Corporate Crime: Prosecutors Adhered to Guidance in Selecting Monitors for Deferred Prosecution and Non-Prosecution Agreements, but DOJ Could Better Communicate Its Role in Resolving Conflicts
Published: 2009-11-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Recent cases of corporate fraud and mismanagement heighten the Department of Justice's (DOJ) need to appropriately punish and deter corporate crime. Recently, DOJ has made more use of deferred prosecution and non-prosecution agreements (DPAs and NPAs), in which prosecutors may require company reform, among other things, in exchange for deferring prosecution, and may also require companies to hire an independent monitor to oversee compliance. This testimony addresses (1) the extent to which prosecutors adhered to DOJ's monitor selection guidelines, (2) the prior work experience of monitors and companies' opinions of this experience, and (3) the extent to which companies raised concerns about their monitors, and whether DOJ had defined its role in resolving these concerns. Among other steps, GAO reviewed DOJ guidance and examined the 152 agreements negotiated from 1993 (when the first 2 were signed) through September 2009. GAO also interviewed DOJ officials, obtained information on the prior work experience of monitors who had been selected, and interviewed representatives from 13 companies with agreements that required monitors. These results, while not generalizable, provide insights into monitor selection and oversight.
section_title: What GAO Found
paragraphs: Prosecutors adhered to DOJ guidance issued in March 2008 in selecting monitors required under agreements entered into since that time. Monitor selections in two cases have not yet been made due to challenges in identifying candidates with proper experience and resources and without potential conflicts of interests with the companies. DOJ issued guidance in March 2008 to help ensure that the monitor selection process is collaborative and based on merit; this guidance also requires prosecutors to obtain Deputy Attorney General approval for the monitor selection. For DPAs and NPAs requiring independent monitors, companies hired a total of 42 different individuals to oversee the agreements; 23 of the 42 monitors had previous experience working for DOJ--which some companies valued in a monitor choice--and those without prior DOJ experience had worked in other federal, state, or local government agencies, the private sector, or academia. The length of time between the monitor's leaving DOJ and selection as a monitor ranged from 1 year to over 30 years, with an average of 13 years. While most of the companies we interviewed did not express concerns about monitors having prior DOJ experience, some companies raised general concerns about potential impediments to independence or impartiality if the monitor had previously worked for DOJ or had associations with DOJ officials. Representatives for more than half of the 13 companies with whom GAO spoke raised concerns about the monitor's cost, scope, and amount of work completed--including the completion of compliance reports required in the DPA or NPA--and were unclear as to the extent DOJ could be involved in resolving such disputes, but DOJ has not clearly communicated to companies its role in resolving such concerns. Companies and DOJ have different perceptions about the extent to which DOJ can help to resolve monitor disputes. DOJ officials GAO interviewed said that companies should take responsibility for negotiating the monitor's contract and ensuring the monitor is performing its duties, but that DOJ is willing to become involved in monitor disputes. However, some company officials were unaware that they could raise monitor concerns to DOJ or were reluctant to do so. Internal control standards state that agency management should ensure there are adequate means of communicating with, and obtaining information from, external stakeholders that may have a significant impact on the agency achieving its goals. While one of the DOJ litigating divisions and one U.S. Attorney's Office have made efforts to articulate in the DPAs and NPAs what role they could play in resolving monitor issues, other DOJ litigation divisions and U.S. Attorney's Offices have not done so. Clearly communicating to companies the role DOJ will play in addressing companies' disputes with monitors would help increase awareness among companies and better position DOJ to be notified of potential issues related to monitor performance.

