Corporate Accounting - Who's Responsible


R

Rick

After hearing the responsibility chain concerns after Enron, I have
some questions about where I work.

I work at an engineering company which performs services for a variety
of international chemical/refinery companies. We have a program with
one of our clients where we provide services to a large group of sites
across the country. Our client corporate headquarters requires us to
bill all our time to specific production sites and projects within
those sights. We have activities that actually benefit groups of
projects within a site and other sites. But we are required to bill
this time to specific projects that we have to choose.

I have a couple of questions and I am open to any additional comments:
1) This is ovbiously poor accounting practice as it does not truely
capture value we bring across our client's sites. Is there a specific
term for this?
2) In light of the Enron actions, is there a potential problem here?
3) If there is a problem, what can I do to help resolve it and how
can I protect myself.

Rick
 
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B

Bob

Rick said:
After hearing the responsibility chain concerns after Enron, I have
some questions about where I work.

I work at an engineering company which performs services for a variety
of international chemical/refinery companies. We have a program with
one of our clients where we provide services to a large group of sites
across the country. Our client corporate headquarters requires us to
bill all our time to specific production sites and projects within
those sights. We have activities that actually benefit groups of
projects within a site and other sites. But we are required to bill
this time to specific projects that we have to choose.

I have a couple of questions and I am open to any additional comments:
1) This is ovbiously poor accounting practice as it does not truely
capture value we bring across our client's sites. Is there a specific
term for this?

job costing? responsibility accounting? it's only poor accounting if the
cost of the work or time is not accurately assigned or billed to the
intended company or project.


2) In light of the Enron actions, is there a potential problem here?
Enron was different, they were using "off balance sheet" subsidiaries,
dubious energy trades, etc. There is a problem if any of the companies or
sites/projects does government contract work. Shifting costs from one
contract to another is illegal !


3) If there is a problem, what can I do to help resolve it and how
can I protect myself.

make sure the work or time you perform is assigned or billed to the correct
job - check with the accounting or audit dept.!
 
T

tippy

After hearing the responsibility chain concerns after Enron, I have
some questions about where I work.

I work at an engineering company which performs services for a variety
of international chemical/refinery companies. We have a program with
one of our clients where we provide services to a large group of sites
across the country. Our client corporate headquarters requires us to
bill all our time to specific production sites and projects within
those sights. We have activities that actually benefit groups of
projects within a site and other sites. But we are required to bill
this time to specific projects that we have to choose.

I have a couple of questions and I am open to any additional comments:
1) This is ovbiously poor accounting practice as it does not truely
capture value we bring across our client's sites. Is there a specific
term for this?
2) In light of the Enron actions, is there a potential problem here?
3) If there is a problem, what can I do to help resolve it and how
can I protect myself.

Rick
You have a dilemma faced by many accountants and engineers.
Apparently, you have surfaced your concerns to your superiors. Now,
you have to make a decision. Take care if you plan to whistle blow.
If your clients include the U.S. gov't, you can blow the whistle and
collect under qui tam. Best, far best, to remain anon, or to keep
your identity protected by the gov't. I would recommend finding
another job (and letting the "independent" auditor know, again anon).
_____________

Tippy
 
C

Commentator

You have a dilemma faced by many accountants and engineers.
Apparently, you have surfaced your concerns to your superiors. Now,
you have to make a decision. Take care if you plan to whistle blow.
If your clients include the U.S. gov't, you can blow the whistle and
collect under qui tam. Best, far best, to remain anon, or to keep
your identity protected by the gov't. I would recommend finding
another job (and letting the "independent" auditor know, again anon).
_____________

Tippy
What bad advice.

How they do internal cost allocations has nothing to do with him or his
company, and, quite frankly, there is no indication here that anything
untoward is going on. Allocation of costs across multiple projects is a
cost / benefit exercise. Sometimes the cost does not justify the benefit.
 
J

Jim Hudspeth

Commentator said:
What bad advice.
I'm not so sure about that. Rick doesn't give much in the way of detail,
however what he does give us indicates that he thinks there is a problem
with cost allocations. That COULD be a problem.

