Its a new year and it looks like we've avoided the so-called "fiscal cliff". "The sequestration can (automatic spending cuts) has been kicked down the road for a couple of months and tax rates will not rise unless you earn $450 thousand or more. All of these matters of great pith and moment are well beyond our and your abilities to influence - we're merely bystanders. But, when it comes to contract compliance, contractors do not want to be caught unawares. There are many things contractors can and should do to prevent problems before they occur.
Contract compliance has been and will continue to be a recurring theme in this blog. There are many things contractors can do to avoid problems down the road. However, it does take a certain amount of persistence and consistency. Here then is our short list of ways to avoid contract problems in 2013.
Adopt and comply with written policies and procedures - There are two elements here - have them and follow them. Some contractors have written policies and procedures but fail to consistently follow them. We've stated it before but will do so again - failing to follow internal policies and procedures is sometimes worse than not having them at all. And not having them all is bad. Failing to follow internal policies is a "slam-dunk" finding for an auditor - there's no adequate defense.
Keep good records - Many contractors have experienced first-hand the consequences of inadequate records or missing records - costs are disallowed. This is more poignant now that the auditors are working off the backlog of incurred cost audits - back to 2004 in some cases we know of. Contractors are expected to dig out archived records back that far!
Develop an ethics/compliance plan - It all begins at the top, so they say. Management must show a commitment to ethical behavior and expect the same from employees. Not only is it the right thing to do but in addition to auditors looking over your shoulders, contractors are now increasingly faced with the prospect of in-house whistle-blowers filing qui-tam actions. In fiscal year 2012, the Justice Department reported a record 647 whistle-blower cases were filed. Some employees see this as their way to riches and an entire industry has developed to support and encourage whistle-blowing. All it takes to bring out a whistle-blower is one falsified timecharge.
Conduct internal audits (reviews) - Contractors may have the best of intentions, great internal controls, excellent record retention practices, and effective ethics programs but never know whether they are being followed. It is critical that contractors implement internal reviews to ascertain the degree to which employees are adhering to the company's policies.
We will be coming back to these themes from time to time, expanding upon them and offering some ideas on how to avoid problems in cost-effective ways. Implementing these practices should not become a burden to contractors - particularly small businesses.