ENSURING FEDERAL CONTRACTS ARE AWARDED TO ETHICAL COMPANIES

The business and accounting scandals that captured so many recent headlines shook the confidence of countless Americans in our financial markets, but also exposed the great potential for unscrupulous businesses to defraud not only investors but also their customers, including the federal government. As Chairman of the Senate Committee on Governmental Affairs, it is my responsibility to oversee federal procurement laws. The federal government is required to consider a company's ethics and integrity in evaluating whether it would be a responsible government contractor. Nevertheless, I have become increasingly concerned that there may be insufficient safeguards to protect the federal government from entering into contracts with businesses that are operating unethically.

The telecommunications company WorldCom, which now does business as MCI, has admitted to the largest corporate financial fraud in history. It overstated its bottom line by more than $9 billion, and four of its former employees have pleaded guilty to criminal charges. This spring, the company agreed to pay a $1.5 billion fine (later reduced to $750 million) imposed by the Securities and Exchange Commission (SEC) to settle charges that it defrauded its investors. According to the SEC, WorldCom's accounting fraud was "of unprecedented magnitude." These charges are particularly troubling because MCI has nearly $1 billion in government contracts. What is more, new allegations have come to light suggesting that MCI may have been engaging in fraud long before WorldCom acquired it and may still be pursuing fraudulent practices today by routing calls to avoid the payment of access fees. If these allegations are true, it would undermine the company's claims that the fraud was limited to just a few "bad apples" and that it has been thoroughly reformed. Moreover, MCI WorldCom may be guilty of defrauding the government, its customers, and other telecommunications firms. To the extent that these allegations prove true, they raise additional questions about MCI WorldCom's business practices and ethics.

In May, I sent a letter to the General Services Administration (GSA) – the agency that is responsible for overseeing federal telecommunications contracts – asking for a report examining WorldCom's suitability to continue as a federal contractor given the grave concerns about the company's integrity. Rather than performing its own in-depth inquiry into the company's alleged accounting fraud, it appeared to me that the GSA had relied very heavily on WorldCom's own representations of its behaviors and practices. The GSA's own Inspector General agreed with me that the initial evaluation had not gone far enough, and also recommended that the GSA undertake a review to consider whether MCI Worldcom should be suspended from doing business with the federal government.

The GSA finally proposed in late July that WorldCom be blocked from obtaining new federal contracts or extensions on existing ones until it fixes its accounting deficiencies. The GSA made the right decision in taking decisive action to protect the American taxpayers from doing business with a company that has demonstrated a flagrant lack of ethics. Under federal law, the government is generally not to contract with any company that lacks the necessary level of responsibility to be a federal contractor. The GSA's decision reinforces a sound principle: to do business with the federal government, a company must uphold satisfactory ethical standards, not only with the government itself, but also in its business activities generally.

The federal government contracts with thousands and thousands of American businesses, most of which are ethical companies that provide quality products and services. The WorldCom case should serve as a reminder of the importance of having strong precautions and procedures in place to protect taxpayer dollars from going to fraudulent or unethical firms. I intend to continue examining this issue and working to ensure that federal contracts are awarded only to ethical businesses.