section_title: Letter
paragraphs: I appreciate the opportunity to participate in today’s hearing to discuss the  Department of Justice’s (DOJ) selection and use of independent monitors  in corporate deferred prosecution and non-prosecution agreements.  According to the DOJ, one of its chief missions is to ensure the integrity of  the nation’s business organizations and protect the public from corporate  corruption. In light of this goal, DOJ has prosecuted company executives  and employees, as well as companies themselves, for crimes such as tax  evasion, securities fraud, health care fraud, and bribery of foreign officials,  among others. However, over the past decade, DOJ has recognized the  potential harmful effects that criminally prosecuting a company can have  on investors, employees, pensioners, and customers who were uninvolved  in the company’s criminal behavior. In particular, the failure of the  accounting firm Arthur Andersen, and the associated loss of thousands of  jobs following its indictment and conviction for obstruction of justice for  destroying Enron-related records, has been offered as a prime example of  the potentially harmful effects of criminally prosecuting a company. To  avoid serious harm to innocent third parties, and as an alternative to  criminal prosecution or declination of prosecution, DOJ guidance allows  prosecutors to negotiate agreements—referred to as deferred prosecution  (DPA) and non-prosecution (NPA) agreements. These agreements may  require companies to institute or reform corporate ethics and compliance  programs, pay restitution to victims, and cooperate with ongoing  investigations of individuals in exchange for prosecutors deferring the  decision to prosecute. As part of DPAs and NPAs, prosecutors may also  require a company to hire, at its own expense, an independent monitor to  oversee the company’s compliance with the agreement. DOJ and  companies have generally worked together to select monitors, but DOJ  leaves it up to the company to enter into a contract with a monitor that  specifies the monitor’s fees, among other things.
DOJ views DPAs and NPAs as appropriate tools to use in cases where the  goals of punishing and deterring criminal behavior, providing restitution to  victims, and reforming otherwise law-abiding companies can be achieved  without criminal prosecution. The use of these agreements and the  associated monitors, however, is not without debate. Some commentators  have acknowledged monitors’ value in ensuring company compliance with  the terms of DPAs and NPAs and in instituting corporate reform, but have  also pointed to challenges associated with monitorships, such as concerns  regarding potential favoritism in the monitor selection process and  questions about monitor accountability, oversight, and costs.
In June 2009, we testified before this subcommittee regarding our ongoing  work on DOJ’s use and oversight of DPAs and NPAs. With regard to the  selection and use of monitors, we reported that DOJ used independent  monitors as one mechanism to ensure that companies were complying  with the agreements, where monitors were typically required to file  written reports with prosecutors on the companies’ progress. Also, we  reported in our testimony that DOJ generally took the lead in selecting  monitors and varied in the extent to which it involved companies in  monitor selection decisions. In cases where DOJ officials identified  monitor candidates, they generally did so based on their personal  knowledge of individuals whose reputations suggested that they would be  effective monitors, or through recommendations from colleagues or  professional associates who were familiar with the requirements of a  monitorship. We reported that DOJ had acknowledged concerns about the  cost to companies of hiring a monitor and perceived favoritism in the  selection of monitors, and thus issued guidance in March 2008 to help  ensure that its monitor selection process is collaborative and merit-based.  Lastly, we reported that companies we spoke with identified concerns  about the amount and scope of the monitors’ work, but believed that they  had little leverage to resolve these issues, and therefore would like DOJ to  assist them in doing so.
DPAs and NPAs, (2) what previous professional experience monitors had  and what were company perspectives on monitors’ experience, and (3) to  what extent, if at all, companies raised concerns about their monitors, and  whether DOJ has defined its role in resolving any concerns. My comments  are based on our ongoing review of DPAs and NPAs requested by you as  well as the Chairman of the Senate Judiciary Committee, Patrick Leahy;  the Chairman of the House Judiciary Committee, John Conyers;  Congressman Frank Pallone, Jr.; Congressman Bill Pascrell, Jr.; a nd  Congresswoman Linda T. Sanchez. The final results of this review wi issued later this year.
