Government Enforcement Actions and Disclosures

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

The last decade has constituted something of a “perfect storm” in public contracting and corporate 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 participants in a free market economy; trying not to drive good companies out of business; and sending a message that fraud or regulatory violations will not be tolerated. With the recent federal spending on infrastructure and other U.S. based industry improvement investments in technology, there will be increased scrutiny on government contractors.

In the past, enforcement options granted to most agencies to achieve these goals had been limited and basic: they could either prosecute an individual or a company seeking a conviction, fines, and/or penalties, or decline prosecution in lieu of agency suspension or debarment action. At the federal level, under the Federal Acquisition Regulations, the enforcement 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, government contractors, and other corporations, often clogging up the justice system but doing little to help reduce fraud or improve the overall accountability and performance of public contractors or regulated industries.

With greater frequency, government regulators and federal and state prosecutors are utilizing effective alternatives to prosecutions under certain circumstances. They are increasingly using deferred prosecution agreements (DPAs) or non-prosecution agreements (NPAs), as well as civil settlement agreements, which can include some form of independent oversight to improve the contractor’s or corporation’s compliance programs, internal controls, performance and transparency. Independent monitoring offers an oversight approach that is also being used with even greater frequency in a variety of administrative settings across the country as a remedial, less severe alternative to other forms of government action.[2] 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; to evaluate adherence to antitrust Orders or to oversee the fulfillment of conditions established for the government’s approval in certain mergers and acquisitions; to provide oversight through corporate integrity agreements in false claims, consumer protection and other types of matters as well as to maintain efficacy by monitoring public utility projects and/or companies and their use of taxpayer dollars, 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 consumers; ensure corporate responsibility; and support 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 improvements where deficiencies are noted, and demonstrate, through the eyes of a professional independent monitor, that they have indeed fixed the problem that resulted in the underlying government concerns and scrutiny.

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