United States: THE ARRA: New Weapons in the OIG and GAO Arsenal

When the American Recovery and Reinvestment Act of 2009 ("ARRA" or the "Recovery Act") was enacted in February 2009, it gave broad investigative and examination powers to the Office of the Inspector General ("OIG") and the Comptroller General of the Government Accountability Office ("GAO"). It is critical when dealing with investigations conducted by these federal agencies to understand how these changes may impact your business.

This is the second of three updates that focuses on federal procurement changes made by the ARRA. The first update discussed the new reporting and registration requirements of ARRA. This update focuses on the powers that ARRA confers on the OIG and GAO and mandatory disclosures under the ARRA. The third will focus on whistleblower protections under the ARRA.

OIG and GAO Access to Contractor Personnel and Records

The Recovery Act provides the OIG and the GAO with broad investigatory and examination powers. For example, the Recovery Act authorizes the OIG to examine the records of any contractor, subcontractor, grantee or subgrantee that relate to and involve a transaction that uses ARRA funds.

More significantly, the Recovery Act authorizes the OIG to interview any officer or employee of a federal contractor, grantee, subgrantee or agency regarding the transaction in question. This greatly enhances the investigative power of the OIG under the Recovery Act. Notably, however, the OIG, unlike the GAO, is not authorized to interview subcontractor employees. That is, the implementing clauses of the Federal Acquisition Regulation specifically note that the authority of the OIG to interview any officer or employee regarding ARRA-funded transactions does not flow down to subcontractors.

The Recovery Act gives similar powers to the GAO. That is, the GAO is authorized to examine all records related to any obligation or use of ARRA funds. The GAO also may interview any officer or employee of a federal contractor, subcontractor or agency regarding an ARRA-funded transaction.

The power to interview employees and review records gives the OIG and GAO new access to personnel and records. The permitted scope and application of these powers remain uncertain. For instance, one issue that has yet to be addressed is whether the OIG may compel a contractor's employees to testify. While we do not believe that the Recovery Act allows the OIG to compel testimony, the OIG may disagree.

It is in a company's best interest to establish policies and procedures regarding how such a request for records and interviews will be handled, and to distribute them to employees, including receptionists, who may come in contact with the investigators. The company should also provide training to its employees regarding potential investigations as well as the rights and duties of the employees associated with the investigations.

Mandatory Disclosure

All Recovery Act contracts and grants are required to have mandatory disclosure clauses that obligate contractors and subcontractors to promptly refer to "an appropriate attorney general any credible evidence that a principal, employee, agent, contractor, subgrantee, subcontractor, or other person has submitted a false claim under the False Claims Act or has committed a civil violation of laws pertaining to fraud, conflict of interest, bribery, gratuity, or similar misconduct involving those funds." This applies to federal and state contracts that receive ARRA funding.

This disclosure requirement applies not only to what a person would normally consider a false claim, but also to information reported by the contractor in its quarterly report to the government. The mandatory disclosure and reporting requirement survives the underlying contract. Specifically, the reporting requirement is in effect for three years after final payment on the contract has been received.

The penalties for failing to report are substantial and include the risk of suspension, debarment, and/or termination for default. These penalties, coupled with the whistleblower protections that will be discussed in the next update, make it imperative that firms receiving ARRA-funded contracts have clear internal guidelines and procedures for identifying and reporting to the OIG credible evidence of one of the aforementioned violations, and for thoroughly documenting all nondisclosure decisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.