To address all 3 objectives, we identified 152 DPAs and NPAs that DOJ  prosecutors had negotiated from 1993 (when the first two were signed)  through September 2009 (which was the end of our review period), and  reviewed copies of all but one of the agreements. Of the 152 agreements 48 required the appointment of an independent monitor. We interviewed  prosecutors from DOJ’s Criminal Division and 12 U.S. Attorneys Offices  (USAO) that had negotiated most (119) of the 152 agreements. We selected the Criminal Division because it had negotiated the vast majority of  agreements entered into by prosecutors at DOJ headquarters, and weselected 12 specific USAOs because they were the only ones that had  negotiated at least 2 agreements, of which at least 1 had been complete as of September 30, 2008. During our interviews, we discussed 57  agreements. Of these 57, 25 were completed agreements that requi red  companies to institute an ethics or compliance program. In addition, D required 15 of the 25 companies to hire an independent monitor; we  interviewed or obtained written responses from legal representatives compliance officials from 13 of these 15 companies. Since we determine which DOJ officials and company representatives to interview based on a  nonprobability sample, the information we obtained is not generalizable to all DOJ litigating components, U.S. Attorneys Offices, and companies  d  involved in DPAs and NPAs. However, the interviews provided insights  into the selection and use of independent monitors in DPAs and NPAs.
To assess whether DOJ had selected monitors according to DOJ’s March  2008 guidelines, we reviewed the six agreements that required companies  to hire a monitor that had been entered into since the issuance of the  guidelines. We also reviewed documentation maintained by the Office of  the Deputy Attorney General (ODAG) on the procedures used to select the  four monitors that had been selected as of October 2009, and discussed  the status of the selection process for the other two agreements with DOJ.  We compared the selection processes for the six agreements to the  requirements of DOJ’s March 2008 guidelines.
To assess the prior experience of DOJ-appointed monitors for the 46  agreements where monitor selections had been completed, we obtained  the names of the monitors from DOJ or company representatives and  reviewed publicly available biographies that detailed these monitors’ prior  work experience. We also spoke with the 13 selected company legal  representatives and compliance officials regarding companies’  perspectives on monitors’ prior experience.
To assess companies’ concerns, if any, with their monitors, and DOJ’s role  in resolving conflicts between companies and monitors, we conducted a  Web-based survey of legal representatives or compliance officials from the  23 companies with agreements that required monitors, where the  agreement had been completed, to obtain company views on the  monitoring process. We obtained responses from 13 of the 23 companies  we surveyed. Since we surveyed company officials involved with  agreements that had been completed, the information we obtained is not  generalizable; however, the survey responses provided useful insights into company perspectives on monitor contracts and performance. We also  spoke with companies’ legal representatives and compliance officials  regarding the types of issues that may arise between companies and  monitors in negotiating the monitor contracts and carrying out the  monitorship. We discussed with Senior Counsel to the ODAG what role, if  any, DOJ should play in resolving any conflicts between companies and  monitors. We compared our findings on DOJ’s role in resolving conflicts  between companies and monitors with criteria on internal control  standards in the federal government.
We conducted this performance audit from September 2008 to November  2009 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our objectives.
In summary, DOJ issued guidance in March 2008—known as the Morford  Memo—to help ensure that the monitor selection process is collaborative  and merit based. DOJ prosecutors adhered to the Morford Memo in  selecting 4 of the 6 monitors required under agreements entered into March 2008; DOJ has not yet selected the remaining 2 monitors. For all 48  DPAs and NPAs where DOJ required independent monitors, companies  hired a total of 42 different individuals to oversee the agreements. Twent three of the 42 monitors had previous experience working for DOJ, and  the 13 monitors who were not former DOJ employees had experience  working in other federal, state, or local agencies, the private sector, the  military, or academia. Representatives from some of the companies we  interviewed sought monitors with DOJ experience, whereas others raised  general concerns about potential impediments to independence or  impartiality if the monitor had previously worked for DOJ or had  associations with DOJ officials. Representatives for more than hal                                                                                                                                    ent,  13 companies with whom we spoke or from whom we obtained written  responses raised concerns about the monitor’s cost, scope, and amount o f  work completed and were unclear as to whether DOJ could be involved in  resolving such disputes s. However, given that DOJ is not a party to the  contract between the company and monitor, DOJ and companies have  different perceptions about the extent to which DOJ can help to resolve conflicts between companies and monitors. Internal control standards  state that agency management should ensure there are adequate means  communicating with, and obtaining information from, external  stakeholders that may have a significant impact on the agency a its goals. Clearly communicating to companies the role DOJ will play in  addressing companies’ disputes with monitors would help better position DOJ to be notified of potential issues related to monitor performance.
