AN ACT Relating to government procurement; adding a new section to chapter 43.09 RCW; adding a new chapter to Title 39 RCW; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. A new section is added to chapter 43.09 RCW to read as follows:

There is hereby created in the office of the state auditor a division to be known as the division of fraud prevention, the principal officer of which is the state auditor. The state auditor may appoint and deputize an assistant to be known as chief examiner to have charge of the division. The chief examiner may, with the approval of the state auditor, appoint and employ state examiners and clerical assistants as may be necessary to carry out the duties of the division. The division shall exercise the powers and perform the duties prescribed in chapter 39.-- RCW (sections 2 through 9 of this act).

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Business" means any corporation, partnership, individual, sole proprietorship, joint stock company, or any other private legal entity.

(2) "Construction" means the process of building, altering, repairing, improving, or demolishing any public structure or building, or other public improvements of any kind to any public real property. It does not include the routine operation, routine repair, or routine maintenance of existing structures, buildings, or real property.

(3) "Contract" means all types of state agreements, regardless of what they may be called, for the procurement of supplies, services, or construction.

(4) "Contractor" means any person having a contract with a governmental body.

(5) "The division" means the division of fraud prevention of the state auditor's office.

(6) "Governmental body" means any department, commission, council, board, bureau, agency, or other entity or authority of state government.

(7) "Person" means any business, individual, organization, association, or group of individuals.

(8) "Procurement" means buying, purchasing, renting, leasing, or otherwise acquiring any supplies, services, or construction.

(9) "Purchasing agency" means any governmental body that is authorized by law to enter into contracts.

(10) "Services" means the furnishing of labor, time, or effort by a contractor, not involving the delivery of a specific end product other than reports that are merely incidental to the required performance. This term shall not include employment agreements or collective bargaining agreements.

(11) "Supplies" means all property, including but not limited to equipment, materials, printing, insurance, and leases of real property, excluding land or a permanent interest in land.

(12) "Using agency" means any governmental body of the state that uses any supplies, services, or construction procured by contract.

NEW SECTION. Sec. 3. (1) This chapter applies only to contracts solicited or entered into after the effective date of this act.

(2) Except as provided in subsection (3) of this section, this chapter applies to every expenditure of public funds by the state of Washington, acting through a governmental body, under any contract over one hundred thousand dollars.

(3) This chapter does not apply to:

(a) Any contract between the state of Washington and its political subdivisions or other governments; or

(b) Any contract involving the expenditure of federal assistance or contract funds, where federal law and authorized regulations are mandatorily applicable, and are inconsistent with the requirements of this chapter.

NEW SECTION. Sec. 4. For the purpose of detecting and preventing fraud and abuse in government procurement, the division has the authority:

(1) To review, comment, and audit any contract subject to this chapter. Any comments shall be directed to the head of the purchasing agency, the using agency, and when appropriate, to the attorney general. The division may not exercise authority over the award or administration of any particular contract, or over any dispute, claim, or litigation pertaining thereto. For the purpose of conducting an audit, the state auditor, the chief examiner, and every state examiner of the division may:

(a) Audit the books and records of a contractor or any subcontractor under any contract or subcontract to the extent that such books and records relate to the performance of the contract or subcontract, including the submission of cost or pricing data;

(b) Issue subpoenas and compulsory process and direct the service thereof by any sheriff to compel the attendance of witnesses and the production of books and papers before the division at any designated time and place, and may administer oaths. If any person summoned neglects or refuses to appear, or neglects or refuses to answer any question that may be put to him or her touching any matter under audit, or to produce any books or papers required, the person making such audit shall apply to a superior court judge of the county where the hearing arose to issue a subpoena for the appearance of such person before the court, and the judge shall order the issuance of a subpoena for the appearance of such person forthwith before the court to give testimony. If any person so summoned fails to appear, or appearing refuses to testify or to produce any books or papers required, he or she shall be subject to like proceedings and penalties for contempt as witnesses in the superior court. Wilful false swearing in any such examination shall be perjury and punishable as such.

(2) To release fraud impact statements to the public upon the approval of the chief examiner of the division. In addition, any fraud impact statement shall be made available to members of the legislature, the legislative committees, and legislative staff on request. This subsection shall not affect the availability of a fraud impact statement to the general public under chapter 42.17 RCW.

(3) To debar a person for cause from consideration for award of contracts as provided in section 7 of this act.

(4) To adopt such rules, in accordance with chapter 34.04 RCW, as are necessary and appropriate to carry out the provisions of this chapter. No regulation may change any commitment, right, or obligation of the state or of a contractor under a contract in existence on the effective date of the rule.

