Reducing Fines for Contract Fraud

We discuss fraud, waste, and abuse here on this blog quite a bit as well as the ensuing investigations and punishments. Most of the time, when fraud involves a contractor without a specific tie in to an individual, there is a fine imposed. The determination of the amount of the fine is rarely given although it is almost always significantly less than the maximum fine for the criminal or civil crime.

There are guidelines that allow for credit in the calculation of a fine if the organization has in place an effective program to detect and prevent violations of law. Such a program must be one that is reasonably designed, implemented, and enforced so that it generally will be effective in preventing and detecting criminal conduct. A contractor must use due diligence in seeking to prevent and detect criminal conduct by its employees.

A contractor must take at least seven minimum steps to meet the requirement of due diligence:

1. Implement policies defining standards and procedures to be followed by the organization's agents and employees
2. Assign specific high-level personnel ultimate responsibility to ensure compliance
3. Use due care not to delegate significant discretionary authority to persons whom the organization knows or should have known had a propensity to engage in illegal activities.
4. Communicate standards and procedures to all agents and employees and require participation in training programs
5. Take reasonable steps to achieve compliance (e.g. by the use of monitoring and auditing systems and by hiving and publicizing a reporting system where employees can refer criminal conduct without fear of retributyion - hotline or ombudsman program.)
6. Consistently enforce standards through appropriate discipline ranging from reprimand to dismissal
7. After detection of an offence, the organization must take all reasonable steps to respond appropriately to the offense and to prevent further similar offenses, including modifying its program and appropriate discipline for the individuals responsible for the offense and for those who failed to detect it.

Fraud, waste, and abuse will always be with us. No system of detecting and preventing it will be perfect. But if a contractor exercises due diligence in prevention and detection activities as enumerated above, it stands a good chance of reduced fines should fraud, waste, and/or abuse come calling.