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OPA spots revenue leaks from Guam military buildup, raises alert on shadow contractors, tax evaders

By Mar-Vic Cagurangan Several federal contractors undertaking millions of dollars worth of military projects on Guam are either not locally licensed to operate businesses or not filing their taxes, creating an undetermined amount of revenue leakage, according to the Office of Public Accountability. Besides the shadow business operations and tax evasion, the OPA also detected underreporting of sales and unverified tax exemptions claimed by certain contractors. “Without any information regarding the actual contract payments and list of contractors/sub-contractors with qualified/allowable exemptions, neither (the Department of Revenue and Taxation) nor OPA can accurately determine the reportable gross receipts and (business privilege tax) due from military construction contracts,” the OPA said in a report released today. “Therefore, we cannot accurately ascertain the impact of potentially uncollected revenues on military construction contracts on government of Guam revenues,” the report said.

While the complete picture of foregone revenues was not clear, the OPA estimated at least $22 million in tax leakages based on available data that the auditors managed to examine.

The OPA conducted a performance audit on the DRT’s business privilege tax on military contracts at the request of Vice Speaker Tina Muna Barnes to determine if GovGuam is adequately collecting taxes on federal military contracts.

Guam relies on the $11-billion defense buildup to sustain the local economy. Photo by Mar-Vic Cagurangan

“While we are unable to determine the maximum extent of the leakage, we know we neglected $22M that could’ve gone to schools, GMH, public health, public safety – the list of problems that millions of dollars could fix goes on," Muna Barnes said.

"It is also clear that three audits and 20 some years later, we have systematic issues; when one government agency is not talking to another government board or agency and ultimately costing us much-needed public funds, we need to do better," she added.

Tax leakage on the military buildup has been a recurring issue for Guam. In a 2021 report, the Office of the Inspector General assessed $414 million in taxes owed to the government of Guam in 2014 alone.

Besides tourism, the military is the main source of economic fuel for Guam. The island relies on the $11-billion defense buildup to sustain the local economy.


OPA's audit, however, revealed that GovGuam has not been raking in all the tax dollars it expected to put into the coffer due to lapses in business monitoring and inefficient tax collection management, among other uncorrected deficiencies that were first flagged in the 2021 Inspector General's report.

Based on USASpending data, the OPA found four contractors awarded military construction contracts from 2016 to 2020 with a combined total award of over $85 million. “In DRT’s response, these contractors were not registered with DRT, without required licensing documents such as a certificate of authority and business licenses, did not file gross receipts, and thus were tagged by DRT as non-filers,” OPA said. “Per DRT, these contractors are now part of the 2021 Tax Enforcement Division Compliance Initiative Program-Federal Contractors, which started on June 17, 2021 (16 days after the start of this audit on June 1, 2021),” the report said. The OPA’s review of DRT records found nine joint ventures and limited liability companies that, although tagged as “filers,” either had no business licenses or had expired licenses and were not on the Contractors Licensing Board list of authorized contractors as of June 30, 2021. “Per USASpending, these contractors had a combined construction contract for FY 2016-2020 totaling over $70 million and reported combined gross receipts of over $200 million during the same period,” the OPA report said. So who fumbled the ball? Pertinent agencies passed the blame on one another. “DRT did not provide information regarding the contractors' Contractors License Board licenses for some of our sampled contractors, specifically those that did not have DRT BLs. Instead, DRT referred us to the CLB or Professional Engineers Architects and Land Surveyors for contractors’ licenses,” the OPA said. “We verified these contractors with the CLB listing of authorized contractors as of June 30, 2021, and found that some were not within the listing. Without a CLB license, the contractors could have worked exclusively on military installations (on base) in Guam, thus requiring a DRT business license,” the report said.


Out of the 28 sampled foreign and local contractors from a total of 135 contractors taken from USASpending, the OPA found that DRT failed to examine the status and records of the businesses and to monitor their tax filings.

OPA found six contractors, which have $90 million worth of defense contracts for the period from October 2015 to June 2024, did not file taxes for the 2016-2020 tax years and did not have a Guam business license. “Without information on actual contract payments as reportable gross receipts, potential unpaid revenues would be over $4 million. Based on DRT's response in November 2022, these contractors are included in DRTs ongoing FedCon CIP, which started in FY 2021," OPA said.

A contractor identified only as “TT” was awarded contracts for the military buildup totaling over $10 million for a period between October 2017 and September 2024. “The contractor did not have a (certificate of authority) nor a business license and was tagged by DRT as a ‘filer,’” the OPA said. “However, in its first response for FY 2016-2020, DRT reported 'zero' gross receipts and ‘zero’ BPTs for this contractor.”

A second set of data for the same contractor that was updated as of October 2022 reflected gross receipts of over $5 million for services and under $500,000 for contracting.

“Without any information regarding the actual construction contract payments, potential estimated BPTs to be collected for construction contracts would be over $500,000,” the audit said. Another contractor, which filed “zero” gross receipts for fiscal 2019, appeared in the USASpending report as having been awarded a total of $50 million in military contracts from 2016 to 2020. “For the performance period May 19, 2016 to July 31, 2024, the reportable amount for 2019 would be over $15 million with a potential unpaid BPT of over $500,000,” OPA said.

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As of October 2022, data for the same contractor reflected gross receipts of over $80 million filed for tax years 2016-2022 for service and profession and none for contracting-local or contracting-U.S. Gross receipts filed by 11 contractors from 2016 to 2020 were not commensurate to the contract amounts published in USASpending. “Deficiencies ranged from over $3 million to over $315 million,” OPA said.

Updated data revealed that three contractors underreported their gross receipts, with discrepancies ranging from $2 million to $160 million.

“The potential unpaid BPT is over $5 million at 4 percent. We also noted excesses in gross receipts filings for eight contractors versus the DRT-reported contract amount per USASpending data,” OPA said.

As for exemptions claimed, the OPA found that certain federal contractors did not have documents to verify their eligibility for tax exemptions.

“The claimed exemptions significantly reduced contractors’ taxable gross receipts, reducing their tax liabilities. For the six contractors alone, questionable exemptions totaled over $10 million or equivalent to over $500,000 (at 4 percent) potentially foregone BPT,” OPA said.

The OPA attributed the revenue losses to lapses in monitoring contractor registrations, lack of documentation and limitations in the gross receipts-business privilege tax form among other factors.

"Until these factors are resolved, determining contractors’ reportable gross receipts and BPTs due would remain challenging. Neither DRT nor OPA can measure the significance of the impact of revenue leakages from military construction contracts on GovGuamrevenues," OPA said.

"But certainly, the impact of foregone revenues/revenue leakage on GovGuam revenues would be highly significant if unaudited."

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