To provide clarity regarding DOJ’s role in resolving disputes between  companies and monitors, we recommend that the Attorney General dir all litigating components and U.S. Attorneys Offices to explain in each  corporate DPA or NPA what role DOJ could play in resolving such  d  disputes, given the facts and circumstances of the case. We requeste comments on a draft of this statement from DOJ. DOJ did not provide  official written comments to include in the statement. However, in an  email sent to us on November 17, 2009, DOJ provided technical comme which we incorporated into the statement, as appropriate.
subsections: section_title: Prosecutors Have Selected Monitors in Accordance with DOJ Guidelines, but Have Experienced Delays in Selecting Some Monitors
paragraphs: In March 2008, then Deputy Attorney General Craig Morford issued a  memorandum—also known as the “Morford Memo”—to help ensure th the monitor selection process is collaborative, results in the selection of a  highly-qualified monitor suitable for the assignment, avoids potential  conflicts of interest, and is carried out in a manner that instills public  confidence.  The Morford Memo requires USAOs and other DOJ litiga divisions to establish ad hoc or standing committees consisting of the  office’s ethics advisor, criminal or section chief, and at least one other  experienced prosecutor to consider the candidates—which may be  proposed by either prosecutors, companies, or both—for each  monitorship. DOJ components are also reminded to follow spec ified  federal conflict of interest guidelines and to check monitor candidates for  tion  potential conflicts of interest relationships with the company. In  addition, the names of all selected monitors for DPAs and NPAs must be  submitted to ODAG for final approval.
Following issuance of the Morford Memo, DOJ entered into 35 DPAs and  NPAs, 6 of which required the company to hire an individual to oversee  the company’s compliance with the terms of the DPA. As of November  2009, DOJ had selected monitors for 4 of the 6 agreements. Based on o discussions with prosecutors and documentation from DOJ, we  determined that for these 4 agreements, DOJ made the selections accordance with Morford Memo guidelines. Further, while the Morfo Memo does not specify a selection process that must be used in all cases it suggests that in some cases it may be appropriate for the company to  select the monitor or propose a pool of qualified candidates from which  DOJ will select the monitor. In all 4 of these cases, the company either  selected the monitor, subject to DOJ’s approval, or provided DOJ with  proposed monitor candidates from among which DOJ selected the  monitor. However, while we were able to determine that the prosec complied with the Morford Memo based on information obtained through  our interviews, DOJ did not fully document the selection and approval  process for 2 of the 4 monitor selections. The lack of such documentati will make it difficult for DOJ to validate to an independent third-party  s  reviewer, as well as to Congress and the public, that prosecutors acros DOJ offices followed Morford Memo guidelines and that monitors were  selected in a way that was fair and merit based. For example, for 1 of these  2 agreements, DOJ did not document who in the U.S. Attorney’s Office was  on  involved in reviewing the monitor candidates, which is important becaus e  the Morford Memo requires that certain individuals in the office be part of  the committee to consider the selection or veto of monitor candidates in  order to ensure monitors are not selected unilaterally. For the second  agreement, the Deputy Attorney General’s approval of the selected  monitor was relayed via telephone and not documented. As a result, in  order to respond to our inquiries, DOJ officials had to reach out to  individuals who were involved in the telephone call, one of whom w longer a DOJ employee, to obtain information regarding the monitor’s  approval.
