Defense Contracting Integrity
Opportunities Exist to Improve DOD's Oversight of Contractor Ethics Programs
GAO-09-591, Sep 22, 2009
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Until recently, ethics programs and practices of defense contractors were self-policed. Given the significant sums spent to acquire goods and services, the Federal Acquisition Regulation (FAR) was amended twice starting in December 2007 to first mandate and later amplify contractor ethics program rules. Before FAR changes were finalized in December 2008, Congress required GAO to report in 2009 on the ethics programs of major defense contractors. This report (1) describes the extent that contractors had ethics programs before the finalization of the FAR rules that included practices consistent with standards now required by the FAR and (2) assesses the impact the new FAR rules have on Department of Defense (DOD) oversight of contractor ethics programs. To do this work, in September 2008 GAO surveyed all 57 contractors--those receiving more than $500 million in 2006 DOD contract awards--and interviewed DOD contractor oversight agency officials on the impact of the new FAR rules on oversight.
All 57 contractors responded to GAO's survey, and 55 reported having ethics programs that include many of the practices consistent with standards now required for compliance with the FAR. The ethics practices information GAO obtained was from before the FAR rules were finalized and thus was not designed to test contractor compliance with the rules that came later. In response to the new FAR rules, DOD has made two key oversight improvements by revising its contract audit guidance to cover the new ethics requirements and establishing the Contractor Disclosure Program to implement the mandatory disclosure requirement. However, opportunities exist to improve DOD's oversight in two other key areas. For example, in verifying implementation of contractor ethics programs during contract administration, the impact of the FAR rules on oversight at this point is negligible. GAO found that DOD had no plans to change contract administration offices' oversight because authority for oversight is not explicit nor is organizational responsibility clear. Also, with regard to contractors' hotline poster displays, the new FAR rules could reduce DOD's awareness of potential violations. The rules exempt contractors with ethics programs that include their own hotlines from the requirement to display DOD hotline posters. If contractor employees report violations to company hotlines instead of DOD hotlines, the employees do not receive the same protections from whistleblower laws. Whistleblower protections for employees unaware of the DOD hotline could be jeopardized.
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Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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- Open
- Closed - implemented
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Recommendations for Executive Action
Recommendation: To improve DOD's oversight of defense contractor's ethics programs, and to strengthen oversight during contract administration, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, & Logistics (AT&L) to determine what if any new Defense Federal Acquisition Regulation Supplement (DFARS) or other guidance is needed to clarify functional responsibilities of Defense Contract Management Agency (DCMA) and other contracting officials during contract administration for verifying the implementation of contractor ethics programs as required under the FAR ethics rules.
Agency Affected: Department of Defense
Status: Closed - Implemented
Comments: To implement this recommendation, in June 2010 the DOD's Defense Acquisition Regulation (DAR) Council opened Defense Federal Acquisition Regulation Supplement Case Number 2010-D021, Oversight of Contractor Ethics Programs. According to DAR Council staff in August 2010, since this recommendation also had governmentwide implications for contracting officials outside of DOD to verify implementation of contractor ethics programs as required under the Federal Acquisition Regulation (FAR) ethics rule, to implement this recommendation, DOD planned to ask the FAR Council to develop new FAR guidance. On May 31, 2011, in response to our recommendation, a new FAR rule was issued to modify FAR 42.302, Contract Administration Functions, to add to the list of contract administration functions, the function to ensure that contractors have implemented the mandatory contractor ethics program requirements of FAR 52.203-13.
Recommendation: To improve DOD's oversight of defense contractor's ethics programs, and to avoid delaying or lessening DOD IG awareness of contract-related problems and diminishing of whistleblower protections for contractor employees, the Inspector General for the Department of Defense, in accordance with the FAR, should determine the need for defense contractors' display of Department of Defense Inspector General's (DOD IG) fraud hotline poster, including directing a contractor to display the DOD IG hotline poster in common work areas for performance of DOD contracts.
Agency Affected: Department of Defense: Office of the Inspector General
Status: Open
Comments: DOD concurred and as of July 2011 is still in the process of implementing this recommendation. Since our last update in August 2010, Defense Federal Acquisition Regulation Supplement (DFARS) Case 2010-D026 was opened to require a DFARS clause directing contractors to display the DOD Inspector General (IG) hotline poster in common work areas as recommended by the DOD IG, citing GAO Report, GAO-09-591, DOD Contracting Integrity. According to a DOD official, the final rule is still in draft and will take approximately 3 more months to publish. The final rule will cover the 3 GAO recommendations in GAO-09-591 relating to the hotline poster.
Recommendation: To improve DOD's oversight of defense contractor's ethics programs, and to avoid delaying or lessening DOD IG awareness of contract-related problems and diminishing of whistleblower protections for contractor employees, the Inspector General for the Department of Defense, in accordance with the FAR, should determine the contents of DOD IG's fraud hotline poster for display by defense contractors, including revising the poster to inform contractor employees of their federal whistleblower protections.
Agency Affected: Department of Defense: Office of the Inspector General
Status: Open
Comments: DOD concurred and as of July 2011 is still in the process of implementing this recommendation. Since our last update in August 2010, Defense Federal Acquisition Regulation Supplement (DFARS) Case 2010-D026 was opened to require a DFARS clause directing contractors to display the DOD Inspector General (IG) hotline poster in common work areas as recommended by the DOD IG, citing GAO Report, GAO-09-591, DOD Contracting Integrity. According to a DOD official, the final rule is still in draft and will take approximately 3 more months to publish. The final rule will cover the 3 GAO recommendations in GAO-09-591 relating to the hotline poster.
Recommendation: To improve DOD's oversight of defense contractor's ethics programs, if the need for hotline poster display is determined by the Inspector General, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, & Logistics (AT&L) to propose revisions to DFARS to include policy requiring a contract clause directing a contractor to display the DOD IG hotline poster in common work areas for performance of DOD contracts. DFARS policy should require a defense contractor's display of the DOD IG fraud hotline poster irrespective of whether that contractor has its own internal mechanism, such as a hotline for employees to report contract-related improprieties.
Agency Affected: Department of Defense
Status: Open
Comments: DOD concurred and as of July 2011 is still in the process of implementing this recommendation. Since our last update in August 2010, Defense Federal Acquisition Regulation Supplement (DFARS) Case 2010-D026 was opened to require a DFARS clause directing contractors to display the DOD Inspector General (IG) hotline poster in common work areas as recommended by the DOD IG, citing GAO Report, GAO-09-591, DOD Contracting Integrity. According to a DOD official, the final rule is still in draft and will take approximately 3 more months to publish. The final rule will cover the 3 GAO recommendations in GAO-09-591 relating to the hotline poster.