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Debarment Solutions InstituteLLC

Serving the needs of the business, nonprofit, government and legal

communities

Consulting Training Monitoring

In Cooperation with

Consulting Training Monitoring

The Society of Corporate Compliance and Ethics

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Presents

Consulting Training Monitoring

501Government Contracts and Relationship Risk:

What Every Ethics and Compliance Officer

Should Know

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Recent Congressional and White House Attention on Government Contracts and Assistance Risk

Common Blind Spots in Risk Prevention, Detection and Assessment Programs

Real World Examples of Successes and Failures

Today’s Objectives

Today’s Round Table Discussionwith

Robert F. MeunierDebarment Solutions Institute

Dirk CockrumKinder Morgan

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“Debarment” vs. “Suspension”

♦ Debarment – a final determination by an agency suspending and debarring official (SDO) that an entity or individual is not presently responsible to receive or participate in federal contracts and subcontracts, and/or assistance, loans and benefits (ALBs)

♦ Suspension – a temporary denial of participation in federal contracts and subcontracts, and/or ALBs pending completion of an investigation or legal proceedings

“Procurement” vs. “Non-procurement”

♦ Procurement – a relationship between a federal agency and another person in which the agency is acting as a purchaser of goods or services for its own use under the Federal Acquisition Regulation (FAR)

♦ Non-procurement – a relationship between a federal agency and another person in which the agency is acting as an enabler to assist in accomplishing a public objective (i.e., everything not covered by the FAR).

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“Contracts” vs. “Assistance”

♦ Contracts – Usually used in the context of a procurement relationship directly between an agency and a commercial entity, with subcontracts referring to lower tier relationship between the contractor and another entity

♦ Assistance – Refers to the entire range of transactions, including loans and other benefits (or ALB) that are other than procurements under the FAR. But it includes “contracts” with a recipient or participant at any tier under a non-procurement transaction

“FAR” vs. “NCR”

♦ FAR– Acronym for the uniform regulation governing all procurement activities of the Executive Branch. Suspension and debarment provisions related to a procurement relationship is located at Title 48 CFR Part 9, Subpart 9.4

♦ NCR –Acronym for “Non-procurement Common Rule” which refers technically only to the suspension and debarment provisions in a ALB or non-procurement relationship, and is located at Title 2 CFR Part 180

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“Statutory” vs. “Administrative” Debarment

♦ Statutory Debarment – Sometimes called “mandatory debarment” is a debarment that is imposed by Congress as a matter of legislative fiat

♦ Administrative Debarment – Sometimes called “discretionary debarment” is a debarment imposed by an Executive Branch agency under its inherent authority or by act of Congress that permits agency discretion in the imposition of the sanction

Congressional and Executive Branch Activities

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FY 2000-2012

Total spending of over $29.9 Trillion

Over $24.8 Trillion in ALBs

Only $5.1 Trillion in Contracts

Annual Average of over $2 Trillion for ALB

Annual Average of $427 Billion for Contracts

Federal Spending 2000-2012

82.9%

17.1%

Contracts

Assistance, Loans & Benefits

Total $ 29,924,980,900,000

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Federal Contracts 2000-2012

Large & Medium 77%

Small & Other Set Asides

23%

Federal Contracts 2000-2012

$3.927 Trillion Large & Medium

$1.173 TrillionSmall

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Media Attention

“Federal Contractor Indicted for Cost Mischarging”

“Local Firm Implicated in Small Business Scam”

“Millions Lost to Fraud in Disaster Relief Effort”

“Phantom Grantee Bilks Government for $2.3 million”

Public Perception of Government Contractors

Government contractors are dishonest opportunists looking to line their pockets with lucrative contracts, awarded by corrupt government officials in a system rife with fraud, waste and abuse of scarce taxpayer dollars.

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Taxpayer Frustration

This perception, right or wrong, has angered the public and fueled public demand for a change in the way the public’s business is conducted.