Documenting the reasons for selecting a particular monitor helps avoid the appear and practices—which are intended to instill public confidence in the  monitor selection process—were followed. Therefore, in our June 25,  2009, testimony, we recommended that the Deputy Attorney General ado or  internal procedures to document both the process used and reasons f monitor selection decisions. DOJ agreed with our recommendation an in August 2009, instituted such procedures. Specifically, DOJ requires  ODAG to complete a checklist confirming receipt of the monitor selectio submission—including the process used and reasons for selecting the  monitor—from the DOJ component; ODAG’s review, recommendation,ance of favoritism and verifies that Morford Memo processes  and decision to either approve or reject the proposed monitor; the DOJ  component’s notification of ODAG’s decision; and ODAG’s documentat of these steps. For the two monitors selected during or after August 2009,  DOJ provided us with completed checklists to confirm that ODAG had  followed the new procedures.
While DOJ selected monitors in accordance with the Morford Memo,  monitor selections have been d after the Morford Memo was issued. The selection of one monitor took 15  months from the time the agreement was signed and selection of two  monitors, as discussed above, has been delayed for more than 17 months elayed for three agreements entered into  from the time the agreement was signed. According to DOJ, the delays in  selecting these three monitors have been due to challenges in identifyi ng  candidates with proper experience and resources who also do not have  potential conflicts of interest with the company. Further, DOJ’s selection  of monitors in these three cases took more time than its selection of  monitors both prior to and since the issuance of the Morford Memo— which on average was about 2 months from the time the NPA or DPA was  signed or filed.
According to the Senior Counsel to the Assistant Attorney General for the  Criminal Division, for these three agreements, the prosecutors overseeing  the cases have communicated with the companies to ensure that they are  complying with the agreements. Further, DOJ reported that the  prosecutors are working with each of the companies to extend the  duration of the DPAs to ensure that the duties and goals of each  monitorship are fulfilled and, as of October 2009, an agreement to extend  the monitorship had been signed for one of the DPAs. Such action by DOJ  will better position it to ensure that the companies are in compliance with  the agreements while awaiting the selections of the monitors.
section_title: More Than Half of the Monitors Had Prior DOJ Experience; Some Companies Said Such Experience Was Valuable While Others Noted That It Might Impede Monitors’ Independence or Impartiality
paragraphs: For the 48 DPAs and NPAs where DOJ required independent monitors,  companies have hired a total of 42 different monitors, more than half of  whom were former DOJ employees. Specifically, of these 42 monitors, 23  previously worked at DOJ, while 13 did not. The 23 monitors held  various DOJ positions, including Assistant U.S. Attorney, Section Chief or  Division Chief in a litigating component, U.S. Attorney, Assistant Attorney  General, and Attorney General. The length of time between the monitor’s  separation from DOJ and selection as monitor ranged from 1 year to more  than 30 years, with an average of 13 years. Five individuals were selected  to serve as monitors within 3 years or less of being employed at DOJ. In  addition, 8 of these 23 monitors had previously worked in the USAO or  DOJ litigating component that oversaw the DPA or NPA for which they  were the monitor. In these 8 cases, the length of time between the  monitor’s separation from DOJ and selection as monitor ranged from 3  years to 34 years, with an average of almost15 years.
Of the remaining 13 monitors with no previous DOJ experience, 6 had  previous experience at a state or local government agency, for example, as  a prosecutor in a district attorney’s office; 3 had worked in federal  agencies other than DOJ, including the Securities and Exchange  Commission and the Office of Management and Budget; 2 were former  judges; 2 were attorneys in the military; 3 had worked solely in private  practice in a law firm; and 1 had worked as a full-time professor.
