PREPARING FOR AND RESPONDING
TO IG INVESTIGATIONS
Presentation for National 8(a) Association
2015 Summer Conference by Lynne Halbrooks,
Robert Tompkins, and Sarah Curtis
Moderated by Walter Featherly
June 17, 2015
Copyright © 2015 Holland & Knight LLP. All Rights Reserved
Agenda
» Overview of Federal Inspector General (“IG”) system
» IG Authorities, Tools, and Techniques
» Coordination of Remedies
» How to Be Prepared: Policies and Procedures
» Practical Tips: What to Do In the Event of Investigation
» Office of Inspector General (“OIG”) Enforcement Trends
2
Overview Of Federal IG System
» The Inspector General Act of 1978 created civilian IGs
» Currently 72 statutory IGs
» Purpose: Independent and objective units within an agency to combat
fraud, waste, and abuse in programs and operations
» IGs do this by:
˗
Conducting audits and investigations
˗
Recommending policies to promote economy, efficiency, and effectiveness
˗
Keeping the agency head and Congress “fully and currently informed” about
problems and deficiencies
» IGs “report to and are under the general supervision of the head” of the
agency/entity. In only very narrow circumstances can the head of the
agency prevent an IG from doing work.
» IGs have dual reporting obligations to Congress
» Independence is also promoted through separate legal counsel,
separate OIG budgets, and notice to congress before removal
3
IG Authorities, Tools, And Techniques
» Each IG is given full discretion to undertake investigations that are, in
the judgment of the IG, “necessary or desirable” (IG Act, section 4(a)(1),
(a)(3))
» Many, not all, IGs have law enforcement authority
» IG has access to ALL agency records
» The IG Act provides broad authority to subpoena documents if
necessary for the performance of the functions in the IG Act. IGs may
not subpoena records from other federal agencies. Subpoenas
enforceable in federal district court. (DoD OIG issued over 700 in FY
2014)
» DoD OIG has testimonial subpoena authority
» When the IG has “reasonable grounds to believe there has been a
violation of Federal Criminal law,” the IG must report promptly to DOJ
(IG Act, section 4(d))
» DOJ will decide if grand jury, Civil investigative demands, or other
criminal or civil tools will be used
4
Coordination Of Remedies
» Role of DOJ
˗
Initiate criminal or civil legal proceedings
˗
Authority is over criminal and civil settlements in U.S. District court
proceedings
˗
Administrative remedies remain under purview of agency (usually GC and/or
SDO)
˗
Global settlements are preferred, but difficult
» Suspension and Debarment
˗
On the rise since late 2000s
˗ SBA OIG referred 49 to SBA in 2015, and 51 to other agencies
˗
DoD OIG referrals resulted in 150 suspensions and 218 debarments in FY
2014
˗
Recoupment
˗
The Contracting Officer still plays a role
˗
There may be offsets taken while criminal/civil investigation is ongoing
5
SBA Suspension/Debarment Activity By Fiscal Year
Indictments
from OIG
Cases
Convictions
from OIG Cases
Suspensions/
Debarments
Recommended
to the SBA
SBA
Proposed
Debarments
FY14
103
67
50
10
20
FY13
64
51
65
34
16
FY12
59
52
45
21
14
FY11
69
47
41
18
16
FY10
81
41
31
24
16
»
OIG SBA Semiannual Reports to Congress
SBA Final
Debarments
6
How To Be Prepared: Policies And Procedures
» Important to have appropriate policies and procedures in place and
utilized PRIOR to any IG audit or investigation
» Some key policies and features your Comprehensive Compliance
Program should include:
˗
Ethics and Compliance Manual
˗
Training
˗
Regular Program Review and Update
˗ Investigation Procedures
˗ Mandatory Disclosure
˗ Document Retention, including policy on Litigation/Investigation Holds
˗ Disciplinary Procedures and Non-Retaliation Policies
˗ Other policies suggested by your organization’s circumstances
7
Compliance Program: Sampling Of Subject
Matter Covered
» Contract Performance
» Conflicts of Interest
˗
Personal
˗
Organizational
» Gifting and Anti-Bribery
» Anti-Kickback
» Political Contributions and Activity Restrictions
» Drug and Alcohol
» Environment
» Government Property
» And More
8
Compliance Program: Investigation Procedures
» As we’ve discussed, contracts with the U.S. government give the
government the right to conduct audits and investigations. Audits and
investigations happen all the time, but must be taken seriously.
» Policy Suggestions:
˗
Plan! Make sure you have a general plan for how your organization conducts
investigations generally AND a plan for how each investigation will be handled.
˗
To ensure a truthful, complete and accurate response to the government, all
information provided in response to a request by a government official must be
approved by and will be provided to the government by management/legal
counsel.