NEW SECTION. Sec. 5. (1) Any contractor awarded a contract over one hundred thousand dollars shall submit a fraud impact statement to the division and to the purchasing agency before the execution of the contract. The fraud impact statement shall contain, when applicable, the following information:

(a) The names of all shareholders owning greater than ten percent of the stock of the corporation, or the names of all shareholders if fewer than twenty-five in number;

(b) The names and addresses of all members of the board of directors, officers, and the person or persons in charge of overseeing performance of the contract;

(c) Any record of criminal convictions related to fraud of those persons listed in subsection (1)(b) of this section, including:

(i) Conviction for commission of a criminal offense as an incident to obtaining or attempting to obtain a public or private contract or subcontract, or in the performance of such contract or subcontract;

(ii) Conviction under state or federal statutes of embezzlement, theft, forgery, bribery, falsification or destruction of records, or receiving stolen property; or

(iii) Conviction under state or federal antitrust statutes arising out of the submission of bids or proposals;

(d) A description of an antitrust compliance program; and

(e) A description of an internal accounting program designed to deter and detect employee theft, embezzlement, and participation in bribery or kickback schemes.

(2) A contractor who has submitted a fraud impact statement has a continuing duty of disclosure, and shall submit the following information to the division and to the purchasing agency during the performance of the contract:

(a) A list of all subcontractors including material suppliers, equipment lessors, and consultants performing for the contractor under the contract. The information required under this subsection shall include the names and addresses of the principals, the type of business, the service and material provided, and the federal taxpayer identification number of the person performing the subcontract;

(b) An annual certification that the contractor's internal controls have been followed; and

(3) If any subcontractor including material suppliers, equipment lessors, or consultants are to be paid more than one thousand dollars by the contract, then the contractor is to procure and disclose to the division and the purchasing agency a fraud impact statement as provided in subsections (1) and (2) of this section for those persons performing the subcontract.

(4) Any information submitted under subsections (1) and (2) of this section shall be accompanied by an affidavit signed by a responsible official representing the contractor that the information submitted is accurate, complete, and verifiable by the contractor's records. Any information submitted under subsection (3) of this section shall be accompanied by an affidavit signed by a responsible official representing the subcontractor that the information submitted is accurate, complete, and verifiable by the subcontractor's records.

(5) The division shall promulgate rules and procedures applicable to the preparation and submission of fraud impact statements required under this section.

NEW SECTION. Sec. 6. All contracts for more than one hundred thousand dollars shall provide that:

(1) The division of fraud prevention of the state auditor's office may, at reasonable times and places, audit the records and books of the contractor to the extent that the records and books relate to the performance of the contract, including the submission of cost of pricing data;

(2) The contractor will comply with all disclosure requirements under this chapter;

(3) The contractor has or will establish internal accounting controls in accordance with generally accepted accounting principles designed to deter employee theft, embezzlement, and participation in bribery or kickback schemes;

(4) The contractor will place in all subcontracts over one thousand dollars provisions that apply the requirements of subsections (1), (2), and (3) of this section to the subcontractor, material supplier, equipment lessor, or consultant.

NEW SECTION. Sec. 7. (1) After reasonable notice to the person involved and reasonable opportunity for that person to be heard, the chief examiner of the division, after consultation with the purchasing agency, the using agency, and the attorney general, shall have the authority to debar a person for cause from consideration for award of contracts. The debarment shall not be for a period of more than two years.

(2) "For cause" as used in this section means the wilful failure to comply with the requirements of this chapter.

(3) The chief examiner shall issue a written decision to debar. The decision shall (a) state the reasons for the action taken and (b) inform the debarred person involved of that person's rights to judicial review under subsection (5) of this section.

(4) A copy of the decision under subsection (3) of this section shall be mailed or otherwise furnished immediately to the debarred person and any other party intervening.

(5) A decision under subsection (3) of this section shall be final and conclusive, unless fraudulent, or unless the debarred person appeals to the superior court of Thurston county or the county of the principal place of business of the debarred person within thirty days of the decision. The review in superior court shall be de novo. The court may award the prevailing party on appeal the costs of the suit including reasonable attorneys' fees.

NEW SECTION. Sec. 8. Any director, officer, or employee of a contractor or subcontractor, or any other person who is authorized to act on behalf of a contractor or subcontractor who knowingly provides false information or knowingly conceals information required by this chapter is guilty of a class C felony under chapter 9A.20 RCW.

NEW SECTION. Sec. 9. Nothing in this chapter affects a contractor's duty to comply with all other applicable provisions of law.

NEW SECTION. Sec. 10. Sections 2 through 9 of this act shall constitute a new chapter in Title 39 RCW.