The Self-Reporting Sea Change in Financial Assistance. Scott S. Sheffler January 20, PDF Free Download

The Self-Reporting Sea Change in Financial Assistance Scott S. Sheffler January 20, 2016

THE SELF-REPORTING SEA CHANGE In instituting broad self-reporting requirements in procurement contracting in November 2008, the FAR Council stated: There is no doubt that mandatory disclosure is a sea change and major departure from voluntary disclosure, but DoJ and the OIGs point out that the policy of voluntary disclosure has been largely ignored by contractors for the past 10 years. 73 Fed. Reg. 67069 2

THE SELF-REPORTING SEA CHANGE Self-Reporting has now arrived for Financial Assistance Recipients: 2 C.F.R. 200.112 (Conflict of Interest) 2 C.F.R. 200.113 (Mandatory Disclosures) FAPIIS: 200.212, Appendix XII 3

2 C.F.R. 200.113 5

2 C.F.R. 200.113 6

WHAT WE KNOW Violations of Federal Criminal Law involving: Fraud Bribery Gratuities U.S. Code Title 18, Chapters 11 and 31 Potentially affecting the federal award 7

WHAT WE DON T KNOW Level of certainty of violation required before report? What is timely? 8

WHEN DO YOU CROSS THE THRESHOLD FOR DISCLOSURE? Possible violation? Suspected violation? Credible evidence of violation? Upon conviction? 9

WHEN DO YOU CROSS THE THRESHOLD FOR DISCLOSURE? Possible violation? Suspected violation? Credible evidence of violation Upon conviction? *This is not a stated rule, just my opinion. But I ll tell you why. 10

WHAT IS TIMELY? Immediately? Within the budget period? After a reasonable internal investigation? After consultation with counsel? 11

WHAT IS TIMELY? Immediately? Within the budget period? After a reasonable internal investigation After consultation with counsel *Again this is not a stated rule, just my opinion. But I ll tell you why. 12

THE UG PROVIDES NO ANSWERS, BUT... Much discretion left to awarding agencies. But we have something to compare to: The preamble to the Uniform Guidance final rule stated with respect to 200.113, Commenters suggested that requirements in procurement regulations for non-federal entities to disclose in writing any violations of Federal criminal law involving fraud, bribery, or gratuity violations in Title 18 of the United States Code have been effective measures to help prevent or prosecute instances of waste, fraud, and abuse. These commenters recommended that a similar provision be added to this guidance. The COFAR concurred with the recommendation. 78 Fed. Reg. 78595 (Dec. 26, 2013). 13

THE PROCUREMENT CONTRACT RULE Final Rule: 73 Fed. Reg. 67064-67093 Nearly thirty (30) pages providing discussion of the pros and cons of various standards, and arriving at: Credible Evidence triggers the reporting requirement Timely allows for investigation and consultation with counsel And no flood of self-reporting of small technical violations is expected Specifically reject standard of reasonable grounds to believe. 73 Fed. Reg. 67073. 14

FAR 53.203-13 FAR Clause that implements is 52.203-13: 15

THE PROCUREMENT CONTRACT RULE Originally, this rule was to provide for disclosure upon reasonable grounds to believe. Commenters expressed the same concerns as our original questions with respect to both this standard and the timely standard. To rationalize both, the standard was changed to credible evidence in the final rule. 16

WHY IT IS A CREDIBLE EVIDENCE STANDARD The Councils have replaced reasonable grounds to believe with credible evidence. DoJ Criminal Division recommended use of this standard after discussion with industry representatives. This term indicates a higher standard, implying that the contractor will have the opportunity to take some time for preliminary examination of the evidence to determine its credibility before deciding to disclose to the Government. 73 Fed. Reg. 67073 17

HOW THIS INFORMS INTERPRETATION OF TIMELY... the Councils believe that using the standard of credible evidence rather than reasonable grounds to believe will help clarify timely because it implies that the contractor will have the opportunity to take some time for preliminary examination of the evidence to determine its credibility before deciding to disclose to the Government. 73 Fed. Reg. 67074 18

SUSPENSION AND DEBARMENT FAR 9.406-2 & 9.407-2 were updated to provide that failure to timely make disclosures would be grounds for suspension and debarment. 2 C.F.R. Part 180 has not been changed to explicitly state the same, but is probably broad enough to allow for suspension or debarment on such grounds. 180.800(b)(3): A Federal agency may debar a person for... [a] willful violation of a statutory or regulatory provision or requirement applicable to a public agreement or transaction; 19

