government compliance

The Cost of Compliance

Have you ever heard of a potential customer being “wowed” by a company’s policies and procedures ?

NO of course not!

Customers are impressed by slick technology, impressive office space and well spoken business development directors.

Few small businesses ever want to spend their precious working capital on something as uniquely unglamorous as accounting and contracting policies and procedures.
So why bother investing the time and resources in developing them?
Because if your customer is the federal government, you not only have to “wow” them with your products and services but also with your adherence to the compliance requirements mandated in the FAR and other oversight regulations.
A message that we drive home with our clients and potential clients, is that the cost of compliance is significantly cheaper if compliance is addressed early in the company’s life cycle.
It is far (no pun intended of course) less expensive to develop and implement compliant policies and procedures while the company is young and has not become entrenched in business procedures that are not compliant and that have to be re-tooled completely.
This harkens back to the cost of quality adage that you can a spend a dollar today doing things right or a hundred dollars down the road to rework was what implemented poorly the first time.
Administrative “details” are the last thing that entrepreneurs want to focus on when building their products and delivering their services. This goes for everything from setting up well thought out accounting systems to implementing timekeeping systems or subcontracting policies.
Certainly the compliance requirements become increasingly more stringent the larger your contracts in value or diverse in contract vehicle, but assuming the goal of every young company is to grow, then the complexity and requirements will naturally follow.
If you understand the basics of compliance and have an idea of what the progression of requirements will be then you can manage the cost of implementation over time –
Spend the dollar today to prevent the necessity of spending the hundred when you realize after a visit from DCAA that you are out of compliance and that it will be a major fire drill to get your house in order or risk losing your contracts.

What really is “Compliance” after all?

So often, we read or hear about “compliance” as it relates to government contracting.  Web searches for “FAR Compliance”, “FAR 15 Compliance”, “DCAA Compliance”, and “Government Contract Compliance” may bring you to completely different results on the web, when each of these requests may be for the same exact need.

What are we really asking for in our search when wondering about being a compliant government contractor?

Let’s take a look at a handful of areas that require attention in a government contractor’s organization.  We have kept this list limited to the topics most troublesome for the majority of government contractors. We know there are more that can be added to this list, but for this example we’ve identified seven areas:

1) Finance/Accounting (Travel and CAS may be grouped here)

2) Timekeeping (this can be grouped with Accounting, but we like assessing it separately)

3) Contract Management

4) Subcontract/Purchasing Management

5) Standards of Business Ethics

6) Property Management

7) Human Resources related topics

If tested or evaluated on any of these seven areas above, would the government give your company a passing grade?The government assumes, and will check, to make sure that your organization is compliant in following the regulations.

Simply put, “Compliant” to the government means that: Your organization has implemented policies, procedures and processes that follow (comply) with government regulations and contract specifications.  Additionally, your organization must be practicing these policies, procedures and processes.  Your company may be compliant in some areas and not in others.  100% compliance in all areas is ultimately the goal to reduce risk and increase opportunity with the government customer.

One of the most talked about areas that gets the most press is of course in the Finance/Accounting area (the dreaded DCAA audits).  Accounting Systems Audits, Incurred Cost Audits, Financial Capability Audits, etc. are all examples of reviews the government will order to ensure compliance by a government contractor.

One area that is often overlooked or ignored, but is critical for attaining compliance, is in the area of Subcontracting/Purchasing.  These areas can be split in two, but in the end, the same function is being conducted; a government contractor is using taxpayer money to buy goods and/or services.  Therefore, is your organization procuring goods and services under your government contracts in a compliant manner (even if you are a sub at any tier)?

How do you know if you are compliant?  Read, understand and follow the FAR, read all its supplements, become familiar with often cited Acts and common special clauses.  Ignorance is not bliss when it comes to compliance.  There is no claiming lack of understanding or knowledge as a reason for not being a compliant government contractor.

One method many companies use is to take a stab at building a compliant organization, then looking for an outside review or third party mock audit of critical areas.  This can be extremely helpful in identifying gaps not only between your company’s policy, procedure and processes and the government requirements, but also in identifying gaps between your company’s day to day activities and what your policies actually say.

Also, don’t be afraid to ask the government liaisons for any advice or guidance they may be able to provide.  Some agencies, officers, and liaisons may be more forthcoming with assistance than others. Forming relationships and asking for help from those who are looking to make sure you are compliant can never hurt.