What’s ethical about “business ethics”?

1. What’s ethical about “business ethics”? Alan Rither, Esq. CPCM & Fellow, NCMA

2. eth·ics/ˈɛθɪks/ [eth-iks] plural noun 1. (used with a singular or plural verb) a system of moral principles: the ethics of a culture. 2. the rules of conduct recognized in respect to a particular class of human actions or a particular group, culture, etc.: medical ethics; Christian ethics. 3. moral principles, as of an individual: “His ethics forbade betrayal of a confidence.” 4. (usually used with a singular verb) that branch of philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions. What’s the answer to that question? [source: Dictionary.Com]

3. "Business Ethics" can be defined as the critical, structured examination of how people & institutions should behave in the world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self-interest, or (for firms) profits, when the actions of individuals or firms affects others. How about “Business ethics”?

4. Everyone’s got ethics = some folks just got a few better than others Ethics is nothing more than expected behavior = norms What’s right for you is wrong for me = situational ethics “Corporation (noun) An ingenious device for obtaining profit without individual responsibility.” Ambrose Bierce, 1842-1914 American Columnist and writer; The Devil’s Dictionary Common opinions about ethics

5. “Success without Compromise” [from the course description] This introductory ethics course was created specifically for IMA members but applies to anyone working within finance and accounting. It details the history of ethics at IMA and the development of the IMA Statement of Ethical Professional Practice. Each overarching principle listed on the Statement is reviewed, emphasizing the importance of maintaining good ethical behavior when documenting information, communicating information, and makingrecommendations. The Standards of Credibility, Confidentiality, Competence, and Integrity guide users through a video case study of a real-life ethical dilemma. The steps for resolving an ethical dilemma provide the details for facing ethical conflicts in order to make good decisions. This course meets the annual ethics CPE requirement for CMAs and CFMs. IMA has some excellent training

6. In applying the Standards of Ethical Professional Practice, you may encounter problems identifying unethical behavior or resolving an ethical conflict. When faced with ethical issues, you should follow your organization's established policies on the resolution of such conflict. If these policies do not resolve the ethical conflict, you should consider the following courses of action: 1. Discussthe issue with your immediate supervisor except when it appears that the supervisor is involved. In that case, present the issue to the next level. If you cannot achieve a satisfactory resolution, submit the issue to the next management level. If your immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners. Contact with levels above the immediate superior should be initiated only with your superior's knowledge, assuming he or she is not involved. Communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate, unless you believe there is a clear violation of the law. Resolution of Ethical Conflicts

7. 2. Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics Counselor or other impartial advisor to obtain a better understanding of possible courses of action. 3. Consult your own attorney as to legal obligations and rights concerning the ethical conflict. Resolution [continued]

8. What’s hard about learning ethics?

9. Does it matter, anyway?

10. Policy at FAR 3.1002 applies to all contractors and subcontractors at every level Clause at FAR 52.203-13 is mandatory if the value of the contract is expected to exceed $5,000,000 and the performance period is 120 days or more. Subcontractor violations that result in a false claim, if paid by you because of reckless disregard, etc. become yourfalse claim too. It looks simple, but there are a number of unresolved issues like what is “credible evidence,” how long can you investigate, and who is a “principal” of the company. Confusion does not necessarily work to your advantage. FAR Part 3.10 – Ethics program

11. What is the dollar threshold for application of the FAR 3.10 ethics program? What constitutes “credible evidence”? 1 Minute review

12. Are you Trying to blend in with the crowd?

13. Contract Clause flowdown • FAR 52.203-13 Contractor Code of Business Ethics and Conduct in relevant subcontracts • Within 30 days of contract award contractors must have: • Written code of business ethics & conduct • Make a copy available to each employee engaged in performance of the contract • Exercise due diligence to prevent and detect criminal conduct • Timely disclosure to the Inspector General with copy to the C.O. whenever you have “credible evidence” that a “principal,” employee, agent or subcontractor has violated: • Federal criminal laws – fraud, COI, bribery or gratuity • False Claims Act Requirements of the Code

14. Violations of which laws require that you report them to the IG if committed by a “principal” of the company? 1 Minute Review

15. It’s the right thing to do. Loss of public support / adverse publicity Impact on customers / clients “A penny saved is a penny earned” B. Franklin Government investigations lead to indictments Potential penalties far outweigh any benefit from a second-rate system Good policies require good practices Reasons for business ethics

16. “Management is doing things right; leadership is doing the right things.” Peter Drucker Management or Leadership?

