Government Accounting, Compliance and Audits

In the world of government contracting there are always issues with the way contractors do their accounting.  It's not good enough to do it like a normal business and the Federal Government instills lots of additional requirements.  These requirements all are based in a logic that helps protect the government from fraud and helps insure the government gets a good value for what they are paying for.  Sometimes these requirements can be not only intimidating but they can cause confusion and even inadvertant miscues.  It is not easy to run a compliant accounting system as a government contractor. 

I saw an interesting article this week related to this topic and thought it would be fun to run a comparison to what appears to be a very large audit problem to that of the small business US Federal Contractor.  The article was talking about problems found in the Canadian Defense Department books for 2013.   In essence, the article talks about $1.5 Billion of errors in the defense department for the year.  Some of the major problems noted included:

• Counting the same anti-missile system twice ($210M)
• Misstating the price of torpedoes ($15M)
• Forgetting to remove 2 aircraft from inventory a year after their crash ($27M)
• Services recorded but not yet received ($200M)
• Vehicles held for disposal still on the books ($36)
• Retired helicopter fleet still on the books ($81M)
• Spare parts still in possession of contractors and double counting of aircraft engines ($45M)

Imagine if, as a small business US Federal Government contractor you made these types of errors.  What do you think the DCAA would say?  Would your system be found inadequate?  As you can see, a lot of these errors are related to inventory.  I know that inventory systems are very difficult to maintain, especially when they become large and complex.  These mistakes are almost impossible to comprehend however.  How do you overlook a $13M aircraft?  Maybe it was camouflaged and blended in with some other inventory?  Oh, wait a minute; they were counted when they weren't really there.  I would say the DCAA would have a field day if they found similar situations in one of their audits.  Some of these findings might even bring suspicion of fraud or false claims.  Now, I'm sure that the Canadian government is not trying to be fraudulent but you can see how quickly errors can magnify themselves.   I think there are many small business contractors that inadvertently get into trouble with their accounting.  Either they don’t know the government’s requirements (naïve) or they think they can figure them out on their own since it is all public knowledge (underestimating the problem).   Either way, it usually takes up a lot of time for the business owner.   This is why it is so important for Federal Government contractors to make sure their accounting systems are in compliance and capable of passing an audit, especially a DCAA audit.  This is exactly the service that we supply at ReliAscent.  We can make a small business accounting system compliant, can operate it and insure it stays compliant.  This removes a lot of worry from the business owner and allows the business owner to concentrate on growing the technology, on growing the business and on implementing the strategic plan for the company to insure survival and ultimately success in the market.