Defense Ethics Program: Opportunities Exist to Strengthen
Safeguards for Procurement Integrity (29-APR-05, GAO-05-341).
In fiscal year 2004, the Department of Defense (DOD) spent more
than $200 billion to purchase goods and services. To help ensure
defense contracts are awarded fairly and current and former
employees do not use their knowledge of DOD acquisition
activities to gain financial or other benefits, DOD personnel are
required to conduct themselves in a manner that meets federal
ethics rules and standards. Regulations require DOD to implement
an ethics program and provide that contractors meet certain
ethics standards. For this report, GAO assessed (1) DOD's efforts
to train and counsel its workforce to raise awareness of ethics
rules and standards as well as DOD measures of the effectiveness
of these efforts and (2) DOD's knowledge of defense contractors'
programs to promote ethical standards of conduct.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-341
ACCNO: A22977
TITLE: Defense Ethics Program: Opportunities Exist to Strengthen
Safeguards for Procurement Integrity
DATE: 04/29/2005
SUBJECT: Contract administration
Contractor violations
Defense procurement
Department of Defense contractors
Employee training
Ethical conduct
Internal controls
Procurement regulations
Program evaluation
Conflict of interests
Policies and procedures
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GAO-05-341
* Highlights
* Results in Brief
* Background
* DOD Lacks Information to Evaluate Its Training and Counseling Efforts
* Training and Counseling Results Are Not Measured
* Training and Counseling is to Facilitate Identification and
Reporting of Misconduct, but Alleged Misconduct Is Not Being
Tracked
* Ongoing Actions to Prevent Misconduct
* DOD Needs More Knowledge of Government Contractor
* DOD Does Not Have Adequate Knowledge of Its Contr
* Independent Review of Defense Contractor Finds Weaknesses in
Controls for Managing Former Government Employees
* Conclusion
* Recommendations
* Agency Comments
* Appendix I: Scope and Methodology
* Appendix II: Comments from Department of Defense
*
* Order by Mail or Phone
United States Government Accountability Office
Report to Congressional Requesters
GAO
April 2005
DEFENSE ETHICS PROGRAM
Opportunities Exist to Strengthen Safeguards for Procurement Integrity
GAO-05-341
DEFENSE ETHICS PROGRAM
Opportunities Exist to Strengthen Safeguards for Procurement Integrity
What GAO Found
To implement its ethics program, DOD has delegated responsibility for
training and counseling employees on conflict-of-interest and procurement
integrity rules to more than 2,000 ethics counselors in DOD's military
services and agencies. These efforts vary in who is required to attend
training and counseling, the content of ethics information provided, and
how often the training and counseling is provided. While some variation
may be warranted, DOD lacks the knowledge needed to determine whether
local efforts are meeting the objectives of its ethics program-in large
part because DOD does not systematically capture information on the
quality and content of the training and counseling or employee activity as
they relate to ethics rules and restrictions. Specifically, ethics
counselors were unable to tell us if people subject to procurement
integrity rules were trained. Instead, DOD evaluates its ethics program in
terms of process indicators-such as the number of people filing financial
disclosure forms, the number of ethics officials providing training and
counseling services, and the amount of time ethics officials spend on such
activities-which do not provide metrics to assess the effectiveness of
local training and counseling efforts. DOD also lacks adequate information
on the number and status of allegations of potential misconduct related to
conflict-of-interest and procurement integrity rules. Ethics officials did
not know of 53 reported allegations of potential misconduct referred to
inspectors general offices. DOD has taken several actions since October
2004 aimed at enhancing its ethics program. However, without knowledge of
training, counseling, and reported allegations of misconduct, DOD is not
positioned to assess the effectiveness of its efforts.
DOD's knowledge of defense contractor efforts to promote ethical standards
is also limited. Defense regulations provide that contractors should have
certain management controls, such as ethics training for all employees and
systems to detect improper conduct in connection with government
contracts. However, DOD had not evaluated the hiring practices of the
contractors GAO contacted. 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.
An independent review of one of DOD's largest contractors found that the
company lacked the management controls needed to ensure an effective
ethics program. Instead, the review found that the company relied
excessively on employees to self-monitor their compliance with
post-government employment restrictions. The review concluded that by
relying on self-monitoring, the company increased the risk of
noncompliance, due to either employees' willful misconduct or failure to
understand complex ethics rules.
United States Government Accountability Office
Contents
Letter 1
Results in Brief 2
Background 3
DOD Lacks Information to Evaluate Its Training and Counseling Efforts 6
DOD Needs More Knowledge of Government Contractors' Standards of Conduct
Efforts 11
Conclusion 13
Recommendations 13
Agency Comments 14
: Summary of Annual Ethics Training by Office
Appendix I Scope and Methodology
Appendix II Comments from Department of Defense
Table
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separately.
