Compliance &Ethics - Society of Corporate Compliance and Ethics

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y Eric R. FeldmanBuilding transparency,accountability, and ethicsin government contracting»»The Federal Acquisition Regulations (FAR) require contractors to self-report credible evidence of violations of federalcriminal law and significant overpayments.»»The federal government now requires more robust corporate ethics and business conduct programs as a component of“present responsibility” determinations when considering suspension and debarment actions.»»A record number of suspensions and debarments of unethical contractors were made in 2011.»»Agency suspension and debarment officials have placed greater emphasis on deficiencies in corporate ethical culture thanon specific FAR violations during recent suspension and debarment actions.»»Contractors can decrease their risk by taking proactive steps designed to improve both the corporate ethical culture andthe effectiveness of the business ethics and compliance program.Compliance & Ethics Professional May/June 2012FeldmanMuch has been written about the2008 amendments to the FederalAcquisition Regulations (FAR),which require federal contractors to report“credible evidence of a violation offederal criminal law or the FalseClaims Act” to the respective federalagency Inspector General and theagency contracting officer. Beforethe FAR Mandatory Disclosure Rulewas approved, industry commentspredicted that the proposed changewould result in mass SWAT teams of federalagents descending on government contractors,and that agency suspension and debarmentofficials would routinely disqualify contractorsfor “failure to timely disclose” even thesmallest of infractions. Fortunately, neither ofthese things has happened.What also hasn’t happened, however, is thekind of increased transparency and collaborativeworking relationships between contractorsand federal agencies envisioned by the authorsof the rule (including myself) who were servingon the National Procurement Fraud Task Forceat the Department of Justice (DOJ). To date, thevast majority of disclosures have been limitedto the Department of Defense (rather than thecivilian agencies), and those disclosures havebeen focused on smaller cost mischargingand false claims cases, rather than the largekickbacks, gratuities, product substitution,and Procurement Integrity Act violations thatfederal law enforcement believes are runningrampant in federal contracting.When any type of disclosure is made, acontractor runs the risk that contracting officers,Defense Contract Audit Agency staff,or suspension and debarment officials willimmediately ask some very fundamentalquestions about the ethical environment ofthe company that may have allowed the violationto occur. A company’s compliance withFAR 52.203-13 requirements for a contractorCode of Business Ethics and Conduct and arelated ethics program might be called intoquestion, leading suspension and debarmentofficials to question the company’s “present70 www.corporatecompliance.org +1 952 933 4977 or 888 277 4977
esponsibility” and possibly to suspend ordebar them or their officers from future federalcontracts, even before an investigation ofthe facts is completed.Further, FAR 9.104-1 requirements (i.e., thatprospective contractors be “responsible” parties)can also be invoked if it is determined that acontractor does not have “a satisfactory recordof integrity and business ethics” —potentiallydisqualifying the contractor from futurework. All of these risks are greater when aprime contractor or a whistleblower makes thedisclosure regarding the subcontractor, thuscalling into question the subcontractor’s transparency,ethics, and integrity.Transparency is the goalThe Mandatory Disclosure Rule was originallymodeled after a National ReconnaissanceOffice (NRO) contract provision developedby that agency’s Office of Inspector General(OIG) in mid-2004. The NRO is an agency ofthe Intelligence Community that conducts theresearch and development, acquisition, launch,and operations of the nation’s spy satellitenetwork. The NRO provision was intended toaddress the growing number of procurementfraud cases coming to the Inspector General’s(IG’s) attention from sources other than the contractor’sown systems of control and disclosure.I was the IG during this time and the presumptionwas, if contractors were required toreport credible evidence of fraud to the OIG,with serious penalties for failing to report in atimely manner, the IG and the contractor wouldwork more collaboratively in both conductingthe investigation and in preventing futureincidents from occurring. NRO managementbecame convinced of the value of this approach,and the mandatory reporting provision wasinserted into all NRO contracts in August, 2004.The NRO OIG’s experience with thecontract provision from 2004 through 2007demonstrated the effectiveness of this approachin creating a more transparent, collaborativeenvironment between a government agencyand its substantial—and mission critical—contractor base. As the number of disclosuresincreased, the NRO OIG created additionalopportunities for sharing the best practices inprocurement fraud prevention and detectionbetween the government and contractors, andamong contractors themselves. For example,the annual Business Ethics Conference hostedby the OIG was attended by a large portion ofthe contractor base. The conference providedan opportunity to share data and fraud trends,reporting issues, as well as fraud preventionand investigative techniques. Conference participationincreased steadily, with up to 90% ofinvited contractors sending staff.The NRO documented its experiences inthe Journal of Public Inquiry, a publication forfederal Inspectors General. 1 When the NationalProcurement Fraud Task Force was establishedcirca 2006, several of the agency IG’s, who hadbecome familiar with the NRO’s mandatorydisclosure experience, raised this idea for possiblegovernment-wide application. Departmentof Defense representatives acknowledged thatthe voluntary disclosure program, which initiallyproduced dozens of significant disclosuresafter its implementation in 1986, had waxed andwaned, with few disclosures coming in duringthe 2006/2007 timeframe. With substantialincreases in procurement fraud (particularly inthe war zones) and increasing public outrage, itappeared the time for a mandatory disclosurerequirement had come.Federal agencies seek a corporate ethicalcultureThe proposed FAR rule on mandatory disclosurewas initially drafted based on theNRO experience, but requirements for morerobust corporate business ethics and conductprograms, and specifications regarding bothsource selection and present responsibilityCompliance & Ethics Professional May/June 2012+1 952 933 4977 or 888 277 4977 | www.corporatecompliance.org 71
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