The Government Accountability Office (GAO) just released a report, “Defense Contracting Integrity”, dated September 2009, on the state of defense contractor ethics programs. The report provides “Opportunities” that exist for the DOD to improve the DOD’s oversight of contractor ethics programs, including changing current DOD hotline poster display requirements.
The Department of Defense spent $387 billion in goods and services from 85,000 contractors in 2008; this report evaluates the ethics programs of the top 57 firms, represented almost 56% of 2006 Defense Department spending. The process included interviews of the top agency departments responsible for contractor oversight, including the Defense Contract Management Agency (DCMA), the Air Force, Army and Navy offices responsible for suspension and debarment, the Defense Contract Audit Agency (DCAA) and the DOD Office of the Inspector General (DOD IG).
This review comes after 2007 and 2008 Federal Acquisition Regulation (FAR) changes incorporating detailed contractor ethics programs requirements. The FAR Council recommended the changes to help address significant contractor fraud that was uncovered in Iraq, Kuwait, and Afghanistan during the war. These regulations include requiring contractors to have written codes of business conduct, to provide ethics training for employees, to display fraud hotline posters, and to have a mechanism to report fraudulent or other criminal activity. The federal sentencing guidelines state that the ethics program must be well designed and implemented such that they are reasonably effective in preventing criminal conduct.
Findings from the review include that nearly all of the top contractors had a code of conduct, but ethics training coverage varied according to whether it was just for US based employees and whether contractors, subcontractors, and overseas employees received the training. Nearly all contractors had an office or individual who was responsible for implementing ethics and compliance, but less than half had top management and the board of directors reviewing the program. Nearly all audited the business ethics program results and nearly all had mechanisms for anonymously reporting code of conduct violations and communicated these mechanisms to employees.
The paper highlights that the DCAA has revised audit guidelines to include a review of the FAR ethics requirements and the DOD IG has established a new Contractor Disclosure Program. The new disclosure program provides contractor employees with a web-based means of reporting violations and coordinated evaluation and action planning for incidents across the DOD. This disclosure program has significantly increased the number of disclosures to 41 in the first seven months in operation from 9 disclosures to the previous program in all of 2008.
The GAO report highlights concerns that oversight of contractor ethics programs is not taking place at the time of the contract award. The FAR does not require contract administrator oversight and validation of ethics programs at the time of award. It is inferred in the paper that such a validation could avoid adverse impacts on contract performance; this type of validation is done in other areas, such as reviewing contractor environmental practices at the time of award.
The report expresses concern that DOD hotline posters are not required to be posted if the contractor posts their own hotline posters. The adverse consequences highlighted in the paper are that the DOD will have less awareness of problems and the contractor employees will be less aware of whistleblower protections. DOD disclosures have new rights and protections that contractor hotlines do not have. This paper calls for further study to determine the best course of action. Concerns raised include that the DOD will get fewer reports given that contractors have implemented their own hotlines. Conversely, there was concern about the confusion that could arise if too many hotline posters are displayed in the workplace.
The call to action specifically relates to the concerns highlighted above.
1) The Department of Defense should determine what guidance to provide to contracting officials in validating the contractor ethics program at the time of contract aware.
2) The DOD hotline poster content should be revised to display whistleblower protection information.
3) The DOD IG should determine whether the DOD fraud hotline poster must be displayed regardless of the contractor’s hotline service and posters.
4) If the DOD IG determines that posters must be displayed, the Defense Federal Acquisition Regulations (DFARS) should be revised.
The DOD agrees to complete numbers 1-3 and for number 4, the proposal will be forwarded to the responsible DFARS team for their consideration.