Ethics and compliance has evolved to require actions beyond just doing the right thing. Government contractors must now act in accordance with the highest standards of ethics and compliance as possible. Ethics and compliance is no longer elective, it is now legislated. We will discuss understanding the new age of ethics, how to install an ethics culture, FAR compliance regulations, contracts and finance compliance practices, strategies for maintaining compliance and internal controls.
Insurers' journeys to build a mastery in the IoT usage
Government Contracting Compliance & Ethics Programs (General Counsel, P.C.); Vienna, VA; September 28, 2010
1. Compliance and Ethicsfor Government ContractorsPathway to Good Corporate Governance General Counsel, P.C. Seminar Series Tower Club Vienna, Virginia September 28, 2010
2. Presenter Michael Brainard’s principal practice area is government contract law, corporate compliance, and government audit guidance. Using his vast experience as inside counsel to major government contractors, Mr. Brainard counsels clients on all aspects of government contracting from compliance to proposal preparation to equitable adjustments to contract close-out. Mr. Brainard also represents clients in government audit matters including indirect rate development and internal control reviews. Mr. Brainard develops complete government compliance programs strategically designed to focus on critical management controls. Mr. Brainard also has extensive experience working with and developing small businesses, including SBA Section 8(a), HUBZone, and veteran-owned business registries. He is active in the Department of Defense Mentor-Protege Program and has won five Nunn-Perry Awards.
3. General Counsel, P.C. Offices in McLean Founded 2004 14 attorneys Focused on representing emerging growth government contractors Serve as outside general counsel to small- and medium-sized businesses
4. General Counsel, P.C. Practice Areas Corporate Government Contracts Labor and Employment Litigation Intellectual Property Estate Planning Probate Representation Non-Profit
5. Session Objectives Understanding the New Age of Ethics Installing an ethics culture FAR compliance regulations Contracts and finance compliance practices Strategies for maintaining compliance Internal controls
6. The New Environment. Ethics and compliance has evolved to require actions beyond just doing the right thing Government contractors must now act in accordance with the highest standards of ethics and compliance as possible Ethics and compliance is no longer elective, it is now legislated
7. The New Environment Factors leading up to the New Ethics Age Scores of corporate executives in breach Recovery Act (ARRA) has unprecedented levels of transparency &accountability the new standard Congress would not tolerate bad behavior Commission on Wartime Contracting led to new DCAA Administrator We will now be graded on our ethics and compliance programs
8.
9. Ethics laws and regulations are meant to achieve or ensure:Integrity in U.S. Government processes and avoid real or perceived conflicts of interest Equal treatment before the law That public office is not used for private gain Public confidence in U.S. Government and public acceptance of U.S. Government decisions 8
10. Contractors’ Role in Ethics As U.S. Government contractor, you are looking to increase that business As work with the U.S. Government increases, the potential for noncompliance does too, particularly when personnel without U.S. Government contract experience work on Government contracts and subcontracts As a contracting party with the U.S. Government, contractors must do their part to ensure that the public’s trust is not violated 9
11. What are the Overall Ethics Rules? Organizations that do business with the U.S. Government, either as a prime contractor or subcontractor, must have an effective compliance and ethics program These organizations must: Exercise due diligence to prevent and detect criminal conduct Promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law Take reasonable steps to communicate its ethics and compliance program periodically and in a practical manner to its employees 10
12. Suggestions for Ethics Programs Ethics training for all employees Document your ethics practices in a Code of Business Conduct Annual ethics refresher courses Consider ethics survey Test absorption of ethics culture into management and operations staff Identify areas for improvement and build into program upgrades 11
13. New FAR Compliance Rules On November 12, 2008 the Federal Acquisition Regulation (FAR) was significantly amended with respect to its ethics related requirements – FAR 52.203-13 Extends the FAR Code of Conduct requirement to commercial item contractors and small business contractors Establishes certain minimum requirements for a contractor’s internal control system and training Requires disclosure of certain potential violations Establish Hotline or tip-line to report misconduct 12
14. New Mandatory Disclosure Rule Timely disclosure to the Government, in connection with a contract or subcontract, is required when there is credible evidence of: Violation of Federal criminal law involving fraud, conflict of interest, bribery or gratuity violations found in Title 18 of the United States Code Violation of the civil False Claims Act Significant overpayments on the contract (other than those resulting from contract financing payments) now in Payments Clause 13
