Builders and Contractors Exchange
Weekly Bulletin: 14 dec 2007
EFFECTIVE CORPORATE COMPLIANCE PROGRAMS -
LOOKING IN BOTH DIRECTIONS
In prior Builders and Contractors Exchange articles, we have discussed the need for Government Contractors to have a Compliance Program to ensure that employees are performing properly. The prior articles have typically centered on ensuring that the Contractor did not violate a Federal Criminal Statute with respect to its obligations to the Government. Examples of such violations include product substitution where the Contractor fails to deliver goods that are fully compliant with the Contract Specifications, cost mischarges involving fraudulent time or material charges and illegal gratuities to Government personnel.
Recently a Vandeventer Black Attorney shared a speaking engagement on the topic of business fraud with an FBI Agent. The FBI Agent had been involved in a number of investigations ranging from bribery of public officials to the Enron investigation. The FBI has developed statistics from Certified Fraud Examiners that businesses typically lose at least five per cent of their annual revenues to some type of fraudulent activity. The fraudulent activity often involves subcontractors or suppliers and is frequently aided by dishonest company employees.
Accordingly an organization's Compliance plan must "look both ways" in order to be effective. We have always emphasized the need to ensure that our clients and their employees are not doing anything to jeopardize the performance of their government contracts. The Compliance Plan should also be tailored to detect fraud being perpetrated upon the Contractor. Examples of such fraud include various schemes of asset misappropriation such as fraudulent invoicing by suppliers or subcontractors, payroll fraud, fictitious sales, recording expenses in the wrong period and skimming revenue. The statistics are that over sixty percent of the known fraud is detected either by accident or from a tip. Further the statistics are that over 65% of the tips come through a company "hotline". This greatly reinforces our position that the institution of a "hotline" is a crucial part of developing an effective Business Ethics and Compliance Program. Unfortunately, most contractors never institute such a Program until after they have a "problem."
This is particularly short sighted. The FBI estimates that the median loss for businesses with "hotlines" is less than one half of the loss for businesses that do not have "hot lines."
Vandeventer Black welcomes questions on how to set up an effective Compliance Program and to monitor established programs to ensure their effectiveness.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.