ethics corner

January 2007

Companies Must Set and Review Compliance Priorities

By David Hickey

Risk management is a critical aspect of any company ethics and compliance program. Corporate self-governance requires vigilance, proactive planning, critical analysis and flagging high-risks. As a new year begins, companies should take the time to review their ethics program, target highest potential risks, prioritize accordingly, and commit at least quarterly to review and adjust those priorities. Allocating compliance resources and tailoring ethics programs is unique for each company. That said, recent federal law enforcement actions and statements by regulators might offer a useful guide in setting those priorities.

As 2006 closed, the Department of Justice’s criminal division announced the formal creation of a national task force “to promote the prevention, early detection and prosecution of procurement fraud.”

The task force will include representatives from the Department of Justice, including the criminal, civil, antitrust and tax divisions; the FBI; the inspector general’s and U.S. attorney offices; defense investigative organizations and similar entities.

In announcing the procurement fraud-task force, Justice identified certain areas for increased civil and criminal enforcement. Among those targeted for increased scrutiny were defective pricing, product substitution, misuse of classified and procurement-sensitive information, false claims, grant fraud, labor mischarging, foreign military sales, ethics, conflicts of interest, and procurement-related public corruption.

In its first two months, the task force announced a large settlement for defective pricing claims, guilty pleas for false statements by a former contractor employee, guilty pleas for bid rigging, and a jury conviction for defense contractor fraud. The task force’s announced priorities and on-going activities provide a good benchmark for companies to evaluate their own practices and internal controls to ensure that employees are fully attuned to corporate requirements, how they are applied, and whether employees are acting consistent with those policies.

Obviously, the Department of Justice’s announced priorities require emphasis on policies governing time and expense reporting and charging, truth in negotiations, political contributions and lobbying, the Procurement Integrity Act, and personal and organizational conflicts of interests.

In support of the procurement fraud task force, the administrator of the White House office of federal procurement policy directed senior acquisition officials to cooperate fully in any task force activities. The OFPP underscored concerns about ethical issues associated with increasing reliance on service contracts with government and contractor employees working side-by-side in a “mixed workplace.”

“Ethics Corner” recently highlighted this issue of increasing concern and risk for both government employees and contractors. This topic deserves special scrutiny where applicable. The office of government ethics shares OFPP’s concerns on the mixed workplace and issued year-end guidance on “revolving door” questions, impartiality issues, financial conflicts and gifts.

Priorities obviously differ from one company to the next. While export control issues dominate for one company or industry, timekeeping under cost reimbursement contracts may be more important in a different context. “Buy America” issues critical for a supplier are less so for a service contractor. Some companies may decide to quarterly prioritizing top five topical areas, which will work for some, whereas others truly require a top to bottom review of entire ethics and compliance programs because of compliance issues surfaced by a government auditor.

The keys are high priority and institutionalized periodic reviews that force focus by corporate leadership on both everyday, as well as newly surfaced, targets of interest. Nothing short of these practices will instill the confidence in corporate leadership and workforce necessary to ensure that regulators and prosecutors know that the company views ethics as no less important than profits.

David Hickey is an attorney at the international law firm of Greenberg Traurig. The opinions expressed here are solely those of the author and are not intended to provide legal advice or represent the view of NDIA or the NDIA Ethics Committee.

Please email your comments to Editor@ndia.org

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