Federal, state and local governments require ethics and compliance programs. Firms doing business with the government do too.

Syrus Global’s Listen Up™ whistleblower and fraud hotline program is used by the federal government.

The American Recovery and Reinvestment Act of 2009 (also known as the Stimulus Bill), which was signed into law by President Barack Obama on February 17, 2009, established a special accountability and transparency board to coordinate and conduct oversight of covered funds to prevent fraud, waste, and abuse.

The General Accounting Office alone was allocated $25 million in the Stimulus Bill to conduct additional audits and provide other effective oversight.

Significant procurement reform is evident under the Obama administration. Notably, a stepped-up culture of ethics and compliance is expected of any entity doing business with the federal government.

And with hundreds of billions of dollars of stimulus spending approved for the coming months and years in the US economy, more and more companies (and other governmental agencies) are contemplating a new role or relationship with the federal government.

FAR

Even before the Stimulus Bill, the Federal Acquisition Regulation rules were updated in late 2008. FAR applies to the acquisition of goods and services by the federal government. The key objective of FAR is to assure that business is conducted with integrity, fairness, and openness.

Among other things, FAR requires that government contractors disclose violations of certain criminal laws by their employees or subcontractors, and that they have specified internal controls in place.

Some companies which only recently took on federal government contracts may not yet have appropriate ethics and compliance programs established to meet the new FAR requirements.

The FAR rule makes a number of changes to contractors’ requirements in order to do business with the government.

Contractors must disclose violations of federal criminal law involving fraud, conflicts of interest, bribery, or gratuity violations found in Title 18 of the U.S. Code, or violations of the Civil False Claims Act.
The latest rules also created new criteria for suspension and debarment from government contracting when a contractor fails to timely disclose under this provision.
For all contracts and subcontracts with a value in excess of $5million, and a performance period of more than 120 days, contractors must have in place a written code of business ethics and conduct, a compliance program (including whistleblower hotline and other fraud awareness initiatives), and certain internal controls. Note that there is also a flow-down requirement for covered subcontracts. Contractors must implement control procedures that demonstrate “exercise of due diligence to prevent and detect criminal conduct.”

- Don’t hire (or promote as a principal) anyone who has engaged in conduct that conflicts with the contractor's code of business ethics and conduct

- Don’t do business with subcontractors which have a record of weak business integrity and ethics

- Train subcontractors and agents regarding laws that apply to their work
The new rule eliminated the exception from the requirement to have a written code of business ethics and conduct that previously applied for commercial-item contractors.

Greater transparency, controls, and audits: which rules apply where?

Because a contractor doesn’t hold a "covered contract" doesn’t mean the requirements of the new FAR rule don’t apply. And ignoring the FAR rule because of exemptions for commercial items, small businesses and contracts performed overseas could be a mistake.

The new bases for suspension and debarment apply to all contractors. They are independent of the $5 million/120 day clause. This means that commercial-item contractors and small businesses can be suspended or debarred if they knowingly fail to disclose to the government credible evidence of certain violations, even if they don’t hold a "covered contract."

FAR’s minimum internal controls don’t apply to small businesses. But how can a contractor ensure compliance with the mandatory disclosure requirement without basic controls in place? In order to be able to comply with the requirement to disclose evidence of violations, an effective mechanism for employees and partners to report (anonymously and confidentially if they choose) the violations, and a disciplined program for investigating and stopping the violations, is absolutely de rigueur.

Whatever the size and type of the federal contractor, for all intents and purposes, the internal controls established in FAR 52.203-13 are a good standard to follow. Should a contractor ever be accused of failing to discover or disclose evidence of a suspected violation, the organization will want to be prepared to show the government its strong procedures for assuring a culture of compliance and ethical behavior.

Summary

Ethics and compliance programs are now the price of doing business with the federal government.

Taxpayers and consumers alike have diminished trust and confidence in the people in power – in our public corporations and in government. With so much money about to flow into the U.S. economy, it was prudent to require Department and agency heads to put strict enforcement procedures in place to assure that the intended effect of the spending would be achieved.

Federal Contractors Checklist

Do you have an effective fraud hotline and code-of-conduct reporting mechanism in place? Call it a hotline, a helpline, a tipline, or whatever you will --- you need a safe and easy way for employees, partners and in fact all your stakeholders, to anonymously and confidentially report bad acts. Do you continuously publicize the whistleblower hotline? Do you frequently remind employees of your non-retaliation policy?
Have you designated a senior officer of the company, or of the unit performing the government contract, as your ethics and compliance officer? You need to have an individual responsible and accountable for coordinating and overseeing compliance and ethics. This person should be organizationally positioned at a sufficiently high level of the company (ideally reporting directly to the Audit Committee of the Board, and ideally not in the legal department) to launch investigations as necessary, introduce required compliance processes, and marshal the resources to effect a culture of overall compliance.
Do you have processes in place for determining the integrity and compliance practices of your subcontractors?
Have you documented a formal procedure for conducting investigations? Do you know when you would disclose or not disclose investigations to the government?
Do you have human resources controls and procedures in place? Is your company’s employee handbook up to date? Do you conduct background checks and have consistent policies around hiring and promoting?
Are you regularly conducting audits of your ethics and compliance practices? Have your auditors place a test submission to the ethics reporting service, and then track the issue in the first few hours following the test to see if the designated people were notified. (Be sure to tell the appropriate people afterwards that the submission was a test.)
Most organizations now have a written code of business ethics and conduct which establishes policies for such issues as gifts and gratuities, conflicts of interest, and bribery. Do you have one? Does it fit with your strategy and mission?
Do your employees understand the code of conduct and how it relates to them in their job? Do they understand other specific laws that apply to their area of work? If not, either develop training yourself that addresses these topics, or hire a firm that specializes in and can supply effective ethics training.

"A good reputation is more valuable than money."
Publilius Syrus
100 B.C.

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