In 1986, a report to the President on defense management concluded that the defense industry needed to promote principles of ethical business conduct, detect acts of procurement fraud through self-governance, and voluntarily report potential fraud to the government. The report noted that DOD awarded contracts worth about $164 billion in 1985, 70 percent of which went to a group of 100 contractors. Twenty-five contractors reportedly did business of $1 billion or more, 147 contractors did $100 million or more, and almost 6,000 contractors did $1 million or more. In fiscal year 1994, the number of contractors doing business with DOD did not substantially change. Total DOD contracting for goods and services over $25,000 in fiscal year 1994 amounted to $118 billion. In response to the 1986 report, a number of defense contractors established self-governance programs that included monitoring compliance with federal procurement laws and voluntarily disclosing violations to government authorities. These efforts became known as the Defense Industry Initiative on Business Ethics and Conduct. To facilitate contractor self-governance and to encourage contractors to adopt a voluntary disclosure policy, DOD established the Voluntary Disclosure Program in July 1986. This program provides general guidelines, policy, and processes to enable DOD and its contractors to address matters of wrongdoing the contractors discover. At the time, DOD recognized that there was a need for a process to deal in a consistent manner with matters disclosed by contractors. In return for voluntarily disclosing potential wrongdoing and cooperating in any government audit and investigation, the government generally allows a contractor to conduct its own investigation, which the government then attempts to verify expeditiously. Upon receipt of an initial contractor disclosure, the DOD Inspector General’s office (1) makes a preliminary determination as to whether the disclosure satisfies the program’s requirements, (2) coordinates the execution of the standard voluntary disclosure agreement, (3) assigns the disclosure to a DOD criminal investigative organization for verification and to a suspension and debarment authority, and (4) coordinates the disclosure with the Justice Department for potential civil and criminal action. The Justice Department reviews all voluntary disclosures. It conducts, either through its Defense Procurement Fraud Unit or through referral to the appropriate U.S. Attorney’s Office, a preliminary inquiry to determine if there is credible evidence suggesting prosecutable violation of federal laws. The Justice Department has sole responsibility to initiate or decline prosecution. It also has an opportunity to concur in the voluntary disclosure agreement between the contractor and DOD. Acceptance of a voluntary disclosure into the program by DOD is based on four criteria. The contractor voluntarily disclosing the potential fraudulent action must (1) not be motivated by the recognition of imminent detection, (2) have status as a business entity, (3) take prompt and complete corrective actions, and (4) fully cooperate with the government in any ensuing investigation or audit. The number of voluntary disclosures under the program has been relatively small and the dollar recoveries have been modest. From its inception in 1986 through September 1994, DOD reported that 138 defense contractors made 325 voluntary disclosures of potential procurement fraud, of which 129 have been closed. According to DOD, 48 of the top 100 defense contractors made 222 disclosures. The remaining 103 disclosures were made by 90 contractors from among the more than 32,000 contractors doing business with DOD. Many contractors were one-time users, but one large contractor accounted for 23 of the closed cases. Figure 1 shows the annual number of disclosures reported since the program’s inception. Acceptance into the program has its benefits for contractors. For example, a contractor can expect (1) its liability in general to be less than treble damages, (2) action on any suspension to be deferred until after the disclosure is investigated, (3) the overall settlement to be coordinated with government agencies, (4) the disruption from adversarial government investigations to be reduced, and (5) the information may be kept confidential to the extent permitted by law and regulation. The program also benefits the government. For example, DOD commented that the existence of a structured format for addressing contractual and legal violations encourages contractor ethics and internal review programs. The Justice Department pointed out that the program promotes corporate compliance with laws and regulations. According to DOD, the key to deciding if a disclosure is voluntary is whether a contractor was aware of information the government possessed or was about to discover, thus motivating the contractor to make a disclosure. In a 1992 DOD review of the program, DOD noted cases in which it had determined that contractors’ disclosures were eligible for admission into the program, but the Justice Department disagreed and recommended that the disclosures not be admitted into the program. In 1992, when this disagreement was noted, the Justice Department proposed that it and DOD establish a working group to resolve the issue. To