15. Subcontract and Exec Comp Report Another new FAR clause 52.204-10 issued July 2010 adds reporting requirements for: All 1st tier subcontracts valued at $25K or more Prime contractor top five highly compensated executives 1st tier subcontractor top five highly compensated executives Some exemptions Subcontract reports phased in Exec Comp – 80% federal, $25M federal, not public Gross income under $300,000 14
16. Elements of Compliance Program Small businesses exempt from formal Program Minimum Requirements for Internal Controls Mandatory reporting/disclosure procedures (e.g., through a hotline) Monitoring and auditing Business ethics training Internal reporting mechanism to detect improper criminal conduct 15
17. Universe of Internal Controls The full range of FAR and CAS compliance measures is quite large 3,000 laws and regulations 10 Internal Control Audit Planning System 19 Cost Accounting Standards 14-Point FAR Compliance System Full compliance can be costly Most implementation costs are recoverable 16
18. New Teeth in Internal Controls? Audits showed that contractors were still being paid when there were serious deficiencies in their internal control programs Accounting, estimating, purchasing, property, earned value systems, materials management Proposed DFARS Rule would withhold 60% of payments if there are system deficiencies Mainly targets large business 17
43. Initial Steps to Compliance Recommended first steps to FAR and CAS Compliance are designed to be manageable, efficient, economical, and auditable Focus on immediate and near term needs Strategy Minimize initial costs assess Document existing staff and practices Provide the foundation for future roll-out 20
52. Estimating System Why: Government requires a controlled, consistent process to produce reliable cost estimates Complicated components to pricing hardware manufacturing Sound estimating practices reduce audit time Immediate benefit to proposals to your large business clients 22
53. Estimating System Rely on existing staff and practices Do a review or gap analysis to ensure that existing practices are sound Conduct training to determine if existing staff is experienced and eager to comply Document current practices Create Basis of Estimate practice Train in TINA compliance 23
54. Indirect Rates Why: Prove we have consistent, managed process for developing reliable estimates Reduce audit costs Increase cost recovery Establish process for submission to Government Immediate benefit to pending Government proposals 24
55. Indirect Rates Base rates on 2009 actual costs or 2010 budget Organize into logical groupings Manufacturing , engineering, material handling G&A with some corporate allocations Remove unallowable costs to show diligence and awareness of rules Train on consistent use of rates and submission rules 25
56. Timekeeping Why: Proper labor recording is fundamental to Government contracts Establishes the control of this cost element Provides the basis for direct charging of indirect staff 26
57. Timekeeping Review current accounting and timekeeping systems Review for basic rules such as daily entry, approval, and managing corrections Add unallowable and B&P cost codes Roll out into “Government” segments and applicable indirect pools Document training of existing and new staff 27
58. Unallowable Costs Why: Government wants to know we understand the FAR Part 31 Cost Principles We will be certifying that unallowable costs are not included in proposals, rates, and cost claims 28
59. Unallowable Costs Review general ledger for specifically unallowable costs and risk accounts Add unallowable account to G/L Review payables files for existing screening Modify travel expense report Recommend multiple steps for screening Document staff training 29
60. Procurement Why: We are spending tax-payer monies Must document a consistent and fair process Procurement is a large portion of contracts Inability to maintain effective system may lead to the client doing the procurement for us 30
61. Procurement Review existing staff and processes Appears basic systems is sound Document price analysis, competition, and negotiation Add file documentation tools Checklist for file content Checklist to document decisions 31
62. Install Modified CAS Why: Modified CAS coverage triggered by $7.5M award Provides initial steps to CAS awareness Can install without significant additional costs 32
63. Install Modified CAS Outline 4 standards – show consistency 401: Accumulating, recording and reporting 402: Direct versus indirect costs 405: Manage unallowable costs 406: Document accounting calendar First step is to assess current practices Document current means of compliance 33
64. Proforma Disclosure Statement Why: Full CAS coverage upon $50M contract award, which will require Disclosure Statement Must document accounting practices so that they are controlled Documents the desired treatment of costs and ability to improve margins Tells us where we may have holes upfront 34
65. Proforma Disclosure Statement Why: Full CAS coverage upon $50M contract award, which will require Disclosure Statement Must document accounting practices so that they are controlled Documents the desired treatment of costs and ability to improve margins Tells us where we may have holes upfront 35
66. Proforma Disclosure Statement Interview Accounting and Finance to assess current practice Interview Operations and Management to determine desired practices Draft Disclosure Statement so that it is ready upon receipt of trigger contracts 36