A Balancing Act Winter Education Conference Contracting February 23, 2007

1. National Contract Management Association The Cape Canaveral Chapter A Balancing Act Winter Education Conference Contracting February 23, 2007

2. Contract Compliance for Government Contractors Dr. Ralph “Mike” Criss

3. Is This The View from Your Window?

4. What is Compliance? People make choices, or choose behaviors, based on their understandings of what is proper and expected under the circumstances.

5. What is Compliance? • Making Choices in a Framework • Behaviors • Government Contract Compliance • Government Contract Is The Basis • A Compliance Program • Framework For Choice Making

6. Ethics • Ethics & Compliance Are Related • Ethics • Why People Make Choices • Personal Preferences • Morals • Compliance • External Activity (Behaviors) • Organizational Structures

7. Take Away • Hire People With Ethics • They Make the Right Choices • Tell Them The Rules So They Can Comply • Can Choose the Right Behavior

8. The Framework • Organizational Guidelines • The Contract • Federal Sentencing Guidelines • A Charter and A Committee • Internal Control System

9. An Overview of the Organizational Guidelines Paula Desio, Deputy General Counsel, United States Sentencing Commission, has written a very nice one page summary of the organizational guidelines. She includes eight key criteria for an effective compliance program. Desio, Paula. An Overview of the Organizational Guidelines, United States Sentencing Commission, Organizational Guidelines, http://www.ussc.gov/orgguide.htm

10. Organizational Guidelines • Oversight by high-level personnel • Due Care in delegating substantial discretionary authority • Effective Communications to all levels of the organization

11. Organizational Guidelines • Reasonable steps to achieve compliance, which include systems for monitoring, auditing, and reporting suspected wrongdoing without fear of reprisal • Consistent enforcement of compliance standards including disciplinary mechanisms • Reasonable steps to respond to and prevent further similar offenses upon detection of a violation

12. Time keeping Expense reporting Gifts and gratuities Fraternization Labor Laws Sharp Business practices Discriminatory Practices Harassment in the Workplace Violence in the Workplace Procurement and Contracts Company Policy Internal Controls

13. The Contract RTFC

14. Federal Sentencing Guidelines • Part A-Offenses Against the Person • Part B-Basic Economic Offenses • Part C-Offenses Involving Public Officials and Violations of Federal Election Campaign Laws • Part D-Offenses Involving Drugs • Part E-Offenses Involving Criminal Enterprises and Racketeering • Part G-Offenses Involving Commercial Sex Acts, Sexual Exploitation of Minors, and Obscenity • Part H-Offenses Involving Individual Rights • Part J-Offenses Involving the Administration of Justice • Part K-Offenses Involving Public Safety • Part L-Offenses Involving Immigration, Naturalization, and Passports Taken from the United States Sentencing Commission Guidelines Manual and reflect the sentencing guidelines as of November 1, 2005. http://www.ussc.gov/2005guid/gl2005.pdf

15. Federal Sentencing Guidelines • Part M-Offenses Involving National Defense and Weapons of Mass Destruction Treason, Sabotage, Espionage and Related Offenses, Evasion of Military Service, Prohibited Financial Transactions and Exports, and Providing Material Support to Designated Foreign Terrorist Organizations, Nuclear, Biological, and Chemical Weapons and Materials, and Other Weapons of Mass Destruction • Part N-Offenses Involving Food, Drugs, Agricultural Products, and Odometer Laws • Part P-Offenses Involving Prisons and Correctional Facilities • Part Q-Offenses Involving the Environment • Part R-Antitrust Offenses • Part S-Money Laundering and Monetary Transaction Reporting • Part T-Offenses Involving Taxation • Part X-Other Offenses

16. A Charter and A Committee • Corporate and Executive Committees • Who Should Serve? • Operational Level Committees • Vision Statement • Charter • Employee Reporting – Hotlines Internal Controls

17. The Process Is As Important As The Product I attribute this phrase to Mr. Jim Dyer, colleague and friend. I do not know if he was this first to say it, but it was from him I heard it first. Jim, as of this writing is a contract manager for Parsons Engineering

18. It is very difficult to physically stop people from breaking the rules. • But, You need to make sure they understand there are consequences. • Compliance is not a policing action.

19. The Decision Taking responsibility for compliance always comes down to personal choice no matter what level you are in the organization.

