Millions in federal contracts going to companies that owe back taxes: A Carl Monday investigation

Frank Ngo (Source: Facebook)
Frank Ngo (Source: Facebook)

CLEVELAND, OH (WOIO) - If you don't pay your taxes, you get punished. Some people even get jail time.

But when it comes to businesses, are the rules the same?

Our investigative team found the federal government has been awarding millions of dollars in contracts to companies who owe millions in delinquent taxes.

Dannette Render owns a small public relations company in northeast Ohio, but her clients have included some big-time government agencies.

Over the years, DAR Public Relations Inc. has been awarded at least $1.43 million in government contracts with the State Department, U.S. Air Force, Food and Drug Administration, Bureau of Engraving and Printing, and the National Institutes of Heath.

But at the same time Render's company was cashing in on government contracts, we found DAR Public Relations also owed the federal government more than $50,000 in back taxes and penalties.

When asked about her company's federal tax liens, Render said, "I don't know anything about that, because I took care of all mine."

But we checked and found that's not necessarily the case.

Back in February, around the same time the U.S. Air Force awarded Render and her company over $70,000 in new contracts, IRS records show DAR Public Relations had at least nine open tax liens federal tax liens totaling $52,934, some dating back to 2007.

While Render made some payments, she admitted us that she didn't pay off her company's tax debt in full. Some of DAR's liens recently "self-released," meaning 10 years have passed since the liens were filed and the IRS did not refile the liens, essentially forgiving the tax debt.

Render also admits she still owes $7,363.31 in interest and penalties accrued from the tax liens.

Our investigation shows DAR Public Relations is not alone.

We found that as of August 2017, at least 125 companies across the U.S. owed a total of $40,633,951 in unpaid taxes and were still awarded large contracts from the federal government. The contracts total nearly $135 million of your tax dollars.

"It's just blatant disregard for taxpayer money," said Sen. John Kennedy (R- LA).

When it comes to the delinquent company taxes, party lines mean nothing.

Democrats and Republicans are equally dismayed.

"I'm frustrated when I hear that story!" said Congressman Donald McEachin (D-VA). "Are you kidding me? The average taxpayer or not - this is just flat out wrong!"

Expert System Applications is another Cleveland-area company that's cashed in on government contracts. The electronic medical records management solutions firm, owned by former Cleveland Clinic research lab director Frank Ngo and his wife Virginia, has won over $7 million in federal contracts through the years.

At least one of those contracts was awarded while they owed almost $57,000 in back taxes.

We tried to interview the couple at their Shaker Heights home, but they had moved out. An auction company was selling off their household goods.

Frank Ngo did return our call and left a message. Later, through a family friend, Ngo told us the liens were for unpaid payroll taxes. They plan to pay off the lien by the end of the month.

"It's really a double whammy for taxpayers," said David Williams, the president of Taxpayer's Protection Alliance, a non-partisan, non-profit based out of Washington, D.C. that's focused on how the government spends our tax money.

"If you don't pay your taxes, you don't get any more taxpayer money – That is easy, and it's not controversial," said Williams. "People will not disagree with this! The only people who will disagree with this are the ones that are not paying their taxes and getting the contracts."

The North American Management and Business Corporation in Northern Virginia currently has more than $5 million is unpaid taxes from 2008, 2012, 2013 and 2015. Despite that, the research and communication company received more than $4.4 million in government contracts.

The company declined an interview on the matter.

Surface Technologies, based in Florida, received $47 million worth of federal contracts to build and repair Navy ships, all despite owing the IRS $1.35 million in tax liens for unpaid taxes.

"It not only shows that the system is broken, but no one is monitoring; there's no oversight," said Williams. "Simple oversight could solve this whole thing. This is not rocket science."

The company has reduced its tax liens since WVUE in New Orleans first looked at this issue in February 2017.

At that time, Surface Technologies owed $5.3 million in unpaid taxes and claimed it's "in compliance with all the requirements as to its contracts and the tax liens are being resolved in accordance with agreements with the Internal Revenue Service."

The company declined to further comment.

"There are times when government waste isn't so complicated. It's simple, and this is one of those examples," said Williams. "We have technology that can recognize someone's face on a new iPhone. Why can't we have technology that says, 'You don't pay your taxes, you don't get a government contract!' It's very simple."

The government's been aware of the problem for at least 10 years.

In 2007, the U.S. Government Accountability Office, Congress's watchdog, found 63,800 federal contractors owed $7.7 billion in taxes.

Former President Obama tried to crack down on the practice in a 2010 memo to agency heads, but it was largely ignored.

And just last year, the Treasury Inspector General reviewed 73 federal contracts and found no evidence a single qualified bidder underwent a tax check.

"It's shocking, because it's illegal," said Congressman McEachin. "You cannot get federal contracts and have a federal tax indebtedness. That obviously begs the question, 'how is this happening?'"

The Department of Defense is the biggest abuser - the agency never responded to requests for comment.

The Department of Veteran's Affairs is number two on the list. The agency's press secretary, Curt Cashour, released this statement:

"The Department of Veterans Affairs follows the Federal Acquisition Regulations (FAR) system. The FAR prohibits awards to corporations with unpaid tax liabilities.  Corporations must certify to the government if a "tax liability is finally determined," and if "the taxpayer is delinquent in making payment."  VA contracting officers rely on these certifications to make award determinations. Should the government determine that a corporation misrepresented its status, VA has the option to pursue debarment proceedings."

Even the IRS is not immune to the problem. It awarded $354,420 to a company in Maryland that owes $1,574,553.32 in unpaid taxes.

"That's just, it's flabbergasting," said Congressman McEachin. "How the very agency that doesn't even have to talk to anybody else, they can have internal conversations, is making that mistake and violating the law."

He's so frustrated, he's already taking action. He's asked Congress's think tank - Congressional Research Services - to see if there's a legislative fix, a way to insure companies that owe taxes are not rewarded with more taxpayer money.

He's also checking to see if it would be as simple as adding a question to all federal grant applications that asks companies if they are current on their taxes.

The IRS sent the following statement in response to the investigation:

"A tax lien is just one of the collection activities available to the IRS. For a better understanding of the collection process as it applies to federal contractors, please read the following TIGTA report. Besides reading the report itself, it is important that you read the letter by IRS SBSE Commissioner Mary Beth Murphy at the end of the report ... Although the federal tax lien is a public document, the federal tax law, 26 U.S.C. § 6103, precludes the IRS from disclosing tax return information."

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