date, we were told, this has not occurred. According to officials from the two departments, disagreements continue over whether some disclosures should be admitted into the program. In fact, two of the three cases that were the basis of the concerns reflected in the 1992 review remain in the program as open cases, and the Justice Department still has not concurred with DOD’s acceptance of these disclosures into the program. The disagreement between the two departments revolves around whether disclosures were triggered by knowledge of imminent discovery by the government. In this regard, DOD believes that it is its prerogative, not the Justice Department’s, to accept or reject a contractor’s voluntary disclosure. DOD stated that it did not always agree with the Justice Department on whether a company should be admitted into the program. However, DOD stated that it and the Justice Department have worked well together in resolving the questions on a factual basis and that this cooperation has grown significantly over the last 2 years. DOD stated that the DOD Inspector General staff and representatives of the Defense Procurement Fraud Unit meet every 6 weeks to discuss the status of disclosures. During our review, we were told that these meetings were to resolve cases that had been open for an extended period, not to address whether disclosures should be accepted into the program. Through September 1994, DOD reported recoveries from the program of about $290 million, of which about 38 percent is associated with cases that are still open. The $290 million represents about 17 percent of the Justice Department’s $1.7 billion in reported settlements on DOD procurement fraud cases between fiscal years 1987 and 1994. While the value of the voluntary disclosure program may well extend beyond the amount of dollar recoveries, we note that most disclosures did not result in significant dollar recoveries for the government. Of 129 closed cases, 81 cases, or about 63 percent, had reported recoveries of less than $100,000, of which 52 cases, or 40 percent, had no dollar recoveries. Forty-eight cases had reported recoveries of $100,000 or more, of which 15 cases had reported recoveries of $2 million or more. Figure 2 shows the distribution of DOD-reported dollar recoveries for closed cases. The $290 million attributable to the program is overstated because it includes an amount that should not be considered a recovery from the program, as well as amounts related to disclosures made prior to the formal initiation of the program. The reported recoveries include (1) $75 million representing a contractor’s premature billings of progress payments and (2) recoveries from voluntary disclosure cases that predated the beginning of the program by up to 2 years. One case was closed before the program began. With regard to the progress payments, both the contractor’s disclosure report and the government’s subsequent investigative report showed the contractor prematurely billed the government by about $75 million. The Justice Department commented that the contractor then withheld approximately $75 million in billings at the time of the voluntary disclosure to rectify the premature billings. However, since DOD subsequently paid the contractor in full the amounts due under the contract, we believe the $75 million should not be claimed as a program recovery. DOD considers the submission of a claim for unearned progress payment to be a false claim and thus appropriate for reporting under the program. The Justice Department commented that there was no “recovery” of $75 million and that the government was damaged by the interest lost on the premature payments, the amount of which was included in the final settlement with the contractor. In our view, a recovery properly attributable to the voluntary disclosure program would be the interest cost on the $75 million premature payment. For 14 cases that predated the program, the DOD official responsible for the program told us that in 8 cases, although the disclosures predated the program announcement letter to industry, agreements were signed after the announcement and recoveries were resolved under the program. He said recoveries were made in three other cases after the program began. The DOD official believes, therefore, that these 11 cases were appropriately included in the program. However, he agreed that recoveries related to the three remaining cases should not be attributed to the program and indicated that DOD would reduce its reported recoveries—about $900,000—for these three cases. For closed cases, DOD records show that it took an average of 2.8 years to complete a voluntary disclosure case, with about 25 percent taking over 4 years. DOD records also show that the contractors’ investigation took about 21 percent of the time and that the federal audit/investigation took about 52 percent of the time. Figure 3 shows the time to complete the closed cases. More than half the disclosures made since the program began are still reported as open. As of September 30, 1994, there were 173 open cases that have been open an average of 3.5 years. Twenty-nine of 44 cases disclosed in fiscal year 1990 and 13 cases disclosed in fiscal year 1987, the first full year of the program, were still reported as open. Further, the open case load is growing.