Accounting System, Cost And Accounting, DCAA Relations, Running Your Business

The Life of a Contractor: Part Two – Early Childhood or “How DCAA, Contractor, and Consultant Can Ruin an Audit”

Despite the apparent belief by the Air Force that DCAA would not show up, DCAA did. The contractor, with no professional accounting staff and an outside tax CPA who disavowed all knowledge of government contracting, hired an outside consultant (not me). It did not go well.

I am going to talk about what happened. I am going to talk about what the contractor did wrong and I am going to talk about what I believe the consultant did wrong. I am even going to talk a bit about what I believe DCAA did wrong.

I am uncomfortable criticizing another consultant for obvious reasons, but I believe the story of this contractor is an excellent example of the extremes that many small business government contractors face. The first consultant is part of this story.

Before I do this, I want to talk about why I believe hiring the right consultant is almost always the best step for a small government contractor to take. Since I happen to be the consultant I know best, some of what follows is self-serving and thus a little arrogant. I feel like I need to talk about what I see as the ‘good’ consultants and how to select one. I am sure many of you will take exception, please feel free to discuss.

The Risk and Consequences of Not Getting Help

The decision about bringing an outside consultant in to deal with DCAA is a difficult choice small business contractors make every day. Of course, before they even consider going alone, they should purchase and read my second book: Surviving a DCAA Audit: The Accounting System.

First incident of self-promotion aside, it is all a question of risk and consequences. The risks and consequences of an inadequate accounting system hits contractors in two major areas.

First, the lack of an excellent accounting system translates into poor knowledge about how efficient and profitable the company’s individual activities (jobs or projects) are. Small business owners utilize excellent common sense in this area; but improved data provides, if nothing else, a competitive advantage to either you or your competitors (those guys you are bidding against who know their costs).

Second, if DCAA determines the accounting system inadequate there can be major consequences. Just ask Lockheed Martin, who could not collect most of the profit on a major government contract for years after the government decided their cost accounting system inadequate. Also, look back at the small business contractor discussed in the first article of this series and their inability to recover money they believed the government owed them.

Cost seems to be a driving factor in deciding to select a consultant.  One of the biggest factors impacting consultant cost is contractor knowledge, contractor commitment, and the consultant’s ability to transfer that knowledge to the contractor.  I belief it is a natural conclusion that If you turn everything over to a consultant your costs, short term and long term, are higher. You also never gain the critical ability to assess their work.

Anyone reading my books or poking around my website quickly realize that I believe contractor knowledge is critical and reduces the cost to the government and the taxpayer. I like clients to graduate from my services or training programs. They know I am always there when they are not sure about an issue or there are major changes they want a fresh look at.

The quality of the consultant is an area that challenges contractors as they begin to look at the idea of bringing a consultant aboard. Here is another area where I believe providing potential clients with a serious look at the world of government contracting via my books and website helps with this decision. Although I know excellent consultants without a website and few of us author books.

I will address one common myth: Some contractors seem to believe that hiring a former DCAA auditor as a consultant is an obvious approach. Unfortunately, I believe this myth is simply not valid.

I know at least two excellent consultants who are former DCAA auditors and do simply outstanding work, but I know at least a dozen former DCAA auditors who do not. Before the former DCAA auditors scream at me, I believe the same about other consultants who never worked for DCAA. I know a handful of outstanding ones and dozens who are not.

My point is this:  experience as a DCAA auditor does not necessarily translate into success as a consultant working with DCAA. There is no special advantage or knowledge that a former DCAA auditor offers. There is no secret handshake or inside knowledge. I look forward to reading the arguments and support of anyone who claims otherwise.

Good auditors have a healthy amount of distrust. On numerous occasions we faced encounters where one DCAA auditor signed off on an item one year only to have another DCAA auditor object the next year to the very same item. If DCAA auditors have a healthy distrust of fellow DCAA auditors, why would they have more trust in a former DCAA auditor?

I noticed over the years on LinkedIn and other places that some former DCAA auditors continue to take DCAA’s positons on compliance issues; positions that myself and other experienced consultants do not necessarily agree with. According to DCAA’s own reports to Congress, only about half of DCAA positions are sustained. It is always easier to agree with DCAA but it is not always profitable or fair.

Again, according to DCAA’s own reports to Congress, the average number of audits completed by a DCAA auditor each year is under 1.5. That is not a lot of audit experience. I close a great deal many more than that each year.

I apologize that this seems to be an advertisement for myself and the few unidentified consultants I deem, in my arrogance, to label competent. As noted above, what follows is not only the story of a small business contractor who entered and later decided to leave government contracting; it is also the story of two consultants working with one of the more interesting (difficult) DCAA offices I work with.

To be continued…

Both Books graphic

Available on Amazon and at www.dcaacompliance.com 

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