TAKE AWAY 200.113 provides no express standard regarding certainty of a violation or what is meant by timely disclosing. The preamble to the Uniform Guidance says this provision was modeled on the procurement version, which does provide such standards. The key standard in the procurement context ( credible evidence ) is reasonable, has been formally endorsed by responsible government agencies in similar circumstances, and assists in interpreting both the disclosure and timeliness standards. Absent further clarification from OMB, credible evidence with recognition that reasonable preliminary evaluation before disclosure is appropriate should be considered the norm. Hopefully, OMB will add this standard to 2 C.F.R. Part 200, or agencies will add this standard through their supplements. 20

EXTREME EXAMPLE The Corporation for National Community Service ( CNCS ) includes the language to the right as a standard award term in its AmeriCorps grants. 21

WHAT IS FAPIIS Federal Award Performance and Integrity Information System (41 U.S.C. 2313) Database intended to serve as a governmentwide source of information about the prior performance of federal procurement contractors and recipients of federal financial assistance. (https://www.fapiis.gov/fapiis/index.action) Federal procurement officials have been using FAPIIS since 2010. See 75 Fed. Reg. 14059 (Mar. 23, 2010). 23

WHAT IS FAPIIS For those of us who are not on the federal government side of the system, would any of our federal government colleagues in the audience be willing to describe the nature of the additional information available to federal agencies beyond the information that is publicly available? 24

FAPIIS Added to the Uniform Guidance on July 22, 2015 Applicable beginning January 1, 2016 2 C.F.R. 200.113 2 C.F.R. Part 200, Appendix XII Unlike 200.113, Rules and Standards are Explicit 25

FIVE BASIC ITEMS Agencies are to review FAPIIS in making awards. Agencies are to report certain matters in FAPIIS. Agencies are to insert the new Appendix XII in certain awards. Entities meeting certain threshold requirements are to self-report certain occurrences. FAPIIS entries are mostly publicly available. 26

1. AGENCIES TO REVIEW FAPIIS IN MAKING AWARDS Before making any award of financial assistance for which the federal share (i.e., not including shared cost/match amounts) equals or exceeds the SAT, the awarding agency must consider the information in FAPIIS about the prospective recipient. 2 C.F.R. 200.205(a)(2). 27

1. AGENCIES TO REVIEW FAPIIS IN MAKING AWARDS Note: Subrecipients are not specifically required to review or consider information available through FAPIIS in making subawards decisions. 80 Fed. Reg. 43306-43307. Doing so would still be prudent. 28

2. AGENCY REPORTING IN FAPIIS (1) Agencies must report: Decisions not to award financial assistance to a particular recipient where the award would exceed the SAT and the decision not to award was based solely on the prospective recipient s prior record of executing programs or activities under Federal awards or its record of integrity and business ethics... 2 C.F.R. 200.212(a). No reporting requirement where award is made with specific award conditions under 2 C.F.R. 200.207. 2 C.F.R. 200.212(b). When a decision not to make an award exclusively on these bases is reached, the agency is required to notify the entity seeking the award and provide an explanation of its conclusion. 2 C.F.R. 200.212(c). 29

2. AGENCY REPORTING IN FAPIIS (2) Agencies must report: Any termination of an award prior to the end of the period of performance due to the [recipient] s material failure to comply with the Federal award terms and conditions... 2 C.F.R. 200.339(b). This report is to be made only after the recipient has either exhausted its appeal rights, or after thirty (30) days from the time the recipient received notice of the termination passes without the recipient indicating it intends to challenge the termination. Id. 30

2. AGENCY REPORTING IN FAPIIS Recipient Rights WRT Agency Reporting: The right to comment on each agency entry, which comments will be also posted in FAPIIS (like contractors CPARS). 2 C.F.R. 200.212(c)(4) and 200.340(b)(4). These comments are to be submitted via SAM. Id. (Not sure SAM is set up to receive yet does anyone know? Even if only registered for financial assistance awards?) The right to challenge the accuracy of the information. If the agency learns that any information it has entered into FAPIIS is erroneous, it must correct the information within three (3) business days. 2 C.F.R. 200.212(d)(1) and 200.339(b)(2)(i). The right, within seven (7) calendar days of the agency s posting to FAPIIS, to object to public disclosure of information that is subject to a FOIA exemption. 2 C.F.R. 200.212(e) and 200.339(b)(3). If objection made, agency must remove and resolve before reposting. 31

3. AGENCIES TO INSERT APPENDIX XII TERMS AND CONDITIONS For all awards for which the federal share is expected to exceed $500,000, Appendix XII to 2 C.F.R. Part 200 is to be included as a term and condition of the award. 2 C.F.R. 200.210(b)(1)(iii). The presence of the Appendix XII terms and conditions potentially triggers a self-reporting requirements for the recipient, depending upon its overall level of funding. 2 C.F.R. 200.113, 2 C.F.R. Part 200, Appendix XII. If Appendix XII is not incorporated into the award, there is no requirement. Burden on agencies to get it in. See 2 C.F.R. 200.113. 32