United States Government Accountability Office Washington, DC 20548
April 29, 2005
The Honorable Ike Skelton Ranking Minority Member Committee on Armed
Services House of Representatives
The Honorable Solomon P. Ortiz Ranking Minority Member Subcommittee on
Readiness Committee on Armed Services House of Representatives
The Honorable Vic Snyder Ranking Minority Member Subcommittee on Military
Personnel Committee on Armed Services House of Representatives
In fiscal year 2004, officials from the Department of Defense (DOD)
awarded contracts worth more than $200 billion for goods and services.
Federal ethics rules and standards have been put in place to help
safeguard the integrity of the procurement process by mitigating the risk
that DOD employees will use their position to influence the outcomes of
contract awards for future gain and that companies will exploit this
possibility.
Given the sizeable dollars at stake and the risks inherent in federal
contracting, you asked us to determine whether post-government employment
rules are ensuring the public trust. In response, we assessed
(1)
DOD's efforts to train and counsel its workforce to raise
awareness of the rules as well as DOD measures of the
effectiveness of these efforts and
(2)
DOD's knowledge of defense contractors' programs to promote
ethical standards of conduct. To satisfy our objectives, we met
with the designated agency ethics officials, their designee, or
ethics counselors in the Office of the Secretary of Defense, Air
Force, Army, Navy, and the Defense Contract Management Agency and
visited seven major defense contractors. Further details on the
scope and methodology of our review can be found in appendix I. We
conducted our review from April 2004 to March 2005 in accordance
with generally accepted government auditing standards.
Results in Brief
We did not address the effectiveness of the statutory provisions covering
post-government employment restrictions or the extent to which violations
have occurred.
Through its ethics program, DOD implemented ethics training and counseling
efforts aimed at educating its workforce to raise awareness of
conflict-of-interest and procurement integrity rules in order to prevent
misconduct. However, DOD lacks departmentwide knowledge of the content of
training and counseling, how often these services are provided, which
employees receive information on conflict-of-interest and procurement
integrity, and reported allegations of potential misconduct. Specifically,
ethics counselors were unable to tell us if people subject to procurement
integrity rules were trained. Ethics officials also did not know of 53
reported allegations of potential misconduct referred to inspectors
general offices. Without knowledge of training, counseling, and reported
allegations of misconduct, DOD is not positioned to assess the
effectiveness of its efforts. Aware of the increased public concern about
misconduct, DOD took several actions since October 2004 aimed at enhancing
its ethics program.
DOD regulations provide that its contractors should have written codes of
conduct, ethics training, and monitoring programs in place; however the
seven contractors we visited indicated that DOD, through its oversight
activities, did not monitor these contractors' recruiting, hiring, and
placement practices of current and former government employees. In fact, a
recent independent review of one of DOD's largest contractors found both
gaps in the company's procedures and a failure to follow written policy,
in certain cases. For example, the company relied excessively on employees
to self-monitor compliance with standards of conduct rules and in doing so
increased the risk of noncompliance, due to either employees' willful
misconduct or failure to understand complex ethics rules.
We are making three recommendations to the Secretary of Defense to take
actions in order to raise the level of confidence that DOD conducts
business with impartiality and integrity. Specifically, to improve DOD's
knowledge and oversight, DOD should regularly assess training and
counseling efforts for quality and content to ensure that individuals
covered by conflict-of-interest and procurement integrity rules receive
appropriate training, and DOD should ensure ethics officials track and
report on the status of alleged misconduct. We further recommend that DOD
assess, as appropriate, contractor ethics programs to facilitate awareness
and mitigation of risks in DOD contracting relationships. In
Background
commenting on a draft of this report, DOD concurred with two of our
recommendations and partially concurred with the third. DOD concurred with
our recommendations to regularly assess its training and counseling
efforts for quality and content and to assess, as appropriate, contractor
ethics programs. DOD partially concurred with our recommendation that
ethics officials, as required by the joint ethics regulation, track and
report on the status of alleged misconduct to the military services and
defense agencies head ethics officials. DOD also provided technical
comments, which we incorporated as appropriate. DOD's comments are
included in their entirety in appendix II.