I would want more detail before I said anything more.

Jim Hudspeth
 
D

Duane Bozarth

Rick said:
After hearing the responsibility chain concerns after Enron, I have
some questions about where I work.

I work at an engineering company which performs services for a variety
of international chemical/refinery companies. We have a program with
one of our clients where we provide services to a large group of sites
across the country. Our client corporate headquarters requires us to
bill all our time to specific production sites and projects within
those sights. We have activities that actually benefit groups of
projects within a site and other sites. But we are required to bill
this time to specific projects that we have to choose.

I have a couple of questions and I am open to any additional comments:
1) This is ovbiously poor accounting practice as it does not truely
capture value we bring across our client's sites. Is there a specific
term for this?
2) In light of the Enron actions, is there a potential problem here?
3) If there is a problem, what can I do to help resolve it and how
can I protect myself.

Rick
I spent nearly 30 years w/a large ($1B/yr revenues) engineering
consulting firm for both government and private clients. Owing to the
government work, we were required to follow DCAA rules regarding
division of costs for all work, including commercial. Within this, if
you simply divide your time as equitably as you can across the
jobs/sites of which you are aware, you've done your
duty/responsibility. Keep good logs and sleep well at night... :)

PS...I went through probably 15 or 20 annual DCAA audits in my time
since I was both one of the more senior persons at the local office and
(I hypothesize, confirmed by one auditor) because I had a much more
varied client base than most so my time cards tended to be "more
interesting" than the routine 40 hr/wk for a single client for six
months at a time. Some of the division of labor rules, particularly as
they related to allocating OT hours, I thought (and still think) are
unfair to some clients in some circumstances, so I was not at all
reluctant to shade the precise requirements to achieve an equitable
allocation for a client.

In my experience, the issue of most concern to DCAA auditors was concern
about billing time to other jobs to "protect" jobs showing an overrun or
that were in jeopardy, and working non-billed hours for the same reason.

All in all, unless there is a concerted, directed effort to either
transfer cost from one client/job to another or to "bail out" a poorly
performing contract/client with another, the final detail of the rest is
a matter of judgement as to how much detail is actually of any value to
report. Sounds to me as though the client as determined there isn't
more than a modicum of need or they would have made it clear.
 
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J

Janice Davis

I have to agree with what Bob said. My husband is an engineer for the gov't.
He is always talking about billing time to projects he works on. For him it
is because these projects are given a specific amount of funds to complete.
To keep up with costs on the projects he has to bill his time to whatever
projects he works on.
Janice
 
A

AngrieWoman

Some of the division of labor rules, particularly as
they related to allocating OT hours, I thought (and still think) are
unfair to some clients in some circumstances, so I was not at all
reluctant to shade the precise requirements to achieve an equitable
allocation for a client.
If you have a spare couple of minutes, can you be more specific on this
topic? This is an issue that we address at my firm. However, we're not
government contractors so the rules do not apply to us really. However, I'm
just curious about the way the OT issues we face could be handled if we
were.

A
 
C

Commentator

Jim Hudspeth said:
I'm not so sure about that. Rick doesn't give much in the way of detail,
however what he does give us indicates that he thinks there is a problem
with cost allocations. That COULD be a problem.

I would want more detail before I said anything more.
Which is why it is bad advice. "Whistle blowing" when there IS a problem
causes enough trouble for the person doing the reporting. To do so when
there is no problem, just a lack of understanding, is even more likely to
piss people off.
 
T

tippy

Which is why it is bad advice. "Whistle blowing" when there IS a problem
causes enough trouble for the person doing the reporting. To do so when
there is no problem, just a lack of understanding, is even more likely to
piss people off.
He has already made a determination that the information is incorrect
and deliberately incorrect. Whether he is right or not, material or
not, is another matter. He has to make a decision whether he (or she)
can live with the way things are.

I can tell you of personal decisions by people I know where they have
challenged poor accounting practices and risked their jobs before
being proved correct. I also am aware of whistle blowing where the
person was 100 percent right and their jobs remain in jeopardy.

