Legal Entity Identifiers for Federal Agencies

Legal Entity Identifiers for Federal Agencies

Any federal agency tracking non-federal entities in order to perform a range of functions must either create its own entity identification system or adopt one originally created by another agency (of which there are 50 to pick from).

What if there was a simpler way? The GLEIF and the Data Charter foundation researched and proposed the use of Legal Entity Identifiers (LEIs) to solve this challenge because LEIs could:

  • help identify and mitigate risk in markets,
  • track and debar low-performing contractors, and
  • improve supply chain efficiency.

Because LEIs are a comprehensive entity identification tool, they can also be used to report on and study the general patterns and behaviour of government-to-business relationships. This could be useful for grant officers, researchers, statisticians and corporate actors.

How Do Federal Agencies Do Entity Identification Now?

U.S. federal agencies currently use 50 separate systems (all incompatible with each other) as a business identifier. Developing a commonly used federal system for business entity identification could result in a significant cost savings but implementing a new system would require a major investment of time and federal resources to create and maintain such an infrastructure.

Many federal agencies still require a matching process to find the data they need. This process could fall into a number of categories as observed in the “Employer Data Matching Workgroup White Paper”, January 2017.

  1. Finding data on the same entity in a single data set. Agencies are currently having to find and remove duplicate data and aggregate business data to find all observations on a single business entity.
  2. Aggregating data withing the same corporate structure. Agencies must aggregate data to the enterprise level of a corporate structure so they can group all observations to a single enterprise.
  3. Matching microdata at a business level.
    1. Agencies adding data to enhance quantitative analysis of a firm’s behaviour for statistical evaluation.
    2. Agencies using linked data sets to support decision making from merged data that better defines activity and risks.
  4. Matching between different business levels. Agencies link business level data to more fully understand corporate structures in the context of successorship, franchising, and multisite employers, at a given point or over a period of time.

According to the report:

“The Federal Government currently collects data from employers and enterprises in the United States for a wide range of purposes, including administering small business loan programs, administering regulatory requirements, and producing valuable economic statistics. While these data collections are valuable and frequently necessary, in some cases they can result in the collection of duplicative information from employers. For example, both the Bureau of Labor Statistics and Census Bureau collect duplicative information on businesses with multiple locations.”

There is a growing interest in federal agencies to find a more common solution to collecting and aggregating data on business entities. Just some of the common challenges that federal agencies experience with data collection and use are:

  • Lack of a unique identifier. There is no government-wide policy on which identifier should be used or even whether one should be used. Data sets may include different identifiers for legal, policy or programmatic reasons.
  • Inconsistent level of identification. Businesses have multiple levels of organisation. A physical location, enterprise level (consisting of multiple establishments), a possible parent company (which may also consist of multiple organisations). Depending on the purpose of a programme or statistical collection, federal agencies will need to match across a number of different levels.
  • Data quality issues. Respondent reporting errors and formatting consistencies among fields prevents quick and easy data matching.
  • Data collection timing may be different among agencies which could result in inconsistent findings.

The GLEIF and the Data Charter surveyed 36 federal agencies and found 50 different identification systems in current use. A few of these were used by multiple agencies but most were only used by one.

Some of the identification systems found were linked to a single purpose. EIN for example is primarily used for tax reporting and lacks certain features which would make it more broadly applicable as an ID. DUNS numbers are proprietary and therefore have been linked to higher costs for the Federal Government, limited data access for agencies and the public, and reduced ability to introduce new competition into the market for identification services according to the United States Accountability Office in 2012.

Using Legal Entity Identifiers

The Global Legal Entity Identifier System (GLEIS) can make a good replacement for the current entity identification methods used by the U.S. Federal Government and agencies within it. You can find out more about LEIs and how they work here.

The GLEIS operates on three levels:

LEIs are a unique alternative and a preferable solution to the current identification methods. Here are some of the reasons why.

It’s flexible.

The GLEIS is not unique to a specific federal agency. It is already in use in the financial sector and can be applied on a much broader scale.

It’s federated.

Every agency’s own identity system is managed by a single central authority who has sole control over the codes. For example, the IRS issues EINs and only Duns and Bradstreet can issue DUNS codes. When an agency chooses this method of identification, they join a system under control of another entity like the IRS. In contrast, the Global LEI System is federated. Agencies can become their own Local Operating Units or LOUs and issue their own LEIs. No one single agency or company can control the whole system.

It provides high quality data

The GLEIF requires a high level of service from LOUs. This means validation services at registration and maintenance of data through a yearly renewal.

It’s easy to make use of the data

High quality data is only useful when it can be easily accessed. Instead of proprietary systems like the DUNS codes, LEIs are maintained on an open database that gives federal agencies full access and use through a public API. This helps to fight the data monopoly, promotes data use and improves data quality.

Why Change?

It might be difficult to consider changing processes now when some of these entity identification techniques have been used for decades. Many of the current systems were designed and built for use with one agency but are now limiting the agencies own capabilities. As expressed in the joint GLEIF and Data Charter report:

“By replacing such single-purpose entity identification systems with the LEI, agencies can achieve instant integration of information about the same entities from other agencies and other jurisdictions. Alternately, in situations where it may not be practicable to completely replace a single-purpose entity identification system immediately, mapping the existing system to the LEI can help bring transparency and understanding. Agencies that are happy with their internal entity identification systems may still find significant value in mapping them to the LEI.”