Federal statutes and regulations collectively require agencies to
establish an ethics program intended to preserve and promote public
confidence in the integrity of federal officials through their
self-reporting of potential conflicts-of-interest (financial disclosure),
through knowledge of post-government employment restrictions (training),
and through independent investigations of alleged wrongdoing. 1 A key
objective of an ethics program is to provide a formal and systematic means
for agencies to prevent and detect ethics violations. The elements of a
comprehensive ethics program include (1) a written policy of standards of
ethical conduct and ethics guidance; (2) effective training and
dissemination of information on ethical standards, procedures, and
compliance;
(3) monitoring to ensure the ethics program is followed; (4) periodically
evaluating the effectiveness of the ethics program; and (5) levying
disciplinary measures for misconduct and for failing to take reasonable
steps to prevent or detect misconduct.
The joint ethics regulation 2 is DOD's written policy establishing its
ethics program. The ethics program emphasizes training and counseling to
raise awareness of standards of ethical behavior and to prevent
misconduct.
1
Agency ethics regulations reflecting government standards of conduct and
statutory restrictions are required by Executive Order 12674, Principles
of Ethical Conduct For Government Officers and Employees, April 12, 1989,
as modified by E.O. 12731, Principles of Ethical Conduct For Government
Officers and Employees, October 17, 1990. In addition to agency ethics
regulations, the Federal Acquisition Regulation includes specific guidance
concerning procurement integrity (FAR 3.104).
2
DOD's joint ethics regulation (DOD Regulation 5500.7-R) merges the federal
principles of ethical conduct and restrictions into a written, uniform
source of standards of ethical conduct and guidance for its workforce. Its
scope encompasses not only post government employment restrictions but
also other ethics matters such as gifts, financial disclosure
requirements, and political activities.
DOD's ethics training requirement includes educating employees about the
procedures to follow when considering employment outside of DOD and the
post-government employment restrictions that may apply and to inform
employees of the resources that are available to them to address ethics
questions and concerns. The training includes an initial briefing to
introduce employees to ethics regulations, such as conflict-of-interest
and procurement integrity rules, and exit briefings to discuss
restrictions that may apply once employees leave government service.
Additional ethics briefings are held for certain senior employees on an
annual basis. DOD's ethics counseling aims to address employee concerns
and questions as they arise. The training and counseling is also to raise
awareness so that DOD employees can recognize misconduct and report the
matter to ethics officials, inspectors general officials, the head of the
command or agency, criminal investigative offices, or any number of DOD
hotlines. Responsibility for recognizing and reporting potential
misconduct rests with all DOD employees. 3 Additionally, the joint ethics
regulation requires ethics officials to track and follow up on reports of
potential misconduct. Finally, the DOD regulation requires periodic
evaluations of local activities, which implement DOD's ethics program, to
ensure they meet standards.
Defense regulations provide that government contractors should have
standards of conduct and internal control systems to promote ethical
standards, facilitate timely discovery and disclosure of improper conduct
in connection with government contracts, and ensure corrective measures
are promptly implemented. 4 The regulations provide that contractors
should have a written code of business ethics and conduct, an ethics
training program for all employees, and to periodically review practices,
procedures, policies, and internal controls for compliance with standards
of conduct.
The federal government has a host of laws and regulations governing the
conduct of its employees and contractors. The Compilation of Federal
Ethics laws prepared by the United States Office of Government Ethics
includes nearly 100 pages of statutes alone. For the purposes of this
report, however, we note a few laws relevant to DOD officials whose
3
Post-government employment restriction violations may also be reported by
parties outside DOD such as contractors through DOD hotlines.
4
Defense Federal Acquisition Regulation Supplement, subpart 203.70,
Contractor Standards of Conduct.
Page 4 GAO-05-341 Defense Ethics Program
responsibilities involved participation in DOD's acquisition process. The
statutes are complex, and the brief summaries here are intended only to
provide context for the issues discussed in this report.
The principal restrictions concerning employment for federal employees
after leaving government service are found in 18 U.S.C. 207 and 41 U.S.C.
423 (procurement integrity). The title 18 provision generally prohibits
former federal employees and their supervisors from representing
nongovernment entities concerning matters they handled while working for
the federal government. Violation of the statute entails criminal
penalties. In contrast, the title 41 provision more narrowly applies to
contracting officials and also entails civil and administrative penalties.
The provision generally restricts employment with a contractor if the
official performed certain functions involving the contractor and a
contract valued in excess of $10,000,000. 5 The law, however, permits
employees to accept compensation "from any division or affiliate of a
contractor that does not produce the same or similar products or services"
that were produced under the contract. 6
There are also provisions related to post-government employment that are
applicable to federal employees' actions while still in federal service.
