Here's How the Government Could Better Track Contract Spending

All legal entities in the world should subscribe to a common identification system, so the public can track their relationships, according to a new report.

Doing so could disrupt the monopoly Dun & Bradstreet has on the identification numbers contractors use to work with the federal government. But if the public and federal government want to better understand where money goes, they’re going to need to use a common identification system, the report from records giant Lexis Nexis and the Data Foundation, a government-transparency focused advocacy group, argued.

When government agencies track awards to contractors, they sometimes use their own identification systems for internal purposes. In the U.S., federal procurement officers also use Dun & Bradstreet’s “DUNS Number” to tag every contractor; those businesses are required to register for their own number through Dun & Bradstreet itself. But those contractors also use proprietary ID tags, and often both groups silo their identification system by the industry the business is in.

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Following the 2008 financial crisis, the Treasury Department’s Office of Financial Research worked with the European Commission and the European Central Bank, tasked G-20 with setting up that system to better understand who was participating in financial transactions. Since companies often used their own unique identifiers, “Firm A may have a list of 100 transactions with each counterparty appearing to be a different entity, when in fact Firm B was really on the other end of 50 of those transactions.”

The result was the global Legal Entity Identifier, a system that identifies businesses, organizations and other legal entities with their financial transaction.

That coalition considered the LEI—currently tagging about 500,000 groups—to be a “public good,” the report said.

In the report, authors argue that the LEI is the unified system government agencies need. Shifting to the new system would mean that Dun & Bradstreet’s nine-digit identifiers, a proprietary tracking system, could become obsolete. Other groups such as Bloomberg, which already issues LEIs to legal entities for a fee, could then enter the identifier market.

A unified and verified code could “create a single electronic view of all legal entities, knit together from their existing government reports—bringing transparency for investors, efficiency for regulatory agencies, and lower costs” to obtaining those identification numbers, Hudson Hollister, interim president of the Data Foundation, said in a statement to Nextgov.

Today there’s no good way to link a specific company’s filing to the Federal Energy Regulatory Commission with its Securities and Exchange Commission disclosure, the report notes—but switching to a more universal system could help.

Not everyone’s on board with changing to a new system. Some interviewees cited in the report expressed concern about migrating to a new system and “cultural concerns”—people are already used to their own identification systems—and legal ones, including when the Federal Acquisition Regulation required contractors and potential contractors to obtain a DUNS number.

Still, the benefits of being able to track more financial transactions across the globe outweigh those challenges, the authors argue.

Currently, three separate tiers of oversight bodies run the LEI system. An official regulatory oversight committee, consisting of 90 public-sector groups, focuses on broad policy allowing for global identifiers. The Global LEI Foundation handles the LEI’s day-to-day operations. Local operating units—including Bloomberg—issue the numbers and charge renewal fees.

The LEI system isn’t without its own challenges, the authors note.

“The LEI’s cost model puts the onus on individual entities to register and pay renewal fees,” the report says, though as more LEI issuers enter the market, the cost of obtaining the the number may drop.