Tuesday, April 7, 2015

Boeing Employee Charged With Accepting Kickbacks

Well, we suppose that if it can happen at Boeing, it can happen anywhere.

Boeing has long been known for its exceptional Code of Conduct, not only in the words but in the implementation - setting the proper tone at the top, ensuring that all employees are routinely and frequently trained and reminded of ethical conduct, and even certifying each year that they have read and understood the code. A code of ethical conduct is integral to all internal control systems including accounting, billing, estimating, and purchasing (to name some that the Government is interested in). And the Government has reviewed these internal control systems and found them adequate ("Adequate" is the best a contractor can hope for - systems are either adequate or not adequate).

The Boeing code of conduct includes provisions such as "In conducting its business, integrity must underlie all company relationships, including those with customers, suppliers, communities and among employees." Or, how about this one; "Employees will not engage in conduct or activity that may raise questions as to the company's honesty, impartiality, reputation or otherwise cause embarrassment to the company." Employees certify annually that they will not take advantage of their Boeing position to seek personal gain through the inappropriate use of Boeing or non-public information or abuse their position.

Regarding procurement practices, Boeing likes to think that all procurement actions are based on conformance with all applicable laws, regulations and contractual obligations and all suppliers and their representatives are treated fairly and impartially. Boeing stresses the importance of competitive bidding as a good business practice and considers ability, capacity, integrity, financial status, etc in evaluating a potential supplier before and during a purchase contract.

Boeing's program of ethical conduct must be working pretty well. The Department of Justice just announced that a Boeing employee has been charged with receiving hundreds of thousands of dollars in kickbacks from suppliers in exchange for steering contracts their way (yeah, we know, the guy has only been charged and he's innocent until proven guilty but every one knows the guy's a crook - four people that paid the guy off have already plead guilty). Boeing said it discovered the scheme after receiving a tip from its internal ethics program. It launched its own investigation and later alerted the Government that it suspected the employee was receiving kickbacks. The Government investigated and sure enough, the employee was receiving kickbacks. This is a strong testimony for the effectiveness of internal hot line systems.

At the center of the scheme was a subcontractor to Boeing that specializes in machining, welding and producing sheet metal. In a classic "pay to play" scheme, the subcontractor paid kickbacks to the Boeing buyer in exchange for confidential information  that gave the subcontractor an improper advantage in bidding and ensure that it would receive a contract from Boeing.

The subcontractor evidently specialized in poor quality  because Boeing fired them for poor quality and poor performance. That didn't really stop anyone - they just brought in a "front" company to take over the work. The principles remained the same. In the end, the subcontractor got $4.5 million worth of work from Boeing in exchange for $750 thousand in kickbacks.

You can read DoJ's press release here.

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