5
41 U.S.C. S: 423(d). The prohibition against accepting compensation from a
contractor applies to former officials who
(A)
served, at the time of selection of the contractor or the award of
a contract to the contractor, as the procuring contracting
officer, the source selection authority, a member of the source
selection evaluation board, or the chief of a financial or
technical evaluation team in a procurement in which that
contractor was selected for award of a contract in excess of
$10,000,000;
(B)
served as the program manager, deputy program manager, or
administrative contracting officer for a contract in excess of
$10,000,000 awarded to that contractor, or
(C)
personally made for the federal agency
(i)
a decision to award a contract, subcontract, modification of a
contract or subcontract, or a task order or delivery order in
excess of $10,000,000 to that contractor;
(ii)
a decision to establish overhead or other rates applicable to a
contract or contracts for that contractor that are valued in
excess of $10,000,000;
(iii) a decision to approve issuance of a contract payment or payments in
excess of $10,000,000 to that contractor; or
(iv) a decision to pay or settle a claim in excess of $10,000,000 with
that contractor.
6
41 U.S.C. S: 423(d)(2).
18 U.S.C. 208 prohibits government employees from participating in matters
in which they have a financial interest. The statute imposes criminal
penalties on federal employees who begin negotiating future employment
without first disqualifying themselves from any duties related to the
potential employer. In addition 41 U.S.C. 423(c) requires officials who
participate personally and substantially in a procurement exceeding
$100,000 to report promptly contacts by bidders or offerors regarding
future employment. 7 The official must either reject the possibility of
employment or disqualify himself or herself from further participation in
the procurement.
DOD's joint ethics regulation, administered by DOD's General Counsel,
requires DOD to provide training and counseling to educate employees
regarding applicable ethics laws and regulations. To implement its ethics
program, DOD relies on local ethics counselors within DOD's military
services and agencies to train and counsel employees on
conflict-of-interest and procurement integrity rules. Training is to raise
individual awareness and to enable DOD employees to recognize misconduct
and report any matter to appropriate officials. The joint ethics
regulation also requires ethics officials to track and follow up on
reports of misconduct. However, DOD lacks knowledge to evaluate the
ability of its training and counseling efforts to prevent misconduct and
ensure the public trust.
DOD Lacks Information to Evaluate Its Training and Counseling Efforts
Training and Counseling Results Are Not Measured
DOD has delegated responsibility for training and counseling to more than
2,000 ethics counselors assigned to commands and organizations worldwide.
These ethics counselors administer ethics training and briefings, provide
advice and counseling, and review employees' financial disclosure
documents 8 as outlined in the joint ethics regulation. At the 12 DOD
locations we visited we found training and counseling efforts varied in
the content of ethics information provided, who is required to attend
training and counseling, and how often the training and counseling is
provided. For example, some ethics counselors conduct extensive
7
41 U.S.C. S: 423(c)(1)(A).
8
Certain federal employees are required to file a financial disclosure
statement to satisfy federal conflict of interest laws. There are two
separate groups of federal officials required to file. Public financial
disclosure reports (SF-278) are filed by senior officials, such as
presidential appointees, general and flag officers (rank O-7 and above),
and senior executive service members. Confidential financial disclosure
reports (OGE form 450) are filed by certain other federal employees,
identified by the executive agency based on employees' roles and
responsibilities.
discussions about employees' plans upon separation at the exit briefing,
some provide written advice, and others distribute pamphlets summarizing
employment restrictions. Some ethics counselors have supplemented their
annual training because they do not believe that the minimum requirements
in the joint ethics regulation-an annual ethics briefing-are sufficient to
ensure employees understand employment restrictions both during and after
they leave government service. For example, a Navy ethics office offers
live, interactive ethics training to all personnel at its location
approximately three to four times a year.
DOD currently evaluates its ethics program's performance in terms of
process indicators-such as the number of financial disclosure forms
completed, the number of ethics counselors, and the amount of time spent
by ethics counselors on training and counseling services. According to DOD
officials, the information on the number of ethics counselors at each
location and the amount of time they spend with employees can provide
insight into the level of resources used. However, these process
indicators do not provide DOD knowledge of which employees are subject to
restrictions, which employees receive training and counseling, the quality
and content of training, and who is leaving DOD for employment with
contractors. For example, DOD does not know if the population critical to
the acquisition process, those employees covered by procurement integrity
restrictions, are trained. Further, many ethics counselors could not
provide evidence that employees received the annual ethics training.
Additionally, DOD does not know whether the training and counseling
includes all relevant conflict-of-interest and procurement integrity
rules. As shown in Table 1, we found that the ethics counselors we
interviewed did not consistently include information on the restrictions
provided for in 18 U.S.C. 207, 18 U.S.C. 208, and 41 U.S.C. 423 in their
annual ethics briefings for the past 3 years.