20. Responsibility • Being Personally Responsible Means That You Have Made A Choice To Do The Right Things • It Also Means That You Don’t Tolerate Noncompliant Behaviors From Yourself Or Co-workers (At Any Level) This Is Difficult

21. The Reality • If People Choose To Be Noncompliant • It Is Hard To Stop Them • Compliance Is A Knowledge Activity • If People Know The Rules, and • Understand Why They Exist • They Will Not Normally Knowingly Violate Them (Ethics)

22. The Reality • If People Are Going To Knowingly Violate The Rules • They Need To Know What The Consequences Can Be • For Some, They Will Comply Simply Because They Know There Are Consequences Internal Controls

23. Take Away • Reimbursablity Is Based On Compliance • Or Stated Another Way, Being Compliant Ensures Your Company Gets Paid For The Work It Performs

24. By Following The Processes, The Government, And The Public It Represents, Is Ensured: • That They Are Receiving A Fair Bargain • Competition Is Properly Obtained • Social Programs Are Supported • Transactions Are Transparent • Their Best Interests Are Protected

25. More Specifically, • Auditors Will Have Confidence That What They See Is Representative Of The Company’s Processes • The Need For Additional Auditing And Investigating Is Minimized • So Are The Costs Of Meeting Government Requirements Internal Controls

26. What is a Compliance Program? • It’s a Choice • It’s Leadership • Training Programs • Rewards and Consequences • Roles

27. Choice • No System Or Program Can Make People Behave In A Compliant Way. • People Must Choose To Do So. • Employees Must Be Selected That Will Make The Right Choices When They Understand What Choices They Can Make And What Is Expected

28. Leadership • Everybody is a Leader • No Tolerance Policy • A Method to Report • Chain of Command • Investigations • Surveys • Hotlines

29. Training Programs • Formal • In House Training is How an Employee Learns the Rules

30. Procurement Integrity Bribery and Illegal Gratuities Statute Anti-Kickback Statute Lobbying Standards of Ethical Conduct for Employees of the Executive Branch Berry Amendment Trade Agreements Act Foreign Ownership Control and Influence (FOCI) Foreign Corrupt Practices Act Export Control False Claims Act Some Formal Training

31. Informal Training • Consistent • Talk the Walk • Walk the Walk • Involve Everyone • Make a Commitment • Use In-House and Outside Trainers

32. Rewards and Consequences • Compliant Behaviors Should Be Openly Rewarded • Noncompliant Behaviors Need To Have Visible Consequences Internal Controls

33. Roles • Executive Management Must Take A Proactive Role In Leading The Compliance Program • They Must Challenge Their Functional Managers To Support The Elements Of The Compliance Program And Find Innovative Ways To Implement It • Mostly However, The Executive Manager Has To Set The Example

34. Sustaining the Program • Once A Compliance Program Has Been Implemented, Sustaining It Becomes Important • The Downside Of Not Sustaining The Program Is That Management Loses Credibility And Adherence Is Likely To Be Worse Than If No Program Had Existed

35. What Compliance Programs Are Not • Programs That Solely Point To Their Audit Efforts • Rely On The Number Of Findings • Not Successful Or Effective • Inspection Programs • Inspection Programs Belong More In The Realm Of Quality Control

36. Successful And Effective Compliance Programs Tie Quality Control, Audit, Corporate Governance, and Common Sense Together

37. Is This Your Idea of Taking a Risk?

38. Taking the Risk What Do the Following People Have in Common?

39. Randy “Duke” Cunningham David Safavian Darleen Druyun Kevin Marlowe Tom Spellissy Robert Stein Jeff Mazon Glenn Powell Stephen Seamans Christopher Cahill Andrew Rose Lloyd Holliman Mitchell Kendrix

40. INDICTMENTS AND CONVICTIONS

41. Since 2004, there have been at least 20 indictments or convictions of government officials and contractors for corruption related to procurement. These have included the conviction of a senior Republican congressman, the indictment of the top White House procurement officials, and the conviction of one of the most senior procurement officials at the Air Force. Corruption has tainted a wide array of contract initiatives, including the reconstruction in Iraq, the response to Hurricane Katrina, and major Defense Department procurements. Dollars Not Sense Government Contracting Under the Bush Administration Prepared for Rep, Henry A. Waxman United States House of Representatives Committee on Government Reform – Minority Staff Special Investigations Division June 2006

42. Following the Rules is not Enough…

43. You Need Common Sense

44. Questions?