17. “I am more afraid of an army of 100 sheep led by a lion than an army of 100 lions led by a sheep.” — Talleyrand, French diplomat (1754-1838) Leadership is the key to success

18. “Personal leadership is the process of keeping your vision and values before you and aligning your life to be congruent with them.” Stephen Covey, author Living an ethical life in business

19. Leadership down the wrong path

20. …and it goes downhill from there

21. “Men can’t escape from being governed. They either must govern themselves or they must submit to being governed by others. If from lawlessness or fickleness, from folly or self-indulgence, they refuse to govern themselves, then most assuredly in the end they will have to be governed by the outside.” Theodore Roosevelt Governance is the key

22. “Think about when corporate risk management endeavors reached their peak intensity level: after Enron, WorldCom, Sarbanes-Oxley and after the global economic crisis.  We batten down the hatches, slash R&D investments, command our organizational goalkeepers to step up their enforcement of the rules and hunker down until the risk passes.  We falsely regard this as building for ‘resiliency’. Once the threat fades, our companies loosen the purse strings, relax all those restrictive rules and command rainmakers and innovators to do whatever it takes to achieve growth.  This is what we call ‘growth mode’.” Mere “compliance” won’t do

23. “Getting compliance by doing compliance has been a false choice. To truly get compliance, we need to do governance, culture and leadership in a systematic and comprehensive way.  The good news is that we can.” From DovSeidman, Leadership blog, 5/04/2012 http://www.forbes.com/sites/dovseidman/2012/05/04/why-ceos-shouldnt-do-compliance/2/ His conclusion

24. So, let’s talk about compliance 

25. TINA – the Truth in Negotiation Act • FCA – the False Claims Act • FERA – the Fraud Enforcement and Recovery Act • FCPA – the Foreign Corrupt Practices Act • AKA – the Anti-Kickback Act • LDA – the Lobbying Disclosure Act • CDA – the Contract Disputes Act and • SOX – the Sarbanes-Oxley Act A few Business Ethics Laws

26. Requires government contractors to submit cost or pricing data and to certify that such data is accurate, current and completeas of the date of final agreement on price, commonly referred to as the “handshake.” Cost or pricing information or data includes all facts that prudent buyers and sellers would reasonably expect to affect price negotiations significantly. Cost or pricing data are factual, not judgmental, and are verifiable. Truth in negotiations act

27. What three characteristics of cost or pricing data are required by TINA? “Cost or pricing data are __________, not ______________ and are _________________.” 1 Minute Review

28. Applies to contracts over $700,000 except if: Adequate price competition exists The price is set by law or regulation The acquisition is for a commercial item The head of the contracting activity for the government agency grants a waiver. TINA – threshold and exemptions

29. Don’t accuse us of being unrealistic

30. Civil and criminal liability for: • Knowinglypresenting or causing to be presented to an officer or employee of the U.S. Government, a false or fraudulent claim for payment or approval • Knowingly using falserecords or statements to get a false claim paid • Specific intent to defraud not required, but needs: • Actual knowledge of falsehood of information, or • Deliberate ignorance of truth/falsity of information, or • Reckless disregard of truth or falsity of information • Does not apply to good faith contract dispute False claims act – 31 U.S.C. § 3729

31. Deliberate underbidding hoping to “make it up” on change orders (Daewoo) Invoices for nonconforming & defective work Requests for (in)-equitable adjustment Progress payments outside of schedule Carelessly prepared invoices Pass-through claims of lower tier suppliers and subcontractors Common mistakes violating the FCA

32. Give some examples of common mistakes involving the False Claims Act 1 minute review

33. A private party (a/k/a “whistleblower”) may bring a private action to enforce the FCA under §3730 if the Justice Department decides not to do so. • If the Government proceeds with an action brought by a “relator”, they receive ≥ 15% but ≤ 25% of the proceeds of the action or settlement of the claim. • If the Government chooses not to proceed, the person bringing the action or settling the claim receives an amount which the court decides is reasonable for collecting the civil penalty and damages ≥ 25% but not more than 30%. Qui tam enforcement