Table 1: Summary of Annual Ethics Training by Office
Procurement integrity Restrictions on Acts affecting
former personal
(41USC423) employees financial interest
(18USC207) (18USC208)
Year 1 2 3 1 2 3 1 2 3
Standards of Conduct 3 o o 3 o o 3 o 3
Office, OSD, DOD
Headquarters
Department of Air Force, 3 o o 3 o o 3 3 3
Pentagon
AFMC, Headquarters, 3 o 3 3 3 3 3 o 3
Wright-Patterson Air Force
Base a
AFMC, 88th Wing, o o o 3 o o 3 3 o
Wright-Patterson Air Force
Base b
AFMC, Electronic Systems 3 3 o 3 3 o 3 3 o
Command, Hanscom Air
Force Base
Department of Army o o o o o o 3 o o
Headquarters a
Department of Army o o o o o o 3 o o
Headquarters b
Department of Army 3 3 3 3 3 3 3 3 3
Headquarters c
AMC, Headquarters, Fort 3 o o 3 o o 3 o o
Belvoir, Va. a
AMC, Headquarters, Fort o o o o o o 3 o o
Belvoir, Va. b
AMC, Communications 3 3 3 3 3 3 3 3 3
Electronic Command, Fort
Monmouth, N.J. a
AMC, Communications 3 o o 3 o o 3 3 o
Electronic Command, Fort
Monmouth, N.J. b
Department of Navy, 3 o o 3 o o 3 o 3
Headquarters
NAVAIR Systems o 3 3 o o 3 3 3 3
Command, Headquarters,
Patuxent River, Md.
Procurement integrity Restrictions on Acts affecting
former personal
(41USC423) employees (18USC207) financial interest
(18USC208)
Year 1 2 3 1 2 3 1 2 3
NAVAIR Systems 3 o o 3 o o 3 o 3
Command, Naval Air
Warfare Center-Weapons
Division, China Lake,
Calif.
Defense Contract 3 o o 3 o o 3 o 3
Management Agency,
Headquarters
Defense Contract 3 o 3 3 o 3 3 3 o
Management Agency, East
Training and Counseling is to Facilitate Identification and Reporting of
Misconduct, but Alleged Misconduct Is Not Being Tracked
Source: DOD (data); GAO (analysis).
Notes: 3 Information included in annual ethics briefing.
o Information not included in the training materials, unable to determine
based on the training material provided, or unable to determine because
the training materials were not available.
aSF 278 filers are employees who complete the public financial disclosure
statements. SF 278 filers include senior officials, such as presidential
appointees, general and flag officers (rank O-7 and above), and senior
executive service members.
bOGE form 450 filers are employees who complete the confidential financial
disclosure statements. OGE form 450 filers are certain federal employees,
identified by each executive agency based on employees' roles and
responsibilities.
cA subset of SF 278 filers at Army headquarters who report directly to the
secretariat.
Training is to raise awareness of procurement integrity and
conflict-of-interest rules so DOD employees are able to recognize
misconduct and report matters to appropriate officials. Ethics counselors
are required to
(1) review the facts of an allegation of misconduct and report the
allegation to appropriate investigative organizations or the head of the
DOD command of the suspected violator and the appropriate contracting
officer, if applicable; (2) follow-up with the investigative office until
a final determination is made on the allegation; and (3) periodically
report on the status of the allegation of misconduct to the military
service and defense agencies head ethics official. However, when we asked
the ethics officials for information on allegations of misconduct and the
status of investigations, they were not tracking or following-up on the
status of alleged misconduct cases. For information on reported
allegations of potential misconduct the ethics officials referred us to
the inspectors general offices. According to inspectors general officials,
DOD has not made an attempt to determine the extent that potential
misconduct in terms of conflict-of-interest and procurement integrity is
reported. The information on reports of potential misconduct is maintained
in various files and databases by multiple offices. As a result, DOD has
not
Ongoing Actions to Prevent Misconduct
determined if reports of potential misconduct are increasing or decreasing
and why such a change may be occurring. DOD Inspector General's hotline
official told us that anecdotal evidence indicates post-government
employment misconduct is a problem, but DOD has no basis for assessing the
severity.
At the locations we visited, we obtained information from the inspector
general officials demonstrating at least 53 cases of potential misconduct
reported in the last 5 years. However, ethics officials at the Office of
Secretary of Defense and the military headquarters we spoke with were not
tracking the status of the reports of potential misconduct. Lacking this
knowledge DOD has no assurance that ethics-related laws and regulations
are properly followed and that appropriate administrative or disciplinary
action is taken. Also, the information on potential misconduct can help
DOD understand the extent of the problem and the risk such behavior poses.