3. AGENCIES TO INSERT APPENDIX XII TERMS AND CONDITIONS If Appendix XII is not incorporated into the award, there is no requirement. Burden on agencies to get it in. 33

3. AGENCIES TO INSERT APPENDIX XII TERMS AND CONDITIONS It is not entirely clear whether Passthrough Entities must flow down Appendix XII for subawards over $500,000. But I don t think they need to: Preamble provides: A local government must report if it has a Federal award with an award term and condition making it subject to the reporting requirements. It would not be required to report solely by virtue of being a subrecipient under a Federal award. 80 Fed. Reg. 43305. Not dispositive, but helpful. FAR 52.209-9 (the clause implementing FAPIIS self-reporting requirements for contractors) does not specifically call for flow down to subcontractors. Also not dispositive, but helpful. Compare FAR 52.209-6, which implements limitations on subcontracting with suspended or debarred entities, and which specifically calls for flow down to subcontracts. 34

4. RECIPIENT SELF-REPORTING Appendix XII becomes active during any period of time in which the recipient s total value of grants (federal share), cooperative agreements (federal share), and procurement contracts exceeds $10 million. Appendix XII, para 1. In calculating the $10 million, all expected funding during the life of a currently active award is to be counted, including unexercised options on contracts and all expected funding increments on financial assistance awards. Appendix XII, Sec. A, para 5(c)(2). 35

4. RECIPIENT SELF-REPORTING (APPENDIX XII) During such active periods, must maintain the currency of information reported to [SAM] that is made available in [FAPIIS] about... certain: Criminal proceedings, Civil proceedings, and Administrative proceedings Period of Reportable Items: Report for most recent five (5) year period No reporting required for any item occurring prior to Apr 15, 2011 Frequency of Report: Must either report or affirm no new information, at least semiannually 36

4. RECIPIENT SELF-REPORTING Criminal Proceedings: Report any criminal proceeding in connection with the award or performance of a grant, cooperative agreement, or procurement contract from the federal government that resulted in a conviction in the past five (5) years. Conviction means judgment or conviction of a criminal offense, and includes convictions entered on pleas of nolo contendre. Appendix XII, Sec. A, para 2 and 5. 37

4. RECIPIENT SELF-REPORTING Civil Proceedings: Report any civil proceeding in connection with the award or performance of a grant, cooperative agreement, or procurement contract from the federal government that resulted in a finding of fault and liability and payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5,000 or more in the past five (5) years. Appendix XII, Sec. A, para 2. 38

4. RECIPIENT SELF-REPORTING Administrative Proceedings: Report any administrative proceeding in connection with the award or performance of a grant, cooperative agreement, or procurement contract from the federal government that resulted in a finding of fault and liability and... Payment of either a monetary fine or penalty of $5,000 or more or reimbursement, restitution, or damages in excess of $100,000 in the past five (5) years. Appendix XII, Sec. A, para 2. Administrative proceeding means any non-judicial process that is adjudicatory in nature... and does not include audits, site visits, corrective plans, or inspection of deliverables. Appendix XII, Sec. A, para 2 and 5. 39

5. ENTRIES ARE PUBLICLY AVAILABLE (MOSTLY) Most information posted by agencies or selfreported by recipients in SAM will be publicly available after a waiting period of fourteen (14) calendar days. 2 C.F.R. 200.211(b); 2 C.F.R. Part 200, Appendix XII, Sec. A, para 1. Not publicly available: Past performance reviews required for Federal procurement contracts will not be publicly available. Id. Controlled unclassified information. 2 C.F.R. 200.211(c). 40

SO... If you are an Agency Official: Make sure you are inserting Appendix XII terms and conditions in awards for which the federal share is over $500,000. Make sure you are meeting your reporting obligations (decisions not to award solely because of past performance or integrity and terminations), and also resolving incorrect information. If you are a Passthrough Entity: Check FAPIIS when making awards (not required, but a good idea). Probably do not have to flow down Appendix XII in subawards for which the federal share is over $500,000. Not clear from Jul. 22, 2015 notice. If you are a Recipient: Be aware of your potential reporting requirements if you receive more than $10 million in federal awards (and keep an eye out for Appendix XII). Monitor your FAPIIS. Challenge erroneous entries and comment on any negative accurate entries that fail to provide the full story. 41

AND BY THE WAY If there is bad FAPIIS, shouldn t there be good FAPIIS too? Perhaps in the future, OMB might consider requiring agencies to report high quality past performance, not just poor past performance. 42

The Self-Reporting Sea Change in Financial Assistance. Scott S. Sheffler January 20, 2016