When we talk about pay-to-play, we often think about making sure that executives do not make inadvertent contributions that run afoul of a state’s pay-to-play rules and make the company ineligible for contracts. We might also think about tracking contributions from certain employees so that pay-to-play certifications are truthful and accurate. But a recent criminal indictment of a company and seven of its senior executives in New Jersey reminds us that there are also bigger issues to consider about how to build a good compliance program.

The Allegations

The indictment alleges that a major engineering firm with over $28 million in public contracts in 2011 from across New Jersey systematically tried to avoid pay-to-play disclosures and reimbursed employees for making contributions the company could not make itself. In other words, this was not just a technical violation of the rules, but rather, according to the indictment, a systematic attempt to circumvent the rules.

The indictment and related news stories allege the company and its executives:

• Asked employees to make contributions to candidates of less than $300, to avoid disclosure thresholds.
• Reimbursed employees for those contributions through bonuses.
• Bundled these contributions and sent them to the candidates so they knew they were from the company.
• Filed pay-to-play reports saying the company and its key employees covered by the disclosure law had not given contributions when they knew about the reimbursed contributions.

Building a Compliance Program

A pay-to-play compliance program focused on pre-clearance of contributions by the company and those subject to the rules might not have stopped this kind of behavior. That is why a good pay-to-play system needs to include:

• Broad training about the scope of pay-to-play rules, so that employees who may be asked to participate in a reimbursement effort know not to be involved.
• An effective whistle blower process so that employees know whom to contact if they suspect something untoward.
• Policies and procedures to prevent reimbursement of contributions, which will include the accounting staff to make certain that bonuses are paid on a regular schedule and for documented reasons and that expense reimbursements are legitimate.

Of course, preclearance of contributions for those employees subject to restrictions and/or reporting is also essential. Ultimately, the goal of the compliance system is to create a culture of compliance so that the government sales force and leadership know that they cannot use contributions to sway the contracting process.