Concerned about the effectiveness of its efforts to minimize misconduct
and prevent violations of conflict-of-interest and procurement integrity
rules, DOD has taken actions aimed at enhancing its ethics program. In
October 2004, the Deputy Secretary of Defense required (1) personnel who
file public financial disclosure reports to certify that they are aware of
and have not violated employment restrictions, (2) DOD components to
include training on employment restrictions in annual ethics briefings to
financial disclosure filers, and (3) DOD components to provide guidance on
employment restrictions to all personnel leaving government service. While
this directive clarifies the content required in DOD's training and
counseling, no provisions were made to provide knowledge about whether the
policy is implemented. Therefore, it is unclear at this time the extent
that the actions called for in the directive will improve DOD's effort to
prevent violations of post-government employment restrictions.
In November 2004, the acting Undersecretary of Defense asked the Defense
Science Board to establish a task force to assess whether DOD has adequate
management and oversight processes to ensure the integrity of acquisition
decisions. The task force report was due January 31, 2005, and is expected
to recommend options for improving checks and balances to protect the
integrity of procurement decisions. Currently, the Defense Science Board
is briefing preliminary findings to senior DOD officials and Congress.
DOD Needs More Knowledge of Government Contractors' Standards of Conduct
Efforts
Acknowledging the risk to the acquisition process the United States
Attorney for the Eastern District of Virginia announced, in February 2005,
the creation of a procurement fraud working group to increase prevention
and prosecution of fraud in the federal procurement process. This working
group will facilitate the exchange of information among participating
agencies, including DOD, and assist them in developing new strategies to
prevent and to promote early detection of procurement fraud. Among the
ideas and initiatives to be undertaken by the working group are efforts to
detect ethics violations and conflicts of interest by current and former
agency officials.
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. However,
DOD cannot identify nor take action to mitigate risks because it lacks
knowledge of its contractors' efforts to promote ethical standards.
Recently a major defense contractor chartered an independent review of its
hiring processes of current and former government employees. This review
found both gaps in the company's procedures and a failure to follow
written policy, in some cases. Weaknesses in the contractor's policies,
procedures, and structure were identified, and recommendations were made
for actions to be taken to mitigate risks.
DOD Does Not Have Adequate Knowledge of Its Contractors' Policies and
Practices for Hiring Former and Current DOD Employees
Defense regulations provide that government contractors must conduct
themselves with the highest degree of integrity and honesty. Specifically,
defense regulations provide that contractors should have (1) a written
code of ethical conduct; (2) ethics training for all employees; (3)
periodic reviews of its compliance with its code of ethical conduct; (4)
systems to detect improper conduct in connection with government
contracts; and
(5) processes to ensure corrective actions are taken. 9 The seven
contractors we visited indicated that DOD had not discussed or reviewed
their practices for hiring current and former government employees.
9
Defense Federal Acquisition Regulation Supplement, subpart 203.70,
Contractor Standards of Conduct. While this regulation provides that
contractors should have such elements, they are not required to.
Page 11 GAO-05-341 Defense Ethics Program
Independent Review of Defense Contractor Finds Weaknesses in Controls for
Managing Former Government Employees
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. 10 DOD's
lack of knowledge of the contractors' hiring practices and policies
prevents DOD from being assured that effective controls are in place to
address the risks posed by contractors.
In February 2004, a major defense contractor hired an outside entity to
conduct an independent evaluation of its hiring policies and practices.
This review found that the company relied excessively on employees to
self-monitor their compliance with post-government employment
restrictions. The review concluded that by relying on employees to monitor
their own behavior, the company increased the risk of noncompliance, due
to either employees' willful misconduct or failure to understand complex
ethics rules. The independent evaluation of the company's hiring policies
and practices illustrates an opportunity for DOD to leverage knowledge of
contractors' practices to identify and mitigate risks.
In general, the review identified lack of management controls as a
weakness in the company's ethics program. Specifically, the review found
the company lacked (1) a single focal point for managing its hiring
process; (2) centralized management of its hiring process, which made it
difficult to implement consistent procedures and effectively monitor
efforts; (3) consistent maintenance of pre-hire records; (4) internal
audits of its process for hiring former government employees; and (5)
sufficient emphasis from senior company management to the ethics program
in general and the training program in particular, among other things. As
a result of these weaknesses, the company did not know whether employees
were following its written policies and procedures addressing
post-government employment restrictions.
Some contractors we spoke with stated that they used the lessons learned
from the company's independent review to assess their own policies for
10
Defense Contract Management Agency's review includes assessments of
contractor performance measurements; Defense Contract Audit Agency audits
include financial and internal control systems of contractors.
