If you’ve ever spent the day working on compliance with government grant and contract awards from the recipient side, you will understand the following statement: The biggest cost reductions opportunities are in reducing the complexity and variation of requirements on government funded projects. When it comes to increasing costs, I don’t think the biggest cost savings are going to be found on the technical side of government spending, but on the regulation and compliance standards (the “soft side” of doing business with the government).

A Conversation with the Government

This week has been an exercise in hitting a moving target in determining what the government wants.

  • “We need to verify your cost structure.”
    • No problem! Here are the financial statements and company policies impacting those numbers.
  • “You aren’t compliant with our requirements.”
    • Incorrect; the company has never received a government award prior to this one. The company is compliant with Generally Accepted Accounting Principles and other tax and regulatory requirements.
  • “Well, are you complying with Cost Accounting Standards Board (CAS) requirements?”
    • No, this will be the company’s first award. It is our understanding that this contract is below the threshold for CAS coverage and falls under one of the standard exemptions.
  • “Why aren’t you complying with CAS?”
    • The company doesn’t have any projects that require CAS compliance – including the pending award.

On the Other Hand

On the morning news, two members of the House Committee on Transportation and Infrastructure were discussing the new “stimulus” spending for infrastructure projects and the fact that more than half the previous stimulus package’s budget for infrastructure projects had not been spent because it was held up in the “red tape” of issuing the awards.

Our Hands are Tied

When it comes to watching our tax dollars and spending them wisely, it seems that the processes related to issuing the awards are bogged down, mired in red tape. The process for demonstrating that you can fulfill accounting and other business requirements as a first-time recipient seems to be something of a chicken and egg discussion: Which comes first: the award and the requirements,or the ability to comply with the as-yet-undetermined requirements?

Don’t get me wrong; I am advocate for detailed, compliant accounting systems capable of reporting accurate, complete and timely financial information for the business—and perhaps especially government funded projects (they are my tax dollars too!). However, when an auditor or awarding agency representative reviews a would-be, first-time recipient for a project, what is reasonable to expect that company should have before they’ve received the award?

It is reasonable to expect them to have the ability to do the accounting either in their accounting system software or with a spreadsheet and support documents. How they accomplish the correct, robust accounting is only important in determining if they have a method that will get the desired results and can be done consistently.

What the government can’t expect is that prior to receiving the award and accepting it that a company is going to speculatively spend significant sums of money to be able to do the accounting under government rules and requirements, when it may not be necessary if they don’t get the award. Few companies of any size in this day and economic times have spare dollars around to spend on implementing government accounting requirements when the government isn’t yet their customer. For small businesses with lean staffs and leaner budgets, pursuing government contracts (or grants) seems like a great idea … until they spend more time on getting the costs and budgets approved than it would take to do the entire technical side of the proposed project. One client was notified that they had won a multi-state award. Then was asked when could they start. They could start tomorrow on the execution of the contract requirements, but the business side of the award (rates at which they would get paid) couldn’t be determined or negotiated for 18 months or longer. The last time I talked to this client, they were still waiting to start the project.

Government Needs to Focus on Streamlining Requirements and Simplifying Interpretation

The bottom line for businesses and the government is that the cost of compliance with the myriad of regulations is steadily (and in my opinion, unnecessarily) increasing. The complexity and variation in interpretations is also increasing. Unfortunately, the increasing cost of compliance doesn’t seem to be improving the effectiveness of oversight of funds. In fact, the exact opposite may be true; as costs and complexity increase it seems less and less likely that the organizations receiving government funds will be able to be compliant. After all if you can’t figure out what the requirements are, then how will you comply?

How can we cut $100 Billion in costs from the DOD budgets? Let’s focus on reducing the complexity of compliance and reduce costs and improve oversight.

Copyright ©2010 Lea A. Strickland, F.O.C.U.S. Resource, Inc.

 

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