34. Whistleblowers aren’t Appreciated

35. Fraud Enforcement and Recovery Act of 2009 ("FERA") made enforcement easier so now: • Submitting for payment or reimbursement a claim known to be false or fraudulent • Making or using a false record or statement material toa false or fraudulent claim or to an ‘obligation’ to pay money to the government • Engaging in a conspiracy to defraud by the improper submission of a false claim • Concealing, improperly avoiding or decreasing an ‘obligation’ to pay money to the government Fraud enforcement & recovery act

36. lawyers are available to teach ethics

37. A federal law that prohibits U.S. organizations, directly or through others (such as foreign representatives, consultants or business partners) from… • Giving or offering any payment, gift, bribe, or “anything else of value” to a foreign official • For the purpose of influencing an official act or failure to act, or inducing the foreign government official or party to use influence to affect the decision of a foreign government or agency. the Foreign Corrupt Practices Act

38. As business, including government contracting, becomes more global, the interactions with foreign officials increase FCPA jurisdiction is very broad – applies to acts taken wholly outside the US if a US concern commits the act The term “foreign official” has been interpreted very broadly, to include low-level employees of state-owned foreign entities Therefore, all interactions with foreign governments must be closely scrutinized FCPA issues

39. Is there a dollar threshold applicable to the Foreign Corrupt Practices act violations? Give some examples of who can be considered a “foreign official” for purposes of the FCPA 1 Minute Review

40. Legislation aimed at bringing a level of accountability to federal lobbying practices. It was amended substantially by the Honest Leadership and Open Government Act of 2007. The Byrd Amendment prohibits the use of appropriated funds by recipients of a Federal contract for purposes of influencing or attempting to influence federal officials in connection with a Federal action, such as the awarding of a Federal contract. The Act prohibits contractors from using appropriated funds for lobbying in connection with a contract, grant, loan or cooperative agreement with a Federal agency. Lobbying disclosure act

41. Claims by the contractor against the Government must be submitted in writing to the CO for a decision.All claims by the Government against the contractor must be the subject of a decision by the CO. Except for alleged fraud in connection with a claim by the contractor, all claims by either party must be submitted within six years after the claim accrues. (like a statute of limitations) • Claims by the contractor that exceed $100,000 must be accompanied by a certification that • (i) the claim is made in good faith, • (ii) the supporting data are accurate and complete to the best of the contractor's knowledge and belief, • (iii) the amount requested represents the contract adjustment for which the contractor believes the Government is liable, and • (iv) the certifier is authorized to submit the certification on behalf of the contractor Contract Disputes Act

42. The Contract Disputes Act has something like a statute of limitations on claims, what is it? Claims above $__________ must contain a certification Give examples of what the certification must contain 1 Minute Review

43. Trying to do it all

44. Recent trend shows increasing importance • COI: A situation in which an individual who has authority to make or influence a procurement decision may have past, present, or currently planned personal, business or other interests with a vendor or competitor in the subject procurement other than those of the employer • Both individual and corporate responsibility Conflicts of interest

46. Do not solicit, directly or indirectly, any offer or promise of future employment or business opportunity, or engage in any discussion of future employment or business opportunity with any contractor or prospective seller while participating in the evaluation of proposals. Do not accept outside employment which will interfere with contract work, or create or appear to create a conflict of interest. Avoid even the appearance of COI

47. Avoiding a COI requires, among other things, that you do not ________ any offer or promise of __________ employment 1 Minute Review

48. Prohibits those involved in government contracting from offering, accepting, or attempting to accept inducements for favorable treatment in awarding contracts for materials, equipment, or services of any kind. What is a kickback? Any money, gift, gratuity, thing of value, or any other form of compensation which is provided for the intended purposeof obtaining a contract or favorable treatment under a contract. Anti-Kickback act of 1986

49. The key to whether something is a kickback is the __________ purpose. 1 Minute Review

50. Don’t we already know this stuff?