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. 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. 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

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 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. 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. Companies Have Raised Concerns about the Scope and Cost of Monitors’ Duties, and DOJ Has Not Communicated Its Role in Resolving Such Concerns

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. 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. 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. 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. 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. 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. Recommendations

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.
Why GAO Did This Study

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.

What GAO Found

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.