Page 12 GAO-05-341 Defense Ethics Program
Conclusion
recruiting, hiring, and assigning of current and former government
employees to ensure they are complying with ethical standards. For
example, some of the contractors are reviewing company personnel files to
identify employees trained as well as former government employees hired.
Some contractors were in the process of identifying methods to ensure that
information on the hiring and training of former government employees is
readily available, such as corporate personnel systems that will provide
electronic files to allow the contractor to identify employees with prior
DOD experience including contracts on which they worked as well as monitor
employees' post-government career path. Similarly, knowledge of conditions
at the company and at other contractors could provide DOD with information
to better identify and understand risks to its acquisition process.
In an environment where the risk of ethical misconduct can be costly, DOD
is missing opportunities to raise the level of confidence that its
safeguards protect the public trust. Better knowledge of training and
counseling efforts is essential to ensuring that the large numbers of
employees who leave DOD for contractors each year are aware of and abide
by conflict-of-interest and procurement integrity rules. Finally, enhanced
awareness of contractor programs would enable DOD to assess whether the
public trust is protected.
We are making three recommendations to the Secretary of Defense to take
Recommendations
actions to improve DOD's knowledge and oversight of its ethics program and
contractors' ethics programs to raise the level of confidence that DOD's
business is conducted with impartiality and integrity:
o Regularly assess training and counseling efforts for quality and
content, to ensure that individuals covered by conflict-of-interest
and procurement integrity rules receive training and counseling that
meet standards promulgated by DOD Standards of Conduct Office.
o Ensure ethics officials, as required by the joint ethics regulation,
track and report on the status of alleged misconduct to the military
services and defense agencies head ethics officials.
o Assess, as appropriate, contractor ethics programs in order to
facilitate awareness and mitigation of risks in DOD contracting
relationships.
Agency Comments
DOD provided written comments on a draft of this report. DOD concurred
with two of our recommendations and partially concurred with the third.
DOD concurred with our recommendation to regularly assess training and
counseling efforts for quality and content, and stated that it currently
assesses and will continue to assess agencies' training and counseling
efforts to ensure that personnel required to receive such training do so
in accordance with applicable standards. As discussed in this report, DOD
currently assesses its ethics program's performance in terms of process
indicators-for example, number of financial disclosure forms completed,
the number of ethics counselors, and the amount of time spent by ethics
counselors on training and counseling. However, as DOD moves forward, its
assessments should also provide DOD knowledge of which employees are
subject to restrictions, which employees receive training and counseling,
and the quality and content of training to ensure its ethics program
achieves the goal of raising awareness of conflict-of-interest and
procurement integrity rules in order to prevent ethical misconduct.
DOD concurred with our recommendation that DOD assess, as appropriate,
contractor ethics programs, and stated that it intends to call upon
companies throughout the defense industry to reexamine their ethics
programs and share best practices. DOD also stated that the recommendation
is currently implemented when contracting officers make, prior to awarding
a contract, an affirmative determination of responsibility, which includes
consideration of the potential contractor's business practices and the
potential contractor's integrity. We believe assessments of contractor
ethics programs would enhance contracting officers' ability to make such
determinations. Knowledge about contractors' policies and practices for
hiring former and current DOD employees would provide DOD more assurance
that effective controls are in place to address the risks posed by
potential violations of post government employment restrictions. As recent
GAO bid protest decisions illustrate, lapses in ethical behavior can have
significant consequences.
DOD partially concurred with our recommendation that the Secretary of
Defense ensure that ethics officials, as required by the joint ethics
regulation, track and report on the status of alleged misconduct to the
military services and defense agencies head ethics officials. DOD stated
that responsibility for tracking and reporting on the status of alleged
misconduct resides with Departmental and federal law enforcement agencies,
rather than ethics officials. While we agree that responsibility for
enforcement should not reside with ethics officials, we believe senior DOD
ethics officials should be knowledgeable concerning the scope and extent
of ethics violations within the Department. Tracking alleged misconduct
cases would provide senior DOD ethics officials knowledge about whether
ethics-related laws and regulations are properly followed and that
appropriate administrative or disciplinary action is taken. Also,
information on alleged misconduct can position DOD to assess the
effectiveness of its training and counseling efforts and understand the
extent of the problem and the risk such behavior poses. As DOD revises its
Joint Ethics Regulation, it should ensure its reporting structure provides
for relaying misconduct information to senior DOD ethics officials.
Finally, DOD expressed concern that our report may be misinterpreted
because it does not accurately capture the full extent of DOD programs. We
recognize that the Department's programs are broader than reflected in our
report. Our report identifies opportunities to improve (1) DOD's efforts
to train and counsel its workforce to raise awareness of ethics rules and
standards as well as DOD measures of the effectiveness of these efforts
and (2) DOD's knowledge of defense contractors' programs to promote
ethical standards of conduct. Notwithstanding its concerns, however, we
note that DOD agreed that our report identifies opportunities to
strengthen safeguards for procurement integrity.
