Nonprofit group helps contractors navigate new ethics rules

After corporate scandals like Enron and WorldCom, federal officials last December for the first time required government contractors to develop a written code of business ethics and conduct.

But like similar regulations imposed on other industries, the changes to the Federal Acquisition Regulation provided scant details about what an accepted code of conduct should contain and the best way to implement it.

Last Wednesday, the Open Compliance and Ethics Group, a Phoenix-based nonprofit organization, moved to fill that information gap by releasing an extensive set of guidelines to assist contractors and subcontractors in following the government's myriad contracting statutes and compliance regulations.

The 134-page document, which goes beyond what is required in the changes to the FAR, also can be filtered through an integrated database.

"What we are really addressing here is a structure that will pretty well protect any government contractor," said OCEG President Carole Stern Switzer. "These are the areas that would be addressed by any audit of a government contracting program."

The OCEG guidance was authored by contracting analysts from the firms of McKenna Long & Aldridge and Ernst & Young LLP. The draft recommendations were reviewed earlier this spring by an advisory board of leading government contracting firms.

The document offers a broad perspective of ethical compliance, ranging from contract administration and commercial item acquisition to billing and budgeting. The searchable framework also provides significant detail about how to train and supervise employees responsible for enforcing and implementing these compliance regulations.

While ethics compliance has become a core business function for federal contractors during the past several years, most companies often follow the federal standards in a haphazard and siloed manner, Switzer said.

OCEG's goal was to provide a structured point of reference -- particularly for small and mid-size firms that cannot afford high-priced attorneys or compliance teams -- as well as to reduce the waste of resources that nearly all contractors experience in keeping up with the government's complex amalgam of regulations, according to Switzer.

"It's not just a question of breaking down compliance silos, but of integrating and making better information that will enhance governance," she said.

In a recent OCEG survey of 111 federal contractors, more than 45 percent of respondents ranked financial risk-- fines, penalties and settlements --as their greatest concern in working with the government. Another 25 percent cited suspension and debarment as their biggest concern, while 20 percent identified negative public relations. Only 8 percent ranked legal risk.

Meanwhile, more than 60 percent of respondents identified either accounting standards or purchasing and budgeting systems as the most problematic compliance aspect of government contracting.

"Federal procurement rules and regulations are complex and the risks can be substantial if contracts are not entered into without sufficient due diligence on the part of the contractor," said Brian Simmons, national director of Ernst & Young's government contract practice.

Ray Pushkar, a partner at McKenna Long & Aldridge, added the OCEG "guidance offers a roadmap to establish or improve an ethics program as well as navigate the maze of contracting requirements to stay in compliance."

OCEG officially plans to debut its tool on June 4 at the Greater Washington Society of CPA's Government Contract Accounting and Compliance Developments Conference at the Hilton McLean in Tysons Corner, Va.

In addition to its core compliance recommendations, the guidance also includes more than 120 independent resources, including direct links to federal regulations, agency documents, white papers and relevant news articles.

While the entire resource is available only to OCEG members, limited information is available free to the public here.