Protecting Yourself from Adverse Audit Consequences
Implementing an internal GSA compliance system within your company is the only foolproof way to protect against adverse audit consequences. An effective GSA compliance system is not difficult to establish. Simply follow basic management principles—designate clear lines of authority and accountability, and measure performance against a specific standard.
A compliance system will protect you if it (1) begins with your initial proposal and (2) uses full disclosure as a basis for compliance over the term of the contract. Although not ideal, a compliance system implemented after contract award can bring a contract into compliance, although sometimes at the expense of profits.
The basic premises behind an effective GSA Compliance System are:
- Disclose discounting practices completely and accurately in your initial proposal. If you are implementing a system in the middle of a contract period, correct any inaccuracies that turn up immediately, and let your contracting officer know about them.
- Appoint a senior person in your financial organization as the GSA Compliance Officer.
- Communicate any possible compliance violation issues in writing to the GSA contracting officer immediately upon detection. Propose swift and practical corrective actions and request guidance and approval of your actions from the contracting officer.
Desire to Comply
This may sound obvious, but an effective compliance system begins with a company’s desire to comply. Some companies don’t really want to be utterly straightforward about their discounting policies because of the loss of flexibility in discounting to non-GSA customers. (Yes, compliance can affect sales in some cases.) Yet you cannot afford to be anything but absolutely scrupulous in adhering to the conditions of your GSA contract because of the dangers of invoking the Price Reduction Clause. In many cases forcing discounting discipline can actually be a good thing. Sales might go down slightly but profits go up. Play the discounting game loosely and you may win or you may lose. If you lose, you will usually lose big.
GSA Compliance Officer: Putting Someone in Charge
A single person in your financial organization should be designated as the GSA Compliance Officer. Whether full or part time, the person must have the authority to ensure GSA contract compliance and be held accountable for making the company compliant. In order of importance, the responsibilities of the GSA Compliance Officer should be:
- To document and enforce the discounting policies used to establish the GSA Basis of Award pricing structure.
- To design and enforce compliance procedures that outline the consequences for discounting violations committed by the sales staff. For example, monetary penalties could be imposed for one time violators; repeat offenders might face termination. Obtain CEO approval of the compliance policies and procedures.
- To train sales staff and management in all aspects of GSA compliance.
- To monitor Basis of Award customer quotes and orders for compliance.
- To ensure the accuracy and payment of the quarterly Industrial Funding Fee to GSA on time. (GSA will love you for this one.)
- To monitor Trade Agreement Act compliance.
- To review each GSA order for excessive or unmarked open market items and out-of-scope work or products.
Most importantly, your company’s GSA compliance officer should establish an open and ongoing relationship with the GSA contracting officer. Contract problems and proposed solutions should be communicated in writing and by telephone as soon as they are discovered. The two parties should establish a relationship based on trust and a commonly held view that your company and the government are partners. This is the real secret of contract compliance. Experienced federal contractors know this, which is one of the reasons they get bigger and bigger.
GSA and Agency Contracting Officers
It is important to understand the distinction between the GSA contracting officer overseeing overall contract performance and the contracting officer placing an order from an individual agency. Theoretically, their agendas are the same because they are both following the same rule book, but this is not necessarily true in practice. The GSA contracting officer is seeking strict contract compliance; the agency contracting officer wants to make a purchase quickly.
For instance, say an end user in Health and Human Services wants to purchase 20 laptops for use by employees when they travel. The HHS contracting officer has bought laptops for other divisions, has been happy with the supplier, Company XYZ, and wants to purchase the laptops from them. The GSA contracting officer is focused more on creating a file that shows that there was competition for the contract, and wants quotes from three or four additional companies before even looking at the file. The two contracting officers are playing by the same rules, but have different agendas.
Implementing a Compliance Program
Systems and procedures should be put in place to segregate GSA orders from those placed by your commercial customers. This will help support the reporting efforts of both your company’s GSA compliance officer and any GSA auditor that shows up on your doorstep. As mentioned earlier, GSA loves two things:
- Collecting the Industrial Funding Fee—the more the better, and
- Seeing segregated GSA orders in your accounting system.
GSA order segregation enhances your ability:
- To calculate the IFF correctly and pay it on time, and
- To ensure that your company remains in compliance and that GSA can verify contract compliance easily and quickly.
Order segregation can take many forms, depending on your company’s accounting system and the amount of GSA business you do. Creating a field in your accounting system for the GSA contract number is ideal because it allows for order segregation if you hold more than one GSA contract. A spreadsheet for GSA orders tied to the accounting system by your internal order number can be just as effective for smaller companies or companies with relatively inflexible accounting systems.
You should also implement paper or electronic procedures that allow your company’s GSA compliance officer to monitor any discounted price quotes being offered to your Basis of Award customers to ensure contract compliance both before and after contract award.
Obviously, preventing violations by maintaining the capability to monitor discounting offers before-the-fact is better than discovering violations after-the-fact. Again, after-the-fact compliance violations should be reported to the GSA contracting officer as soon as they are found. This will allow you to either adjust the prices you’re charging GSA now, or (if you’re really lucky) to correct the problem, with the contracting officer’s approval, without incurring a price reduction. In either case, it beats owing a multi-million dollar refund to GSA down the line. Boards of Directors hate surprises.
