Tuesday, June 16, 2015

Do You Allow Employees to Carry On Side Businesses?

Do you allow your employees to carry on side businesses or moonlight with another company? Some companies specifically prohibit such activity, some allow it, while most do not have a position one way or another. Side businesses can and have run afoul of ethics violations. We recall one instance where a DoD contract auditor was caught advising her husband's company on proposal preparation and indirect rate development for a DoD contract. She didn't last long in her position. A recent Department of Justice press release illustrates another potential problem when it comes to employees doing a little business on the side.

The case involved a State Department contracting officer's representative (Chandler) and a contractor employee (Halsey). Halsey had a little business going on the side, selling nutritional supplements (a multi-level marketing company) to other contractor employees under his supervision. The sweet part of this deal was that the employees were reimbursed for their purchases by their employer, the State Department contractor. Halsey then conspired with Chandler (the State Department employee) to approve the billings that contained the reimbursements.

Before this scheme was disrupted, reimbursements totaling $170 thousand had been billed to the State Department and reimbursed to the contractor. For his part, Halsey earned more than $25 thousand in commissions. The State Department guy (Chandler) knew that Halsey was personally profiting but approved the billings anyway. There was no mention in the press release whether Chandler profited but he did plead guilty to charges of conspiracy to commit wire fraud and a conflict of interest related to his conduct as a State Department employee.

There was also another side to this story. The president of the contractor learned about the scheme and tried to cover it up. He know that he had a responsibility under the Federal Acquisition Regulations to timely disclose to the Government, credible evidence of fraud, but failed to do so. For his failure, he now faces a maximum penalty of five years in prison, if convicted. That will never happen, of course. He will probably face a nominal fine.

If you have credible evidence that fraud is going on in your organization, you have an affirmative duty to disclose it to the Government.

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