DOD's comments are included in appendix II.
We are sending copies of this report to the Secretary of Defense and
interested congressional committees. We will provide copies to others on
request. This report will also be available at no charge on GAO's Web site
at http://www.gao.gov.
If you have any questions about this report or need additional information
please contact me at (202) 512-4125 or Blake Ainsworth, Assistant
Director, at (202)512-4609. Other major contributors to this report were
Penny Berrier, Kate Bittinger, Anne McDonough-Hughes, Holly Reil, and
Karen Sloan.
David E. Cooper, Director Acquisition and Sourcing Management
Appendix I: Scope and Methodology
To address DOD's oversight of its agencies' implementation of ethics
regulations we compared DOD's practices to established management
guidelines. We did not determine the effectiveness of post-government
employment legal restrictions or the extent to which violations of these
restrictions may be occurring.
In assessing DOD oversight of its programs, we used the Standards for
Internal Control in the Federal Government, 1 Internal Control Management
and Evaluation Tool, 2 Office of Management and Budget Circular A-123
regarding management accountability and control, and the United States
Sentencing Commission Guidelines Manual. We applied the management control
framework to DOD and DOD component ethics programs.
To assess DOD's efforts to train and counsel its workforce to raise
awareness and DOD measures of the effectiveness of these efforts, we met
with the designated agency ethics official, their designee or ethics
counselors in the Office of the Secretary of Defense, Air Force, Army,
Navy, Defense Contract Management Agency. In addition to headquarters
offices, we selected locations that according to the Federal Procurement
Database System and DOD officials spent a large amount of money on
acquisitions. Specifically, we met with officials from: (1) Standards of
Conduct Office, General Counsel, Office of the Secretary of Defense;
(2)
General Counsel-Ethics and Personnel Office, Defense Contract
Management Agency; (3) Associate Counsel-Ethics and Personnel,
Eastern Region, Defense Contract Management Agency, (4) Ethics
Office and Associate General Counsel (Fiscal & Administrative
Law), Air Force;
(5)
Air Force Materiel Command, Wright Patterson Air Force Base, Air
Force; (6) Electronic Systems Center, Hanscom Air Force Base, Air
Force,
(7)
Deputy General Counsel (Ethics & Fiscal) and Standards of Conduct
Office, Army; (8) Army Materiel Command, Fort Belvoir, Army;
(9)
Communications-Electronics Command Fort Monmouth, Army;
(10)
Office of General Counsel, Navy; and (11) Naval Air Systems
Command, Patuxent River, Navy, (12) Naval Air Warfare Center
Weapons Division, China Lake, Navy. We met with five
contracting/acquisition offices and nine investigative offices at
these locations.
1
GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
2
GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G
(Washington, D.C.: August 2001).
Page 17 GAO-05-341 Defense Ethics Program Appendix I: Scope and
Methodology
To assess DOD's knowledge of defense contractors' programs to promote
ethical standards of conduct, we interviewed seven defense contractors
about their ethics programs and hiring practices of former government
employees. Six of the contractors are ranked in the top 10 of defense
contractors based on DOD spending in fiscal year 2003. The seventh is a
contractor that was in the top 100 of defense contractors based on DOD
spending. We attended the annual Defense Industry Initiative Annual Best
Practices Forum, 2004. In addition, we reviewed a report to the chairman
and board of directors of one major defense contractor responding to
concerns about the company's policies and practices for the hiring of
government and former government employees.
As part of these efforts, we reviewed relevant Federal ethics laws, the
Federal Acquisition Regulation, Defense Federal Acquisition Regulation,
DOD policies, directives and guidance governing conflict of interest and
procurement integrity rules. We supplemented the DOD and DOD component
ethics program information we collected by interviewing officials from the
Office of Government Ethics, Department of Justice, Army Contracting
Agency, Defense Acquisition Regulations Council, Office of Secretary of
Defense Acquisition, Technology, and Logistics Office, World Policy
Institute, and the American Federation of Government Employees. We also
attended the 26th Annual Council of Governmental Ethics Laws Conference,
2004.
We conducted our review from April 2004 to March 2005 in accordance with
generally accepted government auditing standards.
Appendix II: Comments from Department of Defense
Appendix II: Comments from Department of Defense
Appendix II: Comments from Department of Defense
Appendix II: Comments from Department of Defense
Appendix II: Comments from Department of Defense
(120336)
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