based Altegrity Inc., which is owned by Providence Equity Partners LLC.

USIS handled about two-thirds of the investigations done by contractors, and more than half of all those performed by the personnel office, according to the office of Senator Claire McCaskill, a Missouri Democrat who leads a subcommittee on contracting oversight.

During a June congressional hearing on background checks, which are required for security clearances, McCaskill said USIS was under criminal investigation by the OPM inspector general in connection with “systemic failure to adequately conduct investigations.”

Reinventing Government

The company, originally known as U.S. Investigations Services Inc., traces its roots to the Federal Investigations Division of the personnel office. The unit was privatized in 1996 as part of then-Vice President Al Gore’s effort to “reinvent” government by reducing the size of the civil service, according to a 2011 report by the Congressional Research Service.

Contracting out security reviews was designed to save the government money and offer new work for about 700 investigators no longer needed because of a declining clearance workload as the Cold War ended. Instead, demand for security clearances surged after the Sept. 11, 2001, terrorist attacks.

The number of people with security clearances ballooned to about 5 million in 2012, and contract investigators have struggled to keep up with the demand for background checks, according to security specialists.

USIS in 2011 conducted a background check tied to a security clearance renewal on Snowden. The former government contractor, who held a top-secret clearance, leaked classified documents on U.S. surveillance programs last year. He faces federal charges of theft and espionage and is living in Russia under temporary asylum.

Secret-Level

Alexis, the Navy Yard shooter, obtained a secret-level clearance from the Navy in March 2008 after being investigated by USIS the previous year. His clearance would have enabled him to get the access card he used to get on the base. After leaving the Navy in January 2011, Alexis kept the clearance even with three arrests, a history of mental illness and a record of military misconduct.

OPM reviewed the 2007 USIS background investigation for Alexis and “believes that the file was complete and in compliance with all investigative standards,” Merton Miller, OPM’s associate director for federal investigative services, said after the shootings.

USIS had at least 40 federal contracts for work related to investigations, 14 of which were scheduled to expire by Oct. 1, 2014, according to procurement data compiled by Bloomberg.

The case is U.S. ex rel Blake Percival v. U.S. Investigations Services LLC, 11-cv-00527, U.S. District Court, Middle District of Alabama (Montgomery).

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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