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Companies seeking to receive federal stimulus funds must get their houses in order and address ethics and compliance requirements under the Federal Acquisition Regulations (FAR), said Al Krachman, who advises clients on how to win government contracts and avoid ethics and compliance violations.
“If you’re doing stimulus work, or any government contracting for that matter, you need to have your ducks in a row,” Krachman, a partner with Blank Rome LLP, said in an April 23, 2009, Global Compliance webinar. Krachman warned that with any change of administration, but especially now, in the midst of the greatest infusion of federal dollars in history, an extensive regulatory and compliance structure will accompany government contracts, policed by a newly supercharged corps of inspectors.
“You need to improve and check your own quality control systems, you need to check your own compliance programs, you need to check the training you’re giving, and you need to check every aspect of your performance systems, because you’re going to see a new wave of audits coming,” he said.
Risks of ignoring compliance requirements include contract termination, breach of contract liability, forfeiture of payments made or owed by the government, false claims act exposure, suspension, and debarment.
“The one thing you take away from reading this 400-page stimulus bill is that the new administration is just focused like a laser beam on legal compliance and accountability,” Krachman said. “The government is focused on ensuring that it mitigates its risk and ensuring that contractors have their systems in place.”
Whole Lot of Pie Topped with Equal Amount of Conditions
The American Recovery and Reinvestment Act of 2009, signed by President Barack Obama on Feb. 17, 2009, authorized the infusion of $787 billion into the U.S. economy, leading each distributing agency to create a significant regulatory structure when disbursing the funds. Some of the more prominent measures include adherence to the protectionist “Buy American” provisions, the Trade Agreements Act and the Berry Amendment, and ensuring prevailing wage rates and whistle-blower protections.
The “Buy American” provisions of the stimulus act require that all iron, steel and manufactured goods used in construction be produced in the United States. “Essentially, the Buy American Act has been overlaid over much of the stimulus work, and they’ve created a very extensive regime that will require a lot of analysis that you’ll probably need an expert in your company to decipher,” Krachman said.
The Trade Agreements Act and the Berry Amendment, though not specific to receiving stimulus funds, are getting an increased focus. “It’s very important that companies doing business with the government have taken a look at their supply chain and are very comfortable that they are in compliance, because there’s been a wave of prosecutions started for violation of these domestic sourcing rules,” he said.
Prevailing wage rates, or wages at rates not less than prevailing on projects of a similar character in the locality, as determined by the U.S. Department of Labor, also are firmly attached to stimulus projects and need to be considered, he added.
With a focus on transparency, accountability and performance management, whistle-blower protections are also being strengthened. Nonfederal employers that receive stimulus funds may not discharge, demote or discriminate against employees as a reprisal for disclosing certain covered information, such as gross mismanagement of the contract, gross waste of covered funds, substantial danger to public health and safety, abuse of authority, or violations of any law, rule or regulation.
“Public projects are highly regulated, and there are hundreds of contract clauses that many don’t pay any attention to but [that] can form the basis for compliance action or breach of contract or false claims act violations,” Krachman said. “These benchmarks [whistle-blower protections] are really signposts that should guide you to improve and check your compliance systems.”
Whistle-blower provisions are enforced by the Office of the Inspector General (OIG), which has been awarded additional funding to expand its operations. In the case of a violation, the OIG can order the employer to take affirmative action to abate the retaliation; to reinstate the whistle-blower, with compensation, back pay, compensatory damages, employment benefits and other employment terms and conditions; and to pay the complainant the aggregate amount of all legal costs and expenses incurred.
How Organizations Can Comply
It is absolutely necessary for companies seeking stimulus money to have ethics and compliance training programs in place. An effective ethics and compliance program is a key factor in achieving a culture of integrity within organizations. In addition to establishing ethical and compliant behavior and regulating against noncompliance, these programs are a major initiative in combating fraud and abuse, Krachman said.
In coordination with the passage of the stimulus act, the Office of Management and Budget published new guidance on contractor responsibilities. In addition to proving that all the traditionally required control systems, such as financial and personnel systems, are in place, a written code of business ethics and compliance, along with established training programs, will now also be required. To meet these requirements and attain compliance, companies should:
Seven Pillars of Compliance
Originating from the Federal Sentencing Guidelines for Organizational Defendants, which apply to organizations convicted of federal crimes, the following “Seven Pillars of an Effective Ethical and Compliance Program” were developed to prevent and detect criminal conduct:
Just Do It
“If you are a government contractor, or expect to be a government contractor under the Obama regime and its army of auditors, you would be well-advised to do a checkup of your compliance systems,” Krachman said. “Companies that want to stay in business and maintain a competitive edge will conduct a compliance audit. It is a best practice and a lot cheaper if you find the violation yourself than having to see agents cart out your computers and put yellow tape up in front of your doors.”
Roy Maurer is a staff writer for SHRM.
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