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DCAA Accounting and Business Ethics

Posted by Mike Anderson on Tue, Apr 15, 2014 @ 10:04 AM

I saw an article on a news feed the other day that indicated there has been a change in the amount of cheating in business over the last several decades.  The article also indicated that the level of cheating in universities is also increasing.  It seems that the ends justify the means.  Not only have we lost some of our moral fiber in this country, we are seeing this degradation emphasized in schools, business practices and even the media.  I think a person only has to watch a small amount of television (not only the news but in the reality type shows) and you can easily see what I'm talking about.  Combine this with major scandals in the last 15 years (Enron, the mortgage crisis and the global financial crisis in 2008 to mention a few) and the trend is not pretty.    Individuals can have strong moral compasses but the influence of peer groups is overpowering. 

Socrates hinted at problems in this area thousands of years ago when he said "The more men value money-making, the less they value virtue".  The emphasis in the business environment today on achieving goals only.  Most of these goals are monetary in nature as we turn out more business educated perople.  In a study by Dan Ariely, Fancesca Gino and Nina Mazar it was determined that people cheat when the efforts can earn them more money.  The study also found that people tended to "rationalize" their cheating and this rationalization limited their cheating (they could have, and would have, cheated more if they could have rationalized it).  The results were that creative people also cheated more than other people because they could find more ways to rationalize and justify the self-serving results.  I mention all of this because it is clear in my mind that the influence of a larger peer group and the "rationalization" factors are powerful over-riding influences on people in business environments.  When you couple that with the evidence of cheating (that is obvious on many TV shows), real-life situations like the mortgage crisis or even watching how politicians behave (not only in elections but in law-making sessions) it is a damaging influence to the ethical operation of a business. 

Now to my point.  Government contractors are bound by certain regulations that are not found in commercial business (like FAR, DCAA, CFR, etc).  The DCAA (which typicall only audits the DoD, NASA and a few other types of awards) justifies their existence by finding "savings" for the US Government (or, the Taxpayer).  In the 2012 DCAA report to Congress (the latest report available on the DCAA website) the DCAA reviewed $154 Billon in contractor expenses (through audits) in 2012 and found savings to the government of $12.4 Billion (8% of audited expenses).  Since many government contracts require a written code of business ethics and conduct (ref FAR 3.10 & FAR 52.203-13) the question is whether this $12.4 Billion is from honest mistakes or from companies knowingly trying to bend the rules (fraud is often defined as knowing the right thing to do but doing otherwise).  I suspect there is some of both kinds in this $12.4 Billion.  Certainly honest mistakes will happen, we are all human.  The question is how much is from the un-ethical side of the coin.  As some of these indicators show, maybe a large portion is from our declining ethical fibers.  The only way to change this is to start holding people accountable and this can be hard to do in a peer influenced environment.  We can start internally with ourselves and our companies.  We can extrapolate this to our elected officials and public figures.  It becomes harder to do as the peer group of influence becomes larger.  But, like my dad used to tell me, the journey of a thousand miles starts with a single step. You can minimize your risk of the "honest mistakes" by enlisting an expert like ReliAscent to help you keep compliant.


Topics: Ethics, government contractor, DCAA accounting