Government Enforcement Actions and Disclosures

Corporate Probation: The Use of Independent Monitors to Improve Compliance and Prevent Fraud

The last several years have constituted something of a “perfect storm” in public contracting and oversight: decreasing public contract dollars, dramatic increases in contracting fraud at the federal, state, and municipal levels; declining public resources available for audit, investigation, oversight, and prosecution; and a rapidly diminishing public tolerance for the waste of limited taxpayer dollars and for “big government.” Calls for tougher sanctions against corporate fraud from the media, politicians, and the public are met with countervailing criticism that many law enforcement, regulatory, and prosecutorial agencies are perpetuating an “anti-business” environment that is not in the best interest of job creation and stimulating an economy. Consequently, every decision about how to handle a problem contractor has become a balancing act of protecting the public from harm; respecting the rights of contractors in a free market economy; trying not to drive good contractors out of business; and sending a message that fraud or regulatory violations will not be tolerated.

The enforcement options granted to most agencies to achieve these goals are often limited and basic: They can prosecute an individual or a company with the hope of seeking a conviction, fines, and/or penalties; or they can decline prosecution in lieu of agency suspension or debarment action. At the federal level the approach is designed to protect the public by ensuring a contractor’s “present responsibility.” Contractors facing the scrutiny of government customers or regulators are confronted with a daunting choice. Acknowledging deficiencies in their company can lead to the imposition of sanctions that can affect their ability to continue to compete for public contracts, and/or their favorable status with a regulatory agency, either of which can further impact their ability to continue at all. These opposing forces have in many ways forced costly, lengthy and divisive litigation between government agencies, the Department of Justice, and government contractors, often clogging up the justice system but doing little to help prevent fraud or improve the overall accountability and performance of public contractors or regulated industries.

Government regulators and federal and state prosecutors are searching for effective alternatives to prosecutions. They are increasingly using deferred prosecution agreements (DPAs) or non-prosecution agreements (NPAs), as well as civil settlement agreements, which include some form of independent oversight to improve the contractor’s internal controls, performance and transparency. Independent monitoring offers an approach that is also being used with even greater frequency in a variety of administrative settings across the country as a remedial, less punitive alternative to other forms of government action. For example, independent monitoring has been used as an alternative to resolve proposed suspension or debarment from government contracting; in lieu of license suspension or revocation for regulated professionals such as doctors, dentists, chiropractors or pharmacists; or in place of loss of network provider status, including closure, of much-needed hospitals, nursing homes, or other facilities. The inclusion of this remedial alternative in agreements as part of a comprehensive resolution can lead to quicker and more beneficial solutions for all sides. Using the independent monitoring approach fulfills the government’s responsibility to protect the taxpayer, and the regulatory agencies’ mission of protecting public health, safety, and welfare. At the same time, this option allows businesses and professionals to continue to operate, implement improvement where deficiencies are noted, and demonstrate, over time, that they have indeed fixed the problem that resulted in government concerns and scrutiny.

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