Internal Control Policy, Ethics and Audits for Government Contractors

As a government contractor, you should be aware that are required to have certain internal policies in place at all times. Failure to adhere to this requirement can lead to suspension or debarment. Contract performance is more than just merely getting the work done. You also have to comply with all clauses that are incorporated into the contract itself.

Internal control policy, ethics and audits for government contractors is now a common review item for agencies.

  • The government does have a right to inspect for such internal control policy
  • Contractors are not immune from such an inquiry.

FAR Language About Internal Control Policy, Ethics and Audits for Government Contractors

Under FAR 3.1

  • Government contractors must conduct themselves with the highest degree of integrity and honesty.
  • Contractors should have a written code of business ethics and conduct. To promote compliance with such code of business ethics and conduct, contractors should have an employee business ethics and compliance training program and an internal control policy system that—
    • Are suitable to the size of the company and extent of its involvement in Government contracting;
    • Facilitate timely discovery and disclosure of improper conduct in connection with Government contracts; and
    • Ensure corrective measures are promptly instituted and carried out.

FAR 3.1003  also states that: A contractor may be suspended and/or debarred for knowing failure by a principal to timely disclose to the Government, in connection with the award, performance, or closeout of a Government contract performed by the contractor or a subcontract awarded there under, credible evidence of a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code or a violation of the civil False Claims Act.

Knowing failure to timely disclose credible evidence of any of the above violations remains a cause for suspension and/or debarment until 3 years after final payment on a contract (see 9.406-2(b)(1)(vi) and 9.407-2(a)(8)).

(3) The Payment clauses at FAR 52.212-4(i)(5), 52.232-25(d), 52.232-26(c), and 52.232-27(l) require that, if the contractor becomes aware that the Government has overpaid on a contract financing or invoice payment, the contractor shall remit the over-payment amount to the Government.

A contractor may be suspended and/or debarred for knowing failure by a principal to timely disclose credible evidence of a significant overpayment, other than overpayments resulting from contract financing payments as defined in 32.001(see 9.406-2(b)(1)(vi) and 9.407-2(a)(8)).

(b) Notification of possible contractor violation. If the contracting officer is notified of possible contractor violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 U.S.C.; or a violation of the civil False Claims Act, the contracting officer shall—

(1) Coordinate the matter with the agency Office of the Inspector General

These are all cites to improve upon your requirement to have these internal audit policy and internal control policies in place.

As a government contractor your internal control policy should include finance, operations, and administration.  For performance-based contracts, the government holds you to compliance with your own quality control procedures. Therefore, you always keep them updated and realistic. Have a government contracts compliance attorney to help you get up to speed on these mandatory requirements. 

What Type of Internal Control Policy Do You Need? You should at least have procedures, plans, and policies in place that minimize the risk of adverse actions in government investigations or audits. Your internal control policy should be designed to prevent fraud, minimize performance errors, authenticate the accuracy and reliability of accounting data, and promote efficient company operations.

When Do You Need a Mandatory Disclosure Policy? Government contractors are not required to implement a mandatory disclosure requirement as set forth in an amendment to the existing Contractor Code of Business Ethics and Conduct clause located at FAR 52.203-13.

Under FAR 3.1004, this clause must be included in all contracts that are expected to exceed $5 million and have a performance period of 120 days or more. Under the new laws you have to:

“..timely disclose, in writing, to the agency [OIG], with a copy to the Contracting Officer, whenever, in connection with the award, performance, or closeout of this contract or any subcontract thereunder, the Contractor has credible evidence that a principal, employee, agent, or subcontractor of the Contractor has committed–(A) A violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or (B) A violation of the civil False Claims Act (31 U.S.C. 3729-3733). FAR 52.203-13(b)(3)(i) (as amended by final rule).”

This internal code of ethics requires you to have a control policy mandates flow down of the provision to subcontracts which meet the same size and duration thresholds, but provides that subcontractor disclosures must be made directly to the government, instead of to the prime contractor.

Speak to an Attorney & Get a Free Initial Consultation

For help with internal control policy, ethics, and audits for government contractors, call our government contract compliance lawyers at 1-866-601-5518.

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