J. Catherine Kunz

The start of a new year is a perfect opportunity for government contractors to refocus and rejuvenate their compliance efforts. Regardless of whether a company is contractually required to have a compliance program, contractors should take time to determine the contractual obligations and risks they face now and in the year ahead. Is your company subject to the Trade Agreements Act? Does your company comply with the FAR cost principles and Cost Accounting Standards? Is your company making good faith efforts toward its small business subcontracting plan? Does it understand the risks associated with the False Claims Act?

An investment of time, attention, and resources for purposes of ensuring your company’s compliance efforts are sufficiently robust can have significant pay-off in the long run, including avoiding contract performance disputes, monetary penalties, fraud allegations, litigation and defense costs – all of which distract from the company’s core purpose, cause preventable PR problems, and drain resources. So how best to review and bolster a contractor’s compliance efforts?

The following are some of the basic steps any contractor should take in reviewing its compliance efforts:

1. Make sure the company understands the risks associated with its government contracts. Read and understand the contractual requirements, including the long litany of FAR and other agency clauses often incorporated into contracts by reference only. Often hidden within these long lists are fairly substantive legal requirements and, therefore, compliance risks if the contractor does not comply with the requirements.

2. Evaluate and improve internal controls, policies, and procedures. Review the existing compliance infrastructure to identify any weaknesses and necessary changes. Compare the written policies and procedures with actual practices and determine why there might be variances between the two. Do the written documents need to be updated to reflect changes in law or changes in company structure or operating procedures? Or do actual practices need to be revised to bring them in line with the company’s intention expressed in its written policies and procedures? Test the robustness of internal controls. Are there loopholes that need to be addressed? Is there management support of the internal controls?

3. Refresh employee training and education. A contractor’s commitment to compliance can be derailed by a workforce that lacks an understanding of the rules and the reasons for the internal controls, policies and procedures. Review and update training materials to keep the information current and accurate and ensure the presentation is engaging. Revisit the categories of personnel who receive training to evaluate whether additional groups should be trained. Consider adding more training or supplementing with alternative educational opportunities, ranging from more rigorous certification programs for certain key employees to regularly highlighting compliance success stories on the company internet.

4. Consider a third-party review or audit of the compliance program. Many contractors bring in an outside party, such as a law firm or consultant, to review or audit the company’s compliance efforts. This type of review or audit can be invaluable to the contractor. A qualified outside party brings its expertise and breadth of experience to bear in conducting its evaluation, and can provide useful guidance for improving compliance efforts, getting buy-in from management, and implementing best practices. Engaging in a third-party review can also demonstrate to key stakeholders, such as employees and the government, the contractor’s commitment to compliance.