CUTTING CORNERS ON DEFENSE, contracts and hoping not to get caught is an increasingly risky proposition. For the six-month period ending March 31, 1990, procurement fraud investigations by Department of Defense (DoD) criminal investigative organizations resulted in 281 indictments by the Department of Justice (DoJ) and 274 convictions.
Fines and forfeitures amounted to $75.4 million; and restitutions resulting from administrative actions totaled $9.4 million. One hundred thirty-nine civil settlements and judgments amounted to $92.6 million, and 458 contractors were debarred and 187 suspended.
As sobering as those statistics are, a more troubling trend for white-collar offenders is the growing tendency to impose jail sentences and orders to pay for the cost of government investigations. During the same six-month period, 103 defendants, including senior company officials, were sent to prison for convictions on product substitution, commercial kickbacks, bribery, bid rigging, and making false statements and claims.
What recourse does a defense contractor have upon discovering a possible procurement fraud violation? DoD encourages contractors to voluntarily disclose suspected criminal or civil fraud that affects their contractual relationship. Voluntary disclosure is a central part of corporate self-governance and enhances contractor responsibility under the Federal Acquisition Regulation.
In 1986, DoD formally adopted the Voluntary Disclosure Program under the direction of the Office of Inspector General in response to a recommendation by the President's Blue Ribbon Commission on Defense Management. Simultaneously, several large DoD contractors adopted a similar policy. The purpose of both initiatives was improving business ethics and conduct, which included aggressive self-investigation, disclosure of potential civil or criminal fraud to the government, and initiation of corrective actions.
To encourage disclosures exposing a contractor to liability under federal statutes, DoD permits the contractor to complete its own internal investigation, which DoD promises to verify promptly. DoD also agrees not to initiate administrative actions such as suspension or debarment until it completes a verification inquiry.
DoD decisions on administrative actions are based on judgments regarding a contractor's "current responsibility." According to DoD regulations, whether a contractor is "currently responsible" is determined by whether it
* possesses effective internal controls,
* discloses violations and cooperates with investigations,
* implements proper corrective measures,
* makes restitution, and
* establishes and implements a code of disciplinary sanctions.
The Voluntary Disclosure Program is not a vehicle for amnesty or immunity and applies strictly to corporations, not to individuals. With regard to criminal and civil prosecution, DoJ's stated policy is that "the DoJ objective in the defense procurement fraud area is to bring prosecutions that will have a deterrent effect while at the same time make prosecutive judgments that encourage contractors to initiate compliance programs Contractors that make serious and responsible efforts to comply with the law and to disclose misconduct promptly and forthrightly should not be discouraged from those practices by prosecutive policies."
Furthermore, the Defense Procurement Fraud Unit in Washington, DC, reviews all proposed prosecutions of voluntary disclosure cases by the various US Attorneys' offices. That review ensures that prosecutors familiar with the program and the procurement fraud investigations themselves help decide whether to prosecute.
The foregoing may seem to present limited incentive for DoD contractors to disclose wrongdoing voluntarily. …