Any compliance officers out there who believe they have a hard time working with a government-appointed compliance monitor, be quiet. United Launch Alliance has a story that tops yours.
The aerospace concern, a joint venture between Boeing and Lockheed Martin to build rockets and send satellites into orbit for the U.S. government, had to accept three compliance monitors simply to start business in late 2006. That was primarily driven by pre-existing compliance demands placed upon its parent companies, plus the need to integrate the companies’ different processes from Day 1 of ULA’s existence. Then there was the small fact that as a defense contractor itself, ULA would be subject to its own thicket of compliance rules.
Corrigan
ULA’s head of internal governance, Cindy Corrigan, explained how the company navigated such a complex monitoring structure at the Compliance Week 2010 conference. She also brought along Leslie Kenne, a retired U.S. Air Force lieutenant general and one of ULA’s monitors, and Steven Shaw, the Air Force’s deputy general counsel for contractor responsibility, to give their thoughts on how best to work with monitors.
One of ULA’s first challenges was that it had to figure out who its monitors would be. To begin business, ULA had to accept the obligations of an administrative agreement previously struck by Boeing and the U.S. Air Force. That agreement did allow ULA to choose its own external special compliance officer to oversee compliance with the agreement, but that monitor needed Air Force approval.
Of course, not all companies can choose their compliance monitor—but if you can, then hiring the right person is essential. Kenne stressed that employees generally act more positively if they believe they are being treated fairly and can “have their day in court.” That means an auditor, whose primary role is to find wrongdoing, might not be the ideal person for the job, she said. Still, she added, the interests of the monitor should remain with the government, not the company.
Corrigan said she also worked hard to get clarity around the language of ULA’s agreement with the government, to have a common understanding of exactly what the Air Force’s expectations were. Building a relationship of “mutual trust and respect, and open honest communication” with both the compliance monitor and the government was essential, she said.
Shaw agreed. The government’s goal, he stressed, is to minimize the risk of future misconduct. “We’re not doing this just by putting people in jail; we’re trying to be proactive,” he said. “An ongoing dialogue of trust benefits both sides.”
Still, Corrigan added, the process was much easier said than done. “It took quite a bit of talks back and forth to ensure things were aligned,” she said.
Leslie Kenne, a compliance monitor for ULA appointed by the U.S. Air Force, talks about her job at Compliance Week 2010.
This is where a compliance monitor can play a significant role. For example, Kenne said she defines ensuring compliance and enforcing compliance as two separate matters. Ensuring compliance means looking at how the company obeys government requirements; enforcing it is about how the company punishes wrongdoers. Clarifying those distinctions is essential, she said, because not all companies see them as separate issues.
As part of ULA’s administrative agreement, individuals also were assigned responsibility for implementing the compliance program. That was “really fundamental,” Kenne said, because if specific people aren’t assigned to the task, the compliance program can flop. As a final step, a series of reviews were also performed. These involved weekly internal reviews, and monthly external reviews with the compliance monitor.
Punishments
When deciding whether to bar a company from working with the government, Shaw said he first assesses the evidence to determine whether any misconduct did indeed happen. If it did, the burden of proof then falls to the contractor, which must demonstrate that the appropriate processes were existing and operating to try to prevent the misconduct.
DOJ MONITOR MEMO
The Department of Justice outlines below the nine principles of corporate monitoring.
1. Before beginning the process of selecting a monitor in connection with
deferred prosecution agreements and non-prosecution agreements, the corporation and the Government should discuss the necessary qualifications for a monitor based on the facts and circumstances of the case. The monitor must be selected based on the merits. The selection process must, at a minimum, be designed to: (1) select a highly qualified and respected person or entity based on suitability for the assignment and all of the
circumstances; (2) avoid potential and actual conflicts of interests, and (3) otherwise instill public confidence by implementing the steps set forth in this Principle.
2. A monitor is an independent third-party, not an employee or agent of the
corporation or of the Government.
3. A monitor’s primary responsibility should be to assess and monitor a
corporation’s compliance with those terms of the agreement that are specifically designed
to address and reduce the risk of recurrence of the corporation’s misconduct, including, in
most cases, evaluating (and where appropriate proposing) internal controls and corporate
ethics and compliance programs.
4. In carrying out his or her duties, a monitor will often need to understand
the full scope of the corporation’s misconduct covered by the agreement, but the monitor’s responsibilities should be no broader than necessary to address and reduce the risk of recurrence of the corporation's misconduct.
5. Communication among the Government, the corporation and the
monitor is in the interest of all the parties. Depending on the facts and circumstances, it
may be appropriate for the monitor to make periodic written reports to both the
Government and the corporation.
6. If the corporation chooses not to adopt recommendations made by the
monitor within a reasonable time, either the monitor or the corporation, or both, should
report that fact to the Government, along with the corporation’s reasons. The Government
may consider this conduct when evaluating whether the corporation has fulfilled its
obligations under the agreement.
7. The agreement should clearly identify any types of previously
undisclosed or new misconduct that the monitor will be required to report directly to the
Government. The agreement should also provide that as to evidence of other such
misconduct, the monitor will have the discretion to report this misconduct to the
Government or the corporation or both.
8. The duration of the agreement should be tailored to the problems that
have been found to exist and the types of remedial measures needed for the monitor to
satisfy his or her mandate.
9. In most cases, an agreement should provide for an extension of the
monitor provision(s) at the discretion of the Government in the event that the corporation
has not successfully satisfied its obligations under the agreement. Conversely, in most
cases, an agreement should provide for early termination if the corporation can
demonstrate to the Government that there exists a change in circumstances sufficient to
eliminate the need for a monitor.
Source
Department of Justice (March 7, 2008).
If the company can indeed show that it was making a good-faith effort to fight fraud or other misbehavior, “I’ll probably just ignore the case and put it in my file,” Shaw said. On the other hand, if those practices weren’t present and the company has no immediate hope of implementing any, then debarment from government business is likely and usually lasts three years, he said.
Shaw admitted that sometimes his decisions can be a close call. Gray areas arise when a company might need help overseeing a process; Shaw compared it to a criminal defendant being sentenced to probation. In those situations, companies usually must report to the Air Force quarterly, sometimes monthly. At those meetings they must explain what’s being done to improve their compliance programs.
In addition, the government insists on two outside verifications: one performed by the compliance monitor, and another by a separate ethics consultant. The consultant’s role is to review the programs and report those findings to the federal government, “so that I don’t have to take the word of the company,” Shaw said. The compliance monitor, meanwhile, reviews the company’s compliance with its administrative agreements to see how the company is performing.
Above all, the government wants to know that a company takes its compliance program seriously, Kenne said. “It’s just as important for [companies] to be able to find their own problems, then take the actions to fix them,” she said. “That’s really what we want to see.” In contrast, she said, the government does not want to see the company start slashing budgets and minimizing the importance of a compliance program immediately after an administrative agreement ends.
This is where mutual trust and communication, again, come into play, Kenne said. “Really, what you want when it’s all over is for the company to have a robust, compliance program … and for the government to be able to trust that company to stay in compliance,” she said. “That’s a win-win, and you don’t win-win by hiding things from each other.”
And that mutual respect should reside on all levels. Using her position as an example, Kenne said: “I’ve worked with Steve [Shaw]’s staff frequently, letting him know how things are going, calling him if I have questions,” she said. “When in doubt, communicate.”
As often said, tone at the top is paramount. Compliance monitors need to see the full involvement of the chief compliance officer and the CEO, Kenne said. “They’ve got to have that upper-level involvement if they are going to be successful.”
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