Congressional Reaction

Oversight Hearings

GAO Contract Reviews

Inspector General Reports

Legislation

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Executive Branch Reaction

Executive Orders

OMB Policy Directives

Government-wide Regulations

Investigations and Prosecutions

Suspension & Debarment

Interagency Suspension and Debarment Committee

Federal Law Enforcement Training Center

OMB

SDOs

National Procurement Fraud Task Force

DOJ Civil and CriminalPolicy Offices

Offices of Inspector General

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Competence

Ethics

Performance

Compliance

Ethics and Compliance Accountability

Risk Management for ECOs

Competence

Ethics

Performance

Compliance

Ethics and Compliance Program (ECP)

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Own an interest in/operate about 80,000 miles of pipeline and 180 terminals

Business is similar to a toll road 4th largest energy company in

North America based on combined enterprise value (a)

5 business segments Operations in 42 USA States, 4

Canadian Provinces, and 3 Mexican States

>11,000 Employees Substantial growth through

acquisition Low cost operator strategy

__________________________(a) Combined enterprise value of KMI, KMP & EPB;

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Kinder MorganAsset Footprint and Business Characteristics

Challenges and Blind Spots for Compliance Risk Assessments

Major incident prevention— …in addition to personal activities, process controls, and regulatory

requirements.— What keeps you up at night?— Lessons learned from other companies incidents.

Knowledge and information sharing across internal organizations Documentation

— If there isn’t documentation of a compliance activity, the presumption is it didn’t happen.

— Can you see your documentation through the eyes of an outside auditor?

— Does the randomly selected employee describe things happening the way your policy and procedure documents say they happen?

Tone at the middle When something goes wrong, why did the system not work?

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Real-world Examples

Motivations

— “It was a new, important customer, and the order was almost finished. So, when we had the problem, I just wanted to finish the order for them.”

— “I didn’t want anyone to think I couldn’t handle the situation.”

Disagreement and/or anger in one area leading to poor decisions in another.

Misunderstanding requirements, but continuing noncompliance after developing understanding.

What Works for KM

What gets reported gets managed.

— Are the right metrics getting reported?

— Is the data quality data?

Follow the procedure.

You don’t have the authority to operate out of compliance.

You can stop.

— From unsafe to unethical acts

Ask for help.

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Effective Ethics and Compliance Program

Stands as the Cornerstone of an Entity’s Self-Governance System

Designed to Maintain and Monitor Competence, Performance, Compliance and Integrity

Includes Internal Controls to Assess Risk; Prevent and Detect Misconduct, Non-Compliance and Poor Performance; Takes Corrective Action

Works Most of the Time

Mandatory Disclosure Rules

Federal Contractors/Subcontractors 48 CFR 52.203-13

Federal ALB Recipients/Participants 2 CFR 200-113 (Effective Dec 26, 2013, Implementation Dec 25, 2014)

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MDR at FAR 52.203-13 (cont.)

Contractor must –

• Timely disclose, in writing, to the agency OIG and the contracting officer, in connection with the award, performance or closeout of a contract or subcontract thereunder, credible evidence that a principal, employee, agent or subcontractor may have committed a triggering event

MDR Triggering Events

• A violation of a criminal law involving fraud, conflict of interests, bribery or gratuity violations found in Title 18 of the United States Code;

• A violation of the False Claims Act (31 USC §§ 3728-3733); or

• Significant overpayments

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Tone at the Middle

The Critical Position of the First-Level Supervisor

Many Reach this Level of First Line Management and top out after Years of on-the-job Experience

Can be an Attitude of Resistance to what may appear as the Policy Initiative of the Month

Assumptions about Ethics

“Everyone Knows Right from Wrong”

“Do not Project your Morals onto Others”

“We Make Sure that we do Everything Legal”

“Ethics is the job of the Ethics Officer”

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Checking the EPLS (Now SAM)

Check the EPLS on Contractors, Subcontractors and Suppliers

New Employees

Existing Employees on Periodic Basis

Decentralized Ethics Program

Can Diffuse and Confuse Workforce

More Suitable in Larger Organizations with Multiple Facilities or Locations of Operation

Prone to Hemorrhage Information Relevant to Internal Investigation and/or Risk Assessment

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Performance Standards

PARS System not Linked to Code of Conduct

Evaluations and Awards not Reflective of Ethics and Compliance Priority

Increased Emphasis on Company Conduct Codes

Conduct Codes are not Entirely new Ideas

Traditionally Direct or Restrict Activities

May Contain Sanctions

Observations About Conduct Codes

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Observations (cont.)

Government has no Shortage of Codes of Conduct (e.g. Criminal Code)

Employee Conduct is Heavily Regulated by Policy and Guidance

System is Subject to Strict Enforcement

Observations (cont.)

Conduct Codes and Polices are Useful and Necessary.

Despite such Efforts to Encourage, Foster or Coerce Compliance, America’s Prisons are Full.

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Damage Control Plan

Most Overlooked Part of a Company’s Self-Governance System

Some Examples

♦ IBM

♦BP

♦Archer Daniels Midland

♦Kinder Morgan

♦Lockheed Martin

♦Boeing

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