If your company performs work for the federal government, it’s critical for you to become familiar with the recently revised Federal Acquisition Regulation (FAR). All federal contractors are now required to disclose certain overpayments and legal violations. And contractors involved with larger projects must implement rigorous business ethics programs and internal control systems. Sandersen Knox & Company LLP suggests that government contractors pay special attention to all changes included these highlighted ones as part of their business planning.
Mandatory disclosure
The new rules impose mandatory disclosure requirements in place of the previous voluntary disclosure system. Certain disclosure requirements are limited to contracts or subcontracts in excess of $5 million with a performance period of 120 days or more. But one provision makes nondisclosure by any prime contractor grounds for suspension or debarment.
To comply, you must disclose to the government certain procurement-related criminal offenses — including fraud and bribery, violations of the civil False Claims Act and significant overpayments. Because disclosure is required for three years after final payment is received, you should look back at contracts completed in the last three years for any credible evidence of such violations.
Ethics and internal controls
With limited exceptions, the revised FAR imposes stricter ethics and internal control requirements for contracts or subcontracts in excess of $5 million with a performance period of 120 days or more. In addition to having a written code of business conduct, you must “exercise due diligence to prevent and detect criminal conduct” and promote an ethical culture. You also should have an ethics awareness and compliance program that includes effective training and periodic communication.
In addition, the revised rules spell out several “minimum” internal control requirements, including assignment of responsibility, periodic reviews, a hotline or similar reporting mechanism for suspected fraud or embezzlement, disciplinary action for improper conduct, and exclusion of violators from management.
Meeting the standards
If you’re currently under contract with the federal government or you plan to bid on federal projects in the future, make sure you’re in compliance with FAR disclosure requirements and that you have in place an ethics program and internal controls that meet the new standards.
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