Lightning Strikes and Lotteries: Gambling on Noncompliance with Government Rules

It is true that someone eventually wins the lottery and people do get struck by lightning. Whether those events are positive or negative are “winning” against the odds or not is a matter of interpretation and perspective. Whether your organization is going to play the odds when it comes to compliance with rules, regulations, and the agreements it makes with other businesses and the government may be a matter of lightning strikes and lotteries, depending upon how you view the requirements, responsibility, and your role as a recipient of government funds.

The following comments, statements, and perspectives are all too familiar when it comes to “compliance”:

  • What are my chances?
  • Can I find an auditor that doesn’t know what he’s doing?
  • I know so and so and they haven’t been doing this.
  • For all practical purposes, no one expects me to do this.
  • Who’s going to know?
  • It’s too much work.
  • What if I don’t want to do it?
  • What if I have no intention of complying?
  • What difference is it going to make?
  • I don’t want to spend the money on an audit. I want to spend it on …
  • It’s my company and I want to do it my way.
  • I’m so small they’ll never look at me.
  • Well, the auditor was just here and they didn’t find it.
  • The universities don’t do it that way.
  • I submitted in the rates that way and they didn’t catch it!
  • Well, Joe said he’s been doing that for years and they haven’t caught him.
  • So, what will they do to me? The big guys do it all the time.

Do you remember as a teenager when you would tell your parents “but everyone else is doing it”? And your mom would say something to the effect of “If everyone was jumping off a cliff would you do that too?”

Sometimes—okay, often—it is difficult to determine the full spectrum of just what you are expected to be doing when it comes to your business and accounting, taxes, reporting, finance, and compliance. Understanding the complex rules of normal everyday business requirements is tough on businesses without adding the rules of government funding. But it is part of doing business with the government, and something to be ignored at a great risk and cost to businesses. You may in fact beat the odds and “win” the lottery and get struck by lightning … but you may get audited by auditors who know what they are doing! Then what will you be doing? Digging out of a really deep hole that you dug, not by unintentional mistakes, but knowing and intentional non-compliance.

So, the day has come. The government auditor has arrived. You don’t have written policies and procedures. Your accounting system doesn’t segregate costs by type. You can’t show how labor is distributed. Your timesheets—if you have them—are incomplete, unsigned, and inadequate. Basically, your accounting and financial systems don’t meet the standards. Items aren’t signed, documented, or can’t be shown to be associated with a particular grant or project because you didn’t take the time to write things down. Well, what a fine mess. How big will the issues be? Questioned costs, disallowed costs, unallowable costs, repayment of grants, suspension, disbarment, time spent in court… Who knows?

How big is the lottery you just won?

How non-compliant are you? The objective is always to be 100% compliant. Will that always or ever be achieved? It’s doubtful, but that is ultimately the goal. So to even be in the vicinity of compliance, the most basic elements have to be present. The most basic elements of compliance are generally viewed as:

  • Written policies and procedures
  • Positive time and effort reporting system
  • Labor distribution
  • Project reporting
  • Cost segregation
  • An accounting system that is adequate for financial controls and oversight (e.g., cash management, invoicing, reporting)
  • Subcontractor management, monitoring, and reporting
  • Asset management
  • Procurement
  • Intellectual Property management and reporting
  • Audit program
  • Management oversight
  • Financial capability

Some of the requirements and details may vary from agency to agency and recipient to recipient. The expectation is that the recipient is capable of controlling, managing, and reporting on the source and use of funds and to ensure that funds are properly controlled and expended. The funds received are used to pursue—and hopefully achieve—the proposed project objectives for which they were released. The recipient’s records are meant to document those activities and provide assurance of how funds were spent. The government relies on recipients to have the controls and systems in place in advance of receiving funds to ensure that the use of the funds is appropriate to the terms and conditions of each award.

So, if you’ve won the audit lottery and aren’t in compliance, ignorance of the requirements isn’t a defense. The rules, regulations, guidelines, terms, and conditions are referenced, incorporated, and provided in a multitude of places. You just have to figure out where they are, which ones apply, and how they apply to your organization. The government’s view is: you take the grant dollars, you also accept the requirements. “Free money” comes with a price, compliance with requirements.

So if you want to play the lottery or risk a lightning strike … go for it. But don’t gamble with compliance; you could be taking a bigger risk than you think.

Copyright ©2008 F.O.C.U.S. Resource, Inc.

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