Procurement Fraud Enforcement

For instance, in the wake of Boeing's firing of Druyun and Sears, Sen. John Warner (R-VA), chairman of the Senate Armed Services Committee, asked Defense Secretary Donald H. Rumsfeld for regular updates on the Pentagon's own review of the tanker lease deal. See Eisman, Dale: 'Warner to Review Aircraft Lease Plan.' The Virginian Pilot, Nov. 27, 2003. Sen. John McCain (R-AZ), in particular, was a vocal opponent of the deal throughout. See Weinberger, Sharon: 'McCain Blasts Pentagon for Withholding Tanker Documents,' Defense Daily, Feb. 1, 2005.

Executive Branch Reform Act

This past February, House Oversight and Government Reform Committee Chairman Henry Waxman and Ranking Minority Member Tom Davis introduced the Executive Branch Reform Act of 2007, H.R. 984, which amends the Ethics in Government Act of 1978. The measure requires executive branch officials to record and file with the Office of Government Ethics information about any significant contact between the official and any private party relating to an official government action. The proposed act also heightens restrictions placed on federal procurement officials who leave the government for private sector employment. Specifically, it establishes a cooling-off period in which former federal agency contracting officials cannot accept rewards, inappropriate compensation or any compensation for legal or lobbying work performed on behalf of a government contractor. It also proposes a corresponding cooling-off period before a former employee, lobbyist or attorney of a contractor can participate in the award or administration of a contract to that contractor. Further, current contracting officers would have to disclose job offers made on behalf of relatives.

'Accountability in Contracting Act'

This past March, the House passed the 'Accountability in Contracting Act, H.R. 1362, which increases the cooling-off period in which contracting officials are barred from taking jobs with firms they have supervised as a government employee and establishes a two-year cooling off period before procurement officials can award or oversee contracts involving a former employer. It also extended the ban on lobbying and consulting for government contractors and prohibits contracting officials from negotiating employment for their relatives.

Even more recently, the Civilian Agency Acquisition Council and Defense Acquisition Regulations Council solicited comments on a proposed amendment to the Federal Acquisition Regulation ('FAR'). The amendment would require contractors receiving federal contracts worth more than $5 million that have performance periods of 120 days or more to implement a written code of ethics and business conduct. It would also require the contractor to establish a compliance training program, an internal control system, and display fraud hotline posters produced by DOJ's Office of the Inspector General (Federal Register, Feb. 16, 2007, at page 7588).

Strengthening Compliance Programs

Clearly, legislators and law enforcement officials have placed procurement fraud and related improprieties on the front burner. Corporations that contract with the government must do so as well or risk immense criminal and civil penalties, loss of business opportunities, debarment-related penalties, and inevitable damage to the organization's reputation. An effective compliance program is the first line of defense in this era of increased scrutiny and penalties. There are several steps that corporate compliance officers can take to ensure that the organization, its agents and employees are complying with the law or, in the event they are not, to minimize the negative consequences for the company.

Ensure transparent procurement and compliance standards and expectations. Educate employees and consultants about what activities and actions violate the laws, as well as the organization's code of ethics and conduct. Identify the red flags that signal others' misconduct and make known the individual responsibility to report suspicious activity via proper channels. Also, set clear expectations regarding confidentiality and opportunities for feedback should they follow the company's established protocol.

• Foster top-down leadership on compliance. Adherence to ethical procurement procedures must be a visibly important part of the business culture. This message should be communicated early and often. Top executives must fully understand the law's requirements and recognize adherence as a core value of the organization. As the message is relayed within in the organization, leadership's tone must be constant and consistent.
• Review and update procurement operations, if needed. Federal procurement is a fluid regulatory environment and recent legislative provisions may even require an overhaul of several processes. The company, its agents, consultants and employees must be adaptable to change.
• Review and update compliance and ethics policies, if needed. It is imperative that regular updated guidance be provided to management and employees about ethics and professionalism. An effective corporate compliance program not only provides guideposts for conduct, but a communicated process for investigating possible violations and prompt and remedial actions, where appropriate.
• Contractors should conduct regular self-audits of procurement controls and procedures. Procurement compliance cannot function effectively on 'auto pilot.' Rather, under the compliance officer's guidance, a compliance audit should be performed for signs of misconduct and to identify areas in which the company is at risk. A robust audit should uncover opportunities that exist for compromising the organization's internal controls and procedures. Should any suggestion of wrongdoing arise, a thorough investigation must follow. Results must be reported up to the company's leadership team. They must be made aware of the weaknesses in the controls and policies and provided concrete recommendations to shore them up. Full awareness and understanding will also help prepare for any eventual government-initiated investigation. The voluntary self-reporting of procurement fraud is often rewarded and should be considered.

Conclusion

Our nation's legislators and law enforcement officials have zeroed in on procurement fraud. Fueled by recent scandals, new legislation and initiatives have been rolled out to prevent, detect, and punish a wide array of conduct. A harried, ineffectual response to investigation, an inadequate defense to prosecution or civil suit and consequential damage to corporate reputation all await the unwary governmental contractor. An updated and robust compliance program that enables company-wide understanding of and adherence to the many criminal, civil, and administrative provisions provides the best armor in this targeted area.

Paul Clinton Harris, Sr. is a partner in the Washington, DC, office of Shook, Hardy & Bacon, and is a member of the Government Enforcement and Compliance group.

In Part One of this article, we discussed the fact that each year, the federal government spends several hundred billion dollars to obtain goods and services from corporations and other non-governmental agencies. And we warned that, via new national legislation and investigative initiatives, the attention of Capitol Hill and federal law enforcement offices nationwide is keenly focused on the prevention, detection and punishment of procurement fraud. We discussed recent scandals and prosecutions, the increase in Civil False Claims Act Qui Tam cases, and other things that can take an unwary governmental contractor unawares. We conclude herein with other areas of concern.

