W
hile many contracting bodies have historically
had governing ethics standards, Federal
Acquisition Regulation (FAR) 3.1004 – Contract
Clauses (added to FAR Subpart 3.10 – Contractor Code of
Business Ethics and Conduct), effective December 24, 2007,
set a standard that created a new normal for the industry.
Many years later, however, high-profile fines and criminal
prosecutions have made it clear that many of even the most
sophisticated contractors still do not have the monitoring
and compliance programs in place to detect and prevent
serious ethical breaches.
The reasons for lack of compliance are many, including
management’s belief that compliance programs don’t apply
because the company doesn’t work on federal projects,
or are unnecessary because the organization operates
ethically. Other contractors think that it is riskier to comply
in this economy because of the expected expense. Others
simply believe that “it can’t happen to us.”
This article aims to establish how the compliance
environment has changed to negate these beliefs. Simply
put, it’s no longer business as usual for both public and
private contractors. In this article we will demonstrate the
myriad ways contractors can knowingly and unknowingly
run afoul of these regulations, highlight the severity of the
potential penalties, and set out some practical steps for
implementing a compliance program.
1
An Evolution in Oversight
Federal Compliance
Over the past several decades, the federal government has
increased the importance of establishing and monitoring
federal regulation compliance, and the focus of ethics
compliance monitoring has shifted from prevention to
prosecution. When the Inspector General Act of 1978
went into effect, there were 12 Federal Offices of Inspector
General (OIG); today, there are 73 such offices. The OIG
reviews, communicates, and monitors whistleblower
complaints and serves as liaison to other U.S. agencies with
whistleblower responsibilities.
While contractors continue to self-police their ethics
compliance practices, today’s widespread distribution
of federal funds requires more contractors to meet
compliance requirements, and the construction industry
is a common audit target. One of the biggest drivers of
expanded compliance has been the 2007 FAR amendments,
which require all government contractors (prime and
subcontractors) to have a comprehensive compliance
program if they receive a contract in excess of $5 million that
has a performance period of at least 120 days. In December
2008, further legislation added voluntary self-disclosure of
violations until at least three years after final payment on a
federal governmental contract.
The expanded regulations were accompanied by an increase
in the infrastructure to support investigations. The Inspector
General Reform Act of 2008 established the Council of
Lessons Learned
from
Ethics Compliance Breaches
By CohnReznick LLP Partners James P. Martinko, CPA, and Jack A. Callahan, CPA
Building Washington 21