˗
Policies and Practices shall direct that employees shall not:
•
edit, remove, delete or destroy any documents in the face of an audit;
•
attempt to influence the statements or testimony of any other person, or to attempt to
dissuade or discourage someone from providing information in response to an audit;
•
omit or conceal intentionally any material fact in your response to an audit; or
•
provide false information or document in connection with the audit.
9
Do The Organization’s Investigations Or Investigation
Policies Create Risk As Opposed To Mitigate It?
» In the Matter of KBR, Inc., SEC-File No. 3-16466, April 1, 2015.
˗
The SEC fined KBR $130,000 after finding that KBR’s standard
confidentiality language used in its internal investigations could impede
whistleblowers from making reports to the government. KBR was also
required to send notices and revise policies with respect to all employees
from 2011 forward (likely more costly than the fine). Notably, the SEC acted
solely on the basis of the language in the company policy and despite
acknowledging that A) there was no evidence that any whistleblower was
impeded; and B) there was no evidence that KBR had actually enforced the
confidentiality provisions.
» Federal IGs are actively surveying the policies of many companies for
similar provisions
˗
See e.g. State OIG Report re: 30 largest contractors:
https://oig.state.gov/system/files/esp-15-03.pdf
» Publicly traded companies, and federal contractors and grantees are
especially susceptible in this area
10
Compliance Program: Mandatory Disclosure
» Mandatory Disclosure
˗
Internal Reporting Requirements and Making the Disclosure Decision
•
Who does it apply to and who makes the decision?
•
Consider internal reporting structure
•
What needs to be reported, when and to whom?
» Keep in Mind
˗
FAR Part 3 requirement for timely disclosure/full cooperation
˗
DOD IG designated “agency IG” for all DoD disclosures
˗
DOD’s process includes notification to all DoD stakeholders and cognizant
investigative agencies
˗
History of DoD program suggests few significant criminal violations; no
suspension and debarments
11
Compliance Program: Document Retention
» Adopt a document retention policy and schedule and abide by it!
˗
Biggest issues are often when documents are not destroyed according to
the adopted schedule
˗
That policy may need to be suspended upon learning of an incident,
investigation or litigation
» Adopt policies and procedures addressing the circumstances of
litigation or investigations:
˗
Upon certain event such as:
•
complaint filed
•
call from IG
˗ Retain all documents during specified period by/about/for particular people
˗ Ensure you can account for steps taken to carry out these policies (i.e.,
consider backing up servers, hard drives, etc.)
12
Compliance Program: Disciplinary Procedures And
Non-Retaliation Policies
» There can be no retribution, disciplinary action, or adverse administrative
action against any employee who reports known or suspected violations
of the company’s policies or U.S. Laws or regulations
» Reports to a hotline or any manager should be held in strict confidence
» Disciplinary action should be taken against anyone who retaliates
against an employee reporting suspected violations
13
Compliance Program: Policies Based On Organizational
Circumstances
» Particular corporate structure
˗
Holding company
˗
Subsidiaries
˗
Corporations versus Limited Liability Companies
» Responsibilities of the Board
» Responsibilities of Management
14
Practical Tips: What To Do If An IG Contacts Your
Company
» Engage counsel and define counsel’s role
» Designate counsel as the primary point of contact in most cases
» Counsel should politely attempt to open and control the dialogue (but
remember, the IG may have the right to interview employees and others
without you)
» Understand what type of inquiry is being conducted (program review,
audit, investigation, etc.)
» Determine, as best you can, the scope and subject matter the IG is
interested in
» Determine, if you can, what prompted the inquiry (Whistleblower? Is this
part of a broader inquiry?)
15
Practical Tips: Engaging Counsel And Other Support
» IG investigations are very different than litigation. In addition to
investigative experience, counsel should have:
˗
knowledge of the government program (i.e., SBA, government contracting)
˗
the statutes and regulations
˗
the broader policy backdrop
» When: right away and almost certainly before contacting the IG directly
» Let your counsel act as a buffer with the IG. Counsel can probe the IG
in ways you may not be able to.
» It may be necessary and prudent to hire other professionals, such as an
accountant. This should be done through counsel.
16
Practical Tips: Managing The Process Internally
» First Rule: Take a deep breath – plan your investigation before you begin
» You must consider a document hold notice and/or information
preservation process
» The IG may know more than you, so it’s important to conduct your own
parallel internal investigation (see below)
» BUT…Be prepared to share your findings
» Sources of information: internal and external
» Preserving information and documenting the review
» Be mindful that your findings likely must be disclosed
˗
Mandatory Disclosure requirements
˗
Suspension and debarment considerations
˗
Federal sentencing guidelines
17
Protecting The Investigation And Work Product
» If no attorney is involved in the investigation, it is almost certainly
discoverable
» Even if an attorney is involved, the privilege is not absolute
» In many cases you may be required to, or desire to, reveal the results of
the investigation
» Understand who is in the “control group”; take appropriate steps to
protect confidentiality, but see slides 21 and 22 below
» The government is cracking down on the use of confidentiality
agreements with employees -- this issue is evolving quickly and not in a
direction that favors application of the privilege
18
Practical Tips: Acting On Information
» Be Proactive
˗
Assess compliance – is there a violation? Is there a difference of
interpretation of program rules or requirements?