Of the 13 company representatives with whom we spoke who were  required to hire independent monitors, in providing perspectives on  monitors’ previous experience, representatives from 5 of these companies  stated that prior employment at DOJ or an association with a DOJ  employee could impede the monitor’s independence and impartiality,  whereas representatives from the other 8 companies disagreed. Specific  concerns raised by the 5 companies—2 of which had monitors with prior  DOJ experience—included the possibility that the monitor would favor  DOJ and have a negative predisposition toward the company or, if the  monitor recently left DOJ, the monitor may not be considered  independent; however, none of the companies identified specific instances  with their monitors where this had occurred. Of the remaining 8 company  representatives who did not identify concerns, 6 of them worked with  monitors who were former DOJ employees, and some of these officials  commented on their monitors’ fairness and breadth of experience. In  addition 5 company representatives we spoke with who were involved in  the monitor selection process said that they were specifically looking for  monitors with DOJ experience and knowledge of the specific area of law  that the company violated.
section_title: Companies Have Raised Concerns about the Scope and Cost of Monitors’ Duties, and DOJ Has Not Communicated Its Role in Resolving Such Concerns
paragraphs: Officials from 8 of the 13 companies with whom we spoke raised concerns  about their monitors, which were either related to how monitors were  carrying out their responsibilities or issues regarding the overall cost of  the monitorship. However, these companies said that it was unclear to  what extent DOJ could help to address these concerns. Seven of the 13  companies identified concerns about the scope of the monitor’s  responsibilities or the amount of work the monitor completed. For  example, 1 company said that the monitor had a large number of staff  assisting him on the engagement, and he and his staff attended more  meetings than the company felt was necessary, some of which were  unrelated to the monitor responsibilities delineated in the agreement, such  as a community service organization meeting held at the company when  the DPA was related to securities fraud. As a result, the company believes  that the overall cost of the monitorship—with 20 to 30 lawyers billing the  company each day—was higher than necessary.
Another company stated that its monitor did not complete the work  required in the agreement in the first phase of the monitorship—including  failing to submit semi-annual reports on the company’s compliance with  the agreement to DOJ during the first 2 years of the monitorship— resulting in the monitor having to complete more work than the company  anticipated in the final phase of the monitorship. According to the  company, this led to unexpectedly high costs in proportion to the  company’s revenue in the final phase, which was significant because the  company is small. Further, according to a company official, the monitor’s  first report contained numerous errors that the company did not have  sufficient time to correct before the report was submitted to DOJ and,  thus, DOJ received a report containing errors.
While 6 of the 13 companies we interviewed did not express concerns  about the monitor’s rates, 3 companies expressed concern that the  monitor’s rate (which ranged from $290 per hour to a rate of $695 to $895  per hour among the companies that responded to our survey) was high.  Further, while 9 of the 13 companies that responded to our survey  believed that the total compensation received by the monitor or  monitoring firm was reasonable for the type and amount of work  performed (which, according to the companies that responded to our  survey, ranged from $8,000 to $2.1 million per month), 3 companies did  not believe it was reasonable.
When asked how they worked to resolve these issues with the monitor,  companies reported that they were unaware of any mechanisms available  to resolve the issues—including DOJ involvement—or if they were aware  that DOJ could get involved they were reluctant to seek DOJ’s assistance.  Specifically, three of the eight companies that identified concerns with  their monitor were not aware of any mechanism in place to raise these  concerns with DOJ. Four companies were aware that they could raise  these concerns with DOJ, but three of these companies said that they  would be reluctant to raise these issues with DOJ in fear of repercussions.  Another company did not believe that DOJ had the authority to address  their concerns because they were related to staffing costs, which were  delineated in the contract negotiated between the company and the  monitor, not the DPA.
