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DCAA Accounting & Business Ethics II

Posted by Mike Anderson on Fri, Apr 18, 2014 @ 09:22 AM

Earlier this week I wrote an article about the declining amount of ethics evident in our society today.  I didn't spend enough time relating this directly to DCAA Accounting and DCAA compliance.  I wanted to talk just a little bit more about that here. 

After having just completed and turned in my income tax report (as many other Americans also did) I go to thinking about cheating on taxes.  I think we all know someone, or have heard of someone, who may have "exaggerated" on their deductions or contributions at some time on a tax return.  Or someone who may have claimed a certain expense should be classified as either a credit or deduction when that expense was not fully paid by the individual.  Those are only a few examples of ways that Americans might get "creative" with their tax returns.  After all, the chances of the government finding this is relatively low and then I know some people that rationalize they can claim either ignorance or apologize after the fact.  Again, the ends justifying the means.  I know people that would not do anything outside of the regulations as they viewed this as "wrong" and, while the government might not find out, they could not live with themselves if they did anything "wrong", even if they would not get caught.  I have heard some describe this as "situational ethics".  I used to work with someone that would do whatever he thought the situation required, regardless of the regulations.  Problem there is that the mind can usually rationalize an action, even if that action does not comply with regulations or laws.  I think it is like gambling or other addictions.  Once you get away with a little, you crave a little more and a little more risk.  Before long you have passed the point a normal person would consider a small amount or low risk.  Kind of like the old saying that "if you throw a frog into a pot of boiling water, he will jump out but if you put him in a pot of cool water and heat it up to a boil you will cook him". 

So let's relate this to the world of Government Contracting, and more specifically DCAA compliance.  There are a lot of regulations to comply with, depending on the type of contract and the amount of the contract.  As the type of contract changes (with cost reimbursable being the highest risk to the government) the risk of an audit goes up.  As the amount of the contract goes up, the risk goes up to the Government as well.  Everyone knows that the Government doesn't have enough resources to audit all contracts so if the risk of audit is low, do situational ethics allow the business to "skimp" on their compliance?  The DCAA seems to be focused more on larger business lately so does that give small contractors the freedom to "get away" with systems that are not DCAA compliant?  Maybe this would include not having to fill out all of your time on a timecard - just report 40 hours per week, regardless of what was worked?  Or maybe this allows a contractor to "fill up" the billing on a contract with other work, even indirect work efforts?  Or perhaps it means including some questionable (possible unallowable expenses) expenses in an indirect rate calculation?  Maybe the distinction between direct and indirect work could be a little blurred?  Or maybe getting creative with how an indirect rate is calculated so that the Government might pay more than normal?  What is the harm?  After all, the Government limits the amount of profit that the contractor can make so if there is a little "creative" accounting here and there, it only serves to allow the contractor to make a profit that they think they deserve, right?  I think it is back to ethics.  Doing something other than what you know is right is fraud.  Yes, the chances of getting caught might be low but that is again this "situational ethics" issue.  Personally I think it is time we restored the integrity of business in this country.  I think we should do what is right and those that embrace these "right way" should be rewarded.  I am tired of seeing people be rewarded by employing "situational ethics".  I don't want the person that lies or exaggerates on their resume to get ahead anymore.  I certainly don't want contractors to win a bid because they "cut corners" and the contractor that followed the rules and is completely DCAA compliant loses out.  That means we should hold ourselves accountable and we should hold others accountable.  That would include not only our circle of acquaintances but also our elected officials. 

Please let me know what you think on this. 

Topics: Ethics, DCAA compliance, DCAA accounting