Question:
- Hide quoted text — Show quoted text – 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.
Response:
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
– Hide quoted text — Show quoted text – 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.!
Response:
- Hide quoted text — Show quoted text – 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 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.
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???
Response:
- Hide quoted text — Show quoted text – 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
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.
Response:
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
Response:
- Hide quoted text — Show quoted text – 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
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.
Response:
- Hide quoted text — Show quoted text – 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 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
Response:
- Hide quoted text — Show quoted text – 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.
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. Boycott list: 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, Trudeau, W.Miller, Disney, ABC news, CBS news, NBC news, CNN, PBS, B&H Photo Video, Heinz 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.
Response:
– Hide quoted text — Show quoted text – 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 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.
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.
Response:
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
Response:
- Hide quoted text — Show quoted text – 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 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
Response:
– Hide quoted text — Show quoted text – 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.!
Response:
– Hide quoted text — Show quoted text – 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
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.
Response:
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