In whistle blowing, by any name, doesn't mean one has to place labels
on the actions. They simply and more correctly need to state what is
happening, why its wrong, and where the evidence can be found and let
the chips fall where they may. Again, if one is considering whistle
blowing, they best, in my opinion, have another job lined up.
_____________

Tippy
 
D

Duane Bozarth

AngrieWoman said:
Some of the division of labor rules, particularly as

If you have a spare couple of minutes, can you be more specific on this
topic? This is an issue that we address at my firm. However, we're not
government contractors so the rules do not apply to us really. However, I'm
just curious about the way the OT issues we face could be handled if we
were.

A
Specifically what I questioned as being always fair was the
redistribution of hours. If for example, I had two clients that
required work during a pay period, one of which (say "A") had a deadline
and was willing to pay actual hours worked while the other ("B"), while
needing current effort did not have any immediate deadline. If, in
order to meet both clients' needs I were to work 20 hours for "B" and 30
for "A", the DCAA rules were that the actual hours charged to A and B
would be prorated so that each an equivalent ratio of overtime hours.
Thus, what I think unfair is that client "A" would be charged for excess
time relative to client "B" who didn't need the overtime. This was
done, as understand it, to prevent government contractors to shift time
to a underbid job. The net result was, that in most situations since I
was salaried, and not paid for overtime, the overtime just was not
reported so the client with the deadline was not penalized. If one were
working for a single client, the issue did not arise. This also is not
a germane issue for hourly employees, but only for salaried. (I'm
sitting here now after having retired realizing I can't recall the exact
formula just now--I'll try to resurect it from my subconscious, but it
won't be a pleasant experience--one thing I <definitely> do <not> miss,
is working on government contracts.
 
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T

tippy

I have to agree with what Bob said. My husband is an engineer for the gov't.
He is always talking about billing time to projects he works on. For him it
is because these projects are given a specific amount of funds to complete.
To keep up with costs on the projects he has to bill his time to whatever
projects he works on.
Janice


I have audited a number of federal gov't entities (not contractors in
this instance) where they charged whatever pot of money was available
regardless of what they worked on. I have no doubts whatsoever that
gov't contractors also tend to do the same from time to time or at
least some do.

I have also seen local gov'ts wrongly charge the federal gov't for
costs that should have been funded with local funds and also where
they charged local funds when they could have charged the feds. It
happens and sometimes they get caught.

Not that Janice's husband would deliberately charge the wrong job
<grin>, but some are certainly pressured to do so to keep within
budgets and time constraints on the funds.
_____________

Tippy
 
J

Jim Hudspeth

He has already made a determination that the information is incorrect
and deliberately incorrect. Whether he is right or not, material or
not, is another matter. He has to make a decision whether he (or she)
can live with the way things are.
The price of knowingly "going along" with corrupt practices can be very
high, particularly if the person "going along" can be proven to have known
there was something wrong. It is common practice for high level
perpetrators to proclaim their innocence and blame subordinates when things
go wrong.

This is not necessarily an easy decision.
I can tell you of personal decisions by people I know where they have
challenged poor accounting practices and risked their jobs before
being proved correct. I also am aware of whistle blowing where the
person was 100 percent right and their jobs remain in jeopardy.

In whistle blowing, by any name, doesn't mean one has to place labels
on the actions. They simply and more correctly need to state what is
happening, why its wrong, and where the evidence can be found and let
the chips fall where they may. Again, if one is considering whistle
blowing, they best, in my opinion, have another job lined up.
Tippy is not necessarily advising the original poster to whistle blow, only
to do so with great caution if s/he chooses to do so. I consider that to
be good advice.

Jim Hudspeth
 
D

Duane Bozarth

Jim said:
The price of knowingly "going along" with corrupt practices can be very
high, particularly if the person "going along" can be proven to have known
there was something wrong. It is common practice for high level
perpetrators to proclaim their innocence and blame subordinates when things
go wrong.

This is not necessarily an easy decision.