Congressional Oversight

Congressional oversight has increased in the procurement fraud area as well. With the stated purpose of increasing transparency and accountability in federal contracting, and protecting the integrity of the acquisition workforce, several pieces of key legislation are in various stages of the legislative process. Many players are being called before or required to answer to investigative committees.

For instance, in the wake of Boeing's firing of Druyun and Sears, Sen. John Warner (R-VA), chairman of the Senate Armed Services Committee, asked Defense Secretary Donald H. Rumsfeld for regular updates on the Pentagon's own review of the tanker lease deal. See Eisman, Dale: 'Warner to Review Aircraft Lease Plan.' The Virginian Pilot, Nov. 27, 2003. Sen. John McCain (R-AZ), in particular, was a vocal opponent of the deal throughout. See Weinberger, Sharon: 'McCain Blasts Pentagon for Withholding Tanker Documents,' Defense Daily, Feb. 1, 2005.

Executive Branch Reform Act

This past February, House Oversight and Government Reform Committee Chairman Henry Waxman and Ranking Minority Member Tom Davis introduced the Executive Branch Reform Act of 2007, H.R. 984, which amends the Ethics in Government Act of 1978. The measure requires executive branch officials to record and file with the Office of Government Ethics information about any significant contact between the official and any private party relating to an official government action. The proposed act also heightens restrictions placed on federal procurement officials who leave the government for private sector employment. Specifically, it establishes a cooling-off period in which former federal agency contracting officials cannot accept rewards, inappropriate compensation or any compensation for legal or lobbying work performed on behalf of a government contractor. It also proposes a corresponding cooling-off period before a former employee, lobbyist or attorney of a contractor can participate in the award or administration of a contract to that contractor. Further, current contracting officers would have to disclose job offers made on behalf of relatives.

'Accountability in Contracting Act'

This past March, the House passed the 'Accountability in Contracting Act, H.R. 1362, which increases the cooling-off period in which contracting officials are barred from taking jobs with firms they have supervised as a government employee and establishes a two-year cooling off period before procurement officials can award or oversee contracts involving a former employer. It also extended the ban on lobbying and consulting for government contractors and prohibits contracting officials from negotiating employment for their relatives.

Even more recently, the Civilian Agency Acquisition Council and Defense Acquisition Regulations Council solicited comments on a proposed amendment to the Federal Acquisition Regulation ('FAR'). The amendment would require contractors receiving federal contracts worth more than $5 million that have performance periods of 120 days or more to implement a written code of ethics and business conduct. It would also require the contractor to establish a compliance training program, an internal control system, and display fraud hotline posters produced by DOJ's Office of the Inspector General (Federal Register, Feb. 16, 2007, at page 7588).

Strengthening Compliance Programs

Clearly, legislators and law enforcement officials have placed procurement fraud and related improprieties on the front burner. Corporations that contract with the government must do so as well or risk immense criminal and civil penalties, loss of business opportunities, debarment-related penalties, and inevitable damage to the organization's reputation. An effective compliance program is the first line of defense in this era of increased scrutiny and penalties. There are several steps that corporate compliance officers can take to ensure that the organization, its agents and employees are complying with the law or, in the event they are not, to minimize the negative consequences for the company.

Ensure transparent procurement and compliance standards and expectations. Educate employees and consultants about what activities and actions violate the laws, as well as the organization's code of ethics and conduct. Identify the red flags that signal others' misconduct and make known the individual responsibility to report suspicious activity via proper channels. Also, set clear expectations regarding confidentiality and opportunities for feedback should they follow the company's established protocol.

• Foster top-down leadership on compliance. Adherence to ethical procurement procedures must be a visibly important part of the business culture. This message should be communicated early and often. Top executives must fully understand the law's requirements and recognize adherence as a core value of the organization. As the message is relayed within in the organization, leadership's tone must be constant and consistent.
• Review and update procurement operations, if needed. Federal procurement is a fluid regulatory environment and recent legislative provisions may even require an overhaul of several processes. The company, its agents, consultants and employees must be adaptable to change.
• Review and update compliance and ethics policies, if needed. It is imperative that regular updated guidance be provided to management and employees about ethics and professionalism. An effective corporate compliance program not only provides guideposts for conduct, but a communicated process for investigating possible violations and prompt and remedial actions, where appropriate.
• Contractors should conduct regular self-audits of procurement controls and procedures. Procurement compliance cannot function effectively on 'auto pilot.' Rather, under the compliance officer's guidance, a compliance audit should be performed for signs of misconduct and to identify areas in which the company is at risk. A robust audit should uncover opportunities that exist for compromising the organization's internal controls and procedures. Should any suggestion of wrongdoing arise, a thorough investigation must follow. Results must be reported up to the company's leadership team. They must be made aware of the weaknesses in the controls and policies and provided concrete recommendations to shore them up. Full awareness and understanding will also help prepare for any eventual government-initiated investigation. The voluntary self-reporting of procurement fraud is often rewarded and should be considered.

Conclusion

Our nation's legislators and law enforcement officials have zeroed in on procurement fraud. Fueled by recent scandals, new legislation and initiatives have been rolled out to prevent, detect, and punish a wide array of conduct. A harried, ineffectual response to investigation, an inadequate defense to prosecution or civil suit and consequential damage to corporate reputation all await the unwary governmental contractor. An updated and robust compliance program that enables company-wide understanding of and adherence to the many criminal, civil, and administrative provisions provides the best armor in this targeted area.

Paul Clinton Harris, Sr. is a partner in the Washington, DC, office of Shook, Hardy & Bacon, and is a member of the Government Enforcement and Compliance group.