˗
Assess internal controls – can they be enhanced?
˗
Determine the need for corrective action, and take it where appropriate
˗
Communicate your efforts to the IG
˗
Consider other potential proceedings and exposure (i.e., suspension and
debarment, potential whistleblower claims, etc.) and take steps to address
those risks
19
Practical Tips: Managing The Relationship With The IG Some Common Issues
» Manage the scope of the inquiry – narrowing and refining the scope of IG
requests
» Understand and anticipate the IG’s concerns and be prepared to
mitigate/explain issues
» Understand and act on the IG’s investigative requirements and standards
» Seek the opportunity to comment on findings/draft reports before they are
finalized – this is not an automatic right
» Remember: Most IGs have some degree of law enforcement authority, so
they will be looking for false statements (an 18 U.S.C. 1001 violation)
20
Practical Tips: A Recap
» Adopt and maintain a sound ethics and compliance program and
additional supporting policies
» Establish an early warning system
» Be proactive in responding to any government inquiry
» Take any IG inquiry very seriously
» Do your best to get ahead of the curve and be proactive in your
response
21
Trends: Whistleblower Protection Enhancements
» Federal law prohibits government personnel from retaliating against a
whistleblower who reports fraud, waste, or abuse to the OIG
» The NDAA of 2013 extended these protections to government
contractors, subcontractors, and grantees
» A protected whistleblower is one who discloses:
˗
A violation of law, rule, or regulation
˗
Gross mismanagement
˗
Gross waste of funds
˗
An abuse of authority
˗
A substantial and specific danger to public health or safety
» New DFARS Clause 252.203-7998 (Mar 2015) implements 2015 Budget
Reconciliation Act prohibition on employee confidentiality agreements
˗
Note: the clause applies to subcontractors as well
» The Whistleblower Protection Act of 2012 requires an ombudsman in
each OIG to educate employees about their rights if retaliated against
22
Other Enforcement Trends
» Increase in resources and congressional support
˗
OIGs are a good return on Congress’s investment: 14,000 employees in OIG
offices in FY 2013 returned $21 for every $1 invested
˗
IGs engage on congressional requests (statutory, report language, individual or
committee requests)
˗
President’s FY 2016 budget reflects increases after sequestration
» IGs will be more aggressive
˗
Congress is considering additional tools
•
Exemption from computer matching requirements and the Paperwork Reduction Act
•
Expansion of testimonial subpoena authority
˗ IGs are receiving more attention and scrutiny themselves
˗ Efforts to enhance Program Fraud Civil Remedy Act for small dollar/no loss
false statement cases
˗ Social media presence
» Special appropriations will mean more concentrated oversight and joint IG
collaboration
23
Resources
» DOD Mandatory Disclosure website:
http://www.dodig.mil/programs/CD/index.html
» FAR: www.farsite.hill.af.mil
» SBA Regulations:
http://www.access.gpo.gov/nara/cfr/waisidx_07/13cfrv1_07.html
» Select Client Alerts:
˗
http://www.hklaw.com/GovConBlog/SEC-Enforcement-Action-Puts-PubliclyTraded-Contractors-Internal-Investigation-Policies-in-the-Cross-Hairs-04-022015/
˗
http://www.hklaw.com/Publications/DC-Circuit-Upholds-Attorney-ClientPrivilege-in-Internal-Investigations-06-30-2014/
24
Questions?
25
Thank You!
26
Lynne M. Halbrooks
Lynne M. Halbrooks is a partner in Holland & Knight's Washington, D.C., and Northern Virginia offices. A
former federal prosecutor and acting inspector general (IG) of the Department of Defense, she is a member of
the firm's Government Contracts and White Collar Defense Investigations Teams.
Ms. Halbrooks has extensive experience in civil and criminal investigations and litigation. During her
government career, she advised her clients in a wide range of legal areas, including ethics issues, fiscal and
appropriation law, employment law, and data custody and privacy matters. She has an in-depth knowledge of
IG investigative and audit practices, suspension and debarments, procurement fraud, the False Claims Act, the
Foreign Corrupt Practices Act and contractor whistleblower protections.
In addition, Ms. Halbrooks has held a number of senior positions in the federal government. From 2009 through
April 2015, she was general counsel and then principal deputy inspector general at the Department of
Defense's Office of Inspector General. During this time, she served as the acting inspector general for 21
months. She was previously the general counsel for the special inspector general for Iraq reconstruction, and
spent four years with the U.S. Senate sergeant at arms, first as general counsel and then as deputy sergeant
at arms.
