July 1. 2011 | Kristen Soles
Necessary Evils
There are some things in life that are necessary evils. Some necessary evils, if approached correctly, can even be beneficial. Mowing the lawn? Definitely a necessary evil, along with cleaning the bathroom, sitting in traffic, and watching the Bachelorette (what is with Ashley anyway?). How about the dentist? I could argue that if you have a good dentist who fixes a tooth, on which you’ve had cavities filled four different times, with some new age dental material so you can now eat beef jerky in peace, you might have necessary benefits. (Shout out to Mark Jeffries, D.D.S.!) Lastly, what about audits? That’s a tough one. Many people view audits similarly to dental visits. However, I’d argue that if they are done right, the results can be extremely beneficial, though perhaps not as tasty as beef jerky.
In this context, I’m specifically referring to the government contracting community. Most government contractors are required to have an audit by their bank, board of directors, or for RFP purposes. So begins the necessary evil. What if you had a CPA firm performing your audit that knows your industry inside and out? That same CPA firm performs DCAA mock audits, consults on cost and pricing data, rate buildups, etc. Now you’ve got some necessary benefits built into that audit. Auditors are required to perform certain procedures during the course of an audit in accordance with Generally Accepted Accounting Principles (GAAP). Many things in GovCon fall outside of those requirements. Certainly it would be a “value add” and great for your client/firm relationship if your CPA firm went the extra mile and looked at some of those GovCon compliance issues during the course of the audit.
Those of you who have had audits know about the management letters issued at the conclusion of the process. Often they contain a laundry list of all the transactions found that a company did incorrectly during the course of the prior year. They may also call attention to deficiencies in internal control that should be corrected. At Watkins Meegan, we specialize in government contracting and feel it necessary to both comply with GAAP and look at those GovCon areas of compliance inherent to government contractors. As a result, some of our management letters this year had the following additional comments.
- The Company is not in compliance with the new FAR lowest cost travel principle; as a result, travel costs could be disallowed by the DCAA.
- The Company did not take into account unreasonable executive compensation and reclassify portions over the threshold to unallowable costs.
- The Company is not allocating service center costs to its final cost objectives in a causal beneficial manner.
We believe our clients are better served if they receive such advice as part of their annual audit rather than hearing it from the DCAA and risk penalties or a cost disallowance. These are the services that turn the necessary evil of an audit into a necessary benefit to a government contractor. There’s not a lot you can do about yard work and traffic, but you can minimize the pain and suffering of going to the dentist and facing DCAA with preventative maintenance. As for the Bachelorette, we can only hope Ashley finds love with someone as crazy as she is to ensure a happy ending.
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