However, DOJ had a different perspective than the company officials on  its involvement in resolving disputes between companies and monitors.  According to the Senior Counsel to the ODAG, while DOJ has not  established a mechanism through which companies can raise concerns  with their monitors to DOJ and clearly communicated to companies how  they should do so, companies are aware that they can raise monitor- related concerns to DOJ if needed. Further, it was the Senior Counsel’s  understanding that companies frequently raise issues regarding DPAs and  NPAs to DOJ without concerns about retribution, although to his  knowledge, no companies had ever raised monitor-related concerns to  ODAG. The Senior Counsel acknowledged, however, that even if  companies did raise concerns to DOJ regarding their monitors, the point in  the DPA process at which they did so may determine the extent of DOJ’s  involvement. Specifically, according to this official, while he believed that  DOJ may be able to help resolve a dispute after the company and monitor  enter into a contract, he stated that, because DOJ is not a party to the  contract, if a conflict were to arise over, for instance, the monitor’s failure  to complete periodic reports, DOJ could not compel the monitor to  complete the reports, even if the requirement to submit periodic reports  was established in the DPA or NPA.
In contrast, the Senior Counsel said that if the issues between monitors  and companies arise prior to the two parties entering into a contract, such  as during the fee negotiation phase, DOJ may be able to play a greater role  in resolving the conflict. However, the mechanisms that DOJ could use to  resolve such issues with the monitor are uncertain since while the  monitor’s role is delineated in the DPA, there is no contractual agreement  between DOJ and the monitor. DOJ is not a party to the monitoring  contract signed by the company and the monitor, and the monitor is not a  party to the DPA signed by DOJ and the company. We are aware of at least  one case in which the company sought DOJ’s assistance in addressing a  conflict with the monitor regarding fees, prior to the monitor and company  signing their contract. Specifically, one company raised concerns about  the monitor to the U.S. Attorney handling the case, stating that, among  other things, the company believed the monitor’s fee arrangement was  unreasonably high and the monitor’s proposed billing arrangements were  not transparent. The U.S. Attorney declined to intervene in the dispute  stating that it was still at a point at which the company and the monitor  could resolve it. The U.S. Attorney instructed the company to quickly  resolve the dispute directly with the monitor—noting that otherwise, the  dispute might distract the company and the monitor from resolving the  criminal matters that were the focus of the DPA. The U.S. Attorney also  asked the company to provide an update on its progress in resolving the  conflict the following week. A legal representative of the company stated  that he did not believe he had any other avenue for addressing this dispute  after the U.S. Attorney declined to intervene. As a result, although the  company disagreed with the high fees, it signed the contract because it did  not want to begin the monitorship with a poor relationship with the  monitor resulting from a continued fee dispute.
The Senior Counsel to the ODAG stated that because the company is  signatory to both the DPA or NPA and the contract with the monitor, it is  the company’s responsibility to ensure that the monitor is performing the  duties described in the agreement. However, 5 of the 7 companies that had  concerns about the scope of the monitor’s responsibilities or the amount  of work the monitor completed did not feel as if they could adequately  address their issues by discussing them with the monitors. This is because  two companies said that they lacked leverage to address issues with  monitors and two companies feared repercussions if they raised issues  with their monitors. The Senior Counsel stated that one way the  company could hold the monitor accountable is by incorporating the  monitor requirements listed in the DPA into the monitoring contract and  additionally include a provision in the contract that the monitor can be  terminated for not meeting these requirements. However, the companies  that responded to our survey did not generally include monitor  termination provisions in their contracts. Specifically, 7 of the 13  companies that responded to our survey reported that their monitoring  contract contained no provisions regarding termination of the monitor,  and another 3 companies reported that their contract contained a clause  that actually prohibited the company from terminating the monitor. Only  1 company that responded to our survey reported that the contract  allowed it to terminate the monitor with written notice at any time, once  the company and DOJ agreed (and subject to the company’s obligation to  pay the monitor). This contract also included a provision allowing for the  use of arbitration to resolve disputes between the company and the  monitor over, for instance, services rendered and fees. In order to more  consistently include such termination clauses in the monitoring contracts,  companies would need the monitor’s consent. Given that DOJ makes the  final decision regarding the selection of a particular monitor—and that  DOJ allows for, but does not require, company involvement in the monitor  selection process—it is uncertain how much leverage the company would  have to negotiate that such termination or dispute resolution terms be  included in the contract with the monitor.