Her experience also includes serving as a deputy director in the Executive Office for United States Attorneys at
the Department of Justice and as an assistant United States attorney in the Eastern District of Wisconsin. She
held a top secret security clearance throughout her federal service.
» Lynne M. Halbrooks
» Partner
» (202) 469-5248
»
Lynne.Halbrooks@hklaw.com
» Washington D.C.
Practice
• Litigation and Dispute
Resolution
• Government
Contracts
• White Collar Defense
and Investigations
• Risk and Crisis
Management
Education
• Marquette
University Law
School, J.D., with
honors
• University of
Minnesota, B.A.
Bar Admission
• District of Columbia
27
Robert K. Tompkins
Bob Tompkins is a partner in Holland & Knight's Washington, D.C.,
office and co-chair of the firm’s National Government Contracts Group.
Mr. Tompkins provides strategic advice and counsel to government
contractors, their management and investors. He is experienced in
government contract protests and disputes, government investigations
and related proceedings, mergers and acquisitions, matters related to
the U.S. Small Business Administration (SBA) government contracting
programs and providing general counseling to clients.
» Robert K. Tompkins
» Partner
» (202) 469-5111
»
Robert.Tompkins@hklaw.com
» Washington D.C.
Practice
• Government
Contracts
• False Claims Act
Defense
• Indian Law
• Congressional
Investigations
• Regulatory and
Federal Litigation
Education
• Washington and
Lee University
(J.D.)
• Washington and
Lee University
(B.A.)
Bar Admission
• Virginia
• District of Columbia
• Maryland
28
Sarah M. Curtis
Sarah Curtis is an associate in Holland & Knight's Anchorage office. Ms. Curtis
focuses her practice on Alaska Native and Native American-owned businesses.
She regularly counsels clients on a wide range of matters including: transactional;
corporate business and governance; shareholder relations; employment;
government contracting; and tax.
Ms. Curtis assists clients in navigating the intricacies of the Alaska Native Claims
Settlement Act (ANCSA) and the U.S. Small Business Administration’s 8(a)
Business Development Program. Additionally, Ms. Curtis has argued before the
Alaska Supreme Court and has participated in representations for a broad client
base, from small pro bono matters to $12 billion litigation cases.
Ms. Curtis has also served as general counsel and sole in-house legal advisor for
the village of Wainwright's Alaska Native Corporation – a $200 million family of 15
companies engaged in both government contracting and commercial transactions.
» Sarah M. Curtis
» Senior Associate
» (907) 263.6386
»
Sarah.Curtis@hklaw.com
» Anchorage, Alaska
Practice
•
•
•
•
•
•
Government Contracts
Compliance Services
Corporate Services
Corporate Governance
Indian Law
Mergers and
Acquisitions
Education
• University of
Washington School of
Law, LL.M., Taxation
• Roger Williams
University School of
Law, J.D.
• University of Alaska –
Anchorage, B.A.
Bar Admission
• Alaska
29
Walter T. Featherly
Walter T. Featherly is the executive partner of Holland & Knight's Anchorage office. Mr. Featherly
focuses his practice on Alaska Native- and Native American-owned businesses. He regularly
counsels boards of directors and executives on matters including corporate law and governance, the
Alaska Native Claims Settlement Act, the Alaska National Interest Lands Conservation Act,
securities law, intellectual property protection, government contracting, employment practices,
finance and real estate.
Mr. Featherly assists minority-owned businesses to navigate the regulations governing admission to
the Small Business Administration's (SBA) 8(a) Business Development and the Historically
Underutilized Business Zones (HUBZone) programs, particularly those related to subcontracting and
team opportunities.
In addition, Mr. Featherly regularly speaks on the subjects of corporate governance and compliance,
teaming and joint venturing, the requirements of the Federal Acquisition Regulation, the SBA and
other laws applicable to small, minority and disadvantaged contractors and the large companies that
team with them.
In Alaska, Mr. Featherly has tried numerous cases in the areas of commercial transactions, real
estate, construction, antitrust, bankruptcy, products liability, personal injury and eminent domain. He
has also tried cases in federal courts and has argued appeals to the Alaska Supreme Court and the
Ninth Circuit Court of Appeals.
» Walter T. Featherly
» Partner
» (907) 263.6395
»
Walter.Featherly@hklaw.com
» Anchorage, Alaska
Practice
• Compliance Services
• Corporate Governance
• Public Companies and
Securities
• Indian Law
• Risk and Crisis
Management
Education
• Harvard Law
School, J.D.
• St. John's College,
B.A.
Bar Admission
• Alaska
30