Recent procurement scandals have prompted numerous ethics reform initiatives by federal prosecutors, regulators and legislators. Given the volume of spending related to Operation Iraqi Freedom and on-going homeland-security initiatives, the industry can expect the greatest level of scrutiny since Operation Ill Wind in the 1980s.
While the current impetus for this intensified scrutiny may be the recent revolving door scandals and indictments, all companies should closely examine their entire compliance programs for vulnerabilities and risks.
In the wake of the Druyun scandal, the U.S. Attorney's Office for the Eastern District of Virginia created a Procurement Fraud Working Group. The Defense Department initiated an investigation of former government officials to determine whether the post-employment restrictions were violated. The acting undersecretary of defense for acquisition, technology and logistics instructed the Defense Science Board to prepare a report recommending actions to protect the integrity of acquisition decisions and to restore public trust.
The Office of Government Ethics recently recommended the application of federal employee ethics rules to contractor employees. The House Armed Services Committee has requested a Government Accountability Office report on the revolving door issue, which Congress may address in legislation this year.
These activities will impact defense contractors, whether or not they are individually subjected to an investigation. NDIA's Statement of Industry Ethics speaks of "ethical readiness" to promote the health of the defense sector. These reform initiatives demonstrate why companies need a proactive response to the current environment. When industry does not act, regulators will seek to fill the void, and industry self-governance will suffer as a result of a few bad actors. In addition to public advocacy of industry positions, that proactive response should include a top-to-bottom review of current practices, policies and procedures to identify risk and make appropriate adjustments.
The creation of the U.S. attorney's working group signals a shift in prosecution resources to defense procurement matters. In announcing its formation, the U.S. attorney specifically targeted procurement fraud, including product substitution, defective pricing, irregularities in contract formation, misuse of classified or other sensitive information, labor mischarging, accounting fraud, fraud involving foreign military sales and ethical and conflict-of-interest violations.
Members of the working group include the Federal Bureau of Investigation, the Defense Criminal Investigative Service, the Naval Criminal Investigative Service, and the inspectors general of the Departments of Homeland Security, State and Transportation, and the National Reconnaissance Office. …