Because monitors are one mechanism that DOJ uses to ensure that  companies are reforming and meeting the goals of DPAs and NPAs, DOJ  has an interest in monitors performing their duties properly. While over  the course of our review, we discussed with DOJ officials various  mechanisms by which conflicts between companies and monitors could be  resolved, including when it would be appropriate for DOJ to be involved,  DOJ officials acknowledged that prosecutors may not be having similar  discussions with companies about resolving conflict. This could lead to  differing perspectives between DOJ and companies on how such issues  should be addressed. Internal control standards state that agency  management should ensure that there are adequate means of  communicating with, and obtaining information from, external  stakeholders that may have a significant impact on the agency achieving  its goals. According to DOJ officials, the Criminal Division Fraud Section  has made some efforts to clarify what role it will play in resolving disputes  between the company and the monitor. For example, 11 of 17 DPAs or  NPAs entered into by the Fraud Section that required monitors allowed  companies to bring to DOJ’s attention any disputes over implementing  recommendations made by monitors during the course of their reviews of  company compliance with DPAs and NPAs. In addition, 8 of these 11  agreements provide for DOJ to resolve disputes between the company and  the monitor related to the work plan the monitor submitted to DOJ and the  company before beginning its review of the company. Additionally, in 5  agreements entered into by one USAO, the agreement specified that the  company could bring concerns about unreasonable costs of outside  professionals—such as accountants or consultants—hired by the monitor  to the USAO for dispute resolution. While the Criminal Division Fraud  Section and one USAO have made efforts to articulate in the DPA or NPA  the extent to which DOJ would be willing to be involved in resolving  specific kinds of monitor issues for that particular case, other DOJ  litigating divisions and USAOs that entered into DPAs and NPAs have not.  Clearly communicating to companies and monitors in each DPA and NPA  the role DOJ will play in addressing companies’ disputes with monitors  would help better position DOJ to be notified of potential issues  companies have identified related to monitor performance.
section_title: Conclusions
paragraphs: According to DOJ, DPAs and NPAs can be invaluable tools for fighting  corporate corruption and helping to rehabilitate a company, although use  of these agreements has not been without controversy. DOJ has taken  steps to address concerns that monitors are selected based on favoritism  or bias by developing and subsequently adhering to the Morford Memo  guidelines. However, once the monitors are selected and any issues—such  as fee disputes or concerns with the amount of work the monitor is  completing—arise between the monitor and the company, it is not always  clear what role, if any, DOJ will play in helping to resolve these issues.  Clearly communicating to companies and monitors the role DOJ will play  in addressing companies’ disputes with monitors would help better  position DOJ to be made aware of issues companies have identified  related to monitor performance, which is of interest to DOJ since it relies  on monitors to assess companies’ compliance with DPAs and NPAs.
We are continuing to assess the potential need for additional guidance or  other improvements in the use of DPAs and NPAs in our ongoing work.
section_title: Recommendations
paragraphs: To provide clarity regarding DOJ’s role in resolving disputes between  companies and monitors, the Attorney General should direct all litigating  components and U.S. Attorneys Offices to explain in each corporate DPA  or NPA what role DOJ could play in resolving such disputes, given the  facts and circumstances of the case.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this statement from DOJ. DOJ did  not provide official written comments to include in the statement.  However, in an email sent to us on November 17, 2009, DOJ provided  technical comments, which we incorporated into the statement, as  appropriate.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For questions about this statement, please contact Eileen R. Larence at  (202) 512-8777 or larencee@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement. Individuals making key contributions to this statement  include Kristy N. Brown, Jill Evancho, Tom Jessor, Sarah Kaczmarek,  Danielle Pakdaman, and Janet Temko, as well as Katherine Davis and  Amanda Miller.
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