Tippy is not necessarily advising the original poster to whistle blow, only
to do so with great caution if s/he chooses to do so. I consider that to
be good advice.

Jim Hudspeth
As I understand what OP described, he's saying some work is potentially
generic rather than specific even though it is also, by definition
specific. He's concerned that some costs should be allocated more
widely than against the specific contract/project. Having also worked
on large engineering projects for a series of clients where such scale
benefits are also possible, I don't see it as anything unusual to
accumulate costs on the specific project even though the result may
benefit other sites/projects. If, otoh, it is being done internally by
his organization to prevent overruns on one job at the expense of
another, then that is a problem. That isn't the way I read it, but
maybe that's the crux.
 
J

Jim Hudspeth

Duane said:
As I understand what OP described, he's saying some work is potentially
generic rather than specific even though it is also, by definition
specific. He's concerned that some costs should be allocated more
widely than against the specific contract/project. Having also worked
on large engineering projects for a series of clients where such scale
benefits are also possible, I don't see it as anything unusual to
accumulate costs on the specific project even though the result may
benefit other sites/projects. If, otoh, it is being done internally by
his organization to prevent overruns on one job at the expense of
another, then that is a problem. That isn't the way I read it, but
maybe that's the crux.

I read it pretty much the same way you did.

I have considerable experience with the use of cost manipulation to obscure
cost overruns, therefore I tend to consider it as a possibility until I
have evidence to the contrary.

As I suggested in my original commentary, we need more information if we are
to go beyond speculation.

Jim Hudspeth
 
R

Ron Todd

I have audited a number of federal gov't entities (not contractors in
this instance) where they charged whatever pot of money was available
regardless of what they worked on. I have no doubts whatsoever that
gov't contractors also tend to do the same from time to time or at
least some do.
From my experience auditing construction contract costs of contractors
with the U.S. Government, I would say, generally no. Most of the
problems were associated with extra work, extra work authorization,
and allocations between extra work and the bid work.

A side problem was most people, accountants included, seemed to have
no idea on how to handle overhead allocations.

I always thought the False Claims acts tended to keep people rather
cautious with flights of fancy.
I have also seen local gov'ts wrongly charge the federal gov't for
costs that should have been funded with local funds and also where
they charged local funds when they could have charged the feds. It
happens and sometimes they get caught.
Most local governments have very serious systemic problems. From what
I've seen it seems to take quite a bit of effort to separate the fraud
from the blind incompetence.

Not that Janice's husband would deliberately charge the wrong job
<grin>, but some are certainly pressured to do so to keep within
budgets and time constraints on the funds.
_____________

Tippy

Best Regards.

*****************************************
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Belgium, France, Germany, Finland, Sweden, Switzerland, PRC, Iran, Syria,
Hollywood, San Francisco, Massachusetts, New York City, Sierra Club, ACLU,
Movies of the first blacklist, Turner, Madonna, S. Crowe, Dixie Chicks, Cher, U2, rapp,
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Foods,

Sometimes the only influence you have is to say, "No, I'm not buying."

For those who are unclear about the situation, California is the Clinton - Davis model for the rest of the United States of America.
 
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D

Duane Bozarth

Jim said:
I read it pretty much the same way you did.

I have considerable experience with the use of cost manipulation to obscure
cost overruns, therefore I tend to consider it as a possibility until I
have evidence to the contrary.
Me, too! Altho the firm I was associated with was about as careful as
any I ever came across, with 25-30,000 technical employees, something on
the order of 15-20,000 contracts at any one time, somebody, somewhere,
was bound to get in trouble and try to sneak it in, occasionally. To
the best of my knowledge we were never found intentionally in violation
at corporate in nearly 35 years' existence even though there have been
several instances of (primarily disgruntled) employees claiming fraud.
(I retired from there several years ago so there could have been some
"goings on" since, but I'd be quite surprised.)
I can't be quite so sanquine about my knowledge of some other firms,
however.
As I suggested in my original commentary, we need more information if we are
to go beyond speculation.
Aw, gee...and lose all the fun of a ng??? :)
 

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