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Defense contractors' ethics policies questioned: GAO finds little oversight of compliance with conflict-of-interest rules.

The Defense Department said it will increase scrutiny of contractors' ethics policies and practices after the Government Accountability Office found the department was paying little attention to whether companies are complying with ethics rules.

"Defense acquisition regulations provide that government contractors should have standards of conduct and internal control systems that promote ethical standards, facilitate timely discovery and disclosure of improper conduct, and ensure corrective measures are promptly implemented," GAO said. "However, DOD cannot identify nor take action to mitigate risks because it lacks knowledge of its contractors' efforts to promote ethical standards."

Defense regulations require contractors to have standards of conduct, training in ethics and internal controls to ensure compliance.

The law generally prohibits former federal employees and their supervisors from representing contractors concerning matters they handled while they were working for the government. "While DOD evaluates components of contractors' financial and management controls, neither the Defense Contract Management Agency nor the Defense Contract Audit Agency--the agencies responsible for oversight of defense contractors' operations--had assessed the adequacy of contractors' practices for hiring current and former government employees," GAO said.

GAO said one major defense contractor commissioned an independent evaluation of its ethics practices: "This review found that the company relied excessively on employees to self-monitor their compliance with post-government employment restrictions."

The auditors said the DOD inspector general's office "told us that anecdotal evidence indicates post-government employment misconduct is a problem, but DOD has no basis for assessing its severity."

In response to the GAO report, Daniel J. Dell'Orto, deputy Defense Department general counsel, said the department "intends to call upon companies throughout the defense industry to reexamine their ethics programs and share best practices."

Alluding to the Air Force scandals involving former acquisition executive Darleen Druyun, GAO noted that "the risk of ethical misconduct can be costly." After Druyun's conviction, the U.S. attorney in Alexandria, VA, created a procurement fraud working group to monitor the procurement process.
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Publication:Set-Aside Alert
Date:May 13, 2005
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