In stunning fashion, the Democrats have taken control of both the House and the Senate, and now control the purse strings of government spending. This turn of events could have a dramatic effect on the government contracting industry and specifically, your company. The following are some expected impacts:

• Possible shift in spending priorities. The spending priorities of the Republican-controlled Congress (Defense, Intelligence, Homeland Security) more than likely will not coincide with the priorities of the new Congress.
• Funding delays. Until the new priorities are established, programs that are awaiting funding may be at risk to receive any of the expected funding.
• Cancellation of programs. Once established, programs that are not consistent with the new priorities are at risk for possible termination or failure to exercise option years. Terminations for the convenience of the government require the contractor to maintain detailed records in order to assure maximum cost recovery. If you have any questions or need assistance in this area, please feel free to call us.
• Investigations. Independent of the Procurement Fraud Task Force (see article below), it is expected that there will be many Congressional investigations into various procurement matters and practices, especially those contracts let for Iraq reconstruction and Katrina efforts.
• Current valuations may be reduced. There is a direct correlation between risk (uncertainty) and valuations. The more risk in a situation, the lesser the value. With much of the uncertainty that will result from this changeover, current valuations could be negatively impacted.

In October of this year, the Criminal Division of the Department of Justice announced the formation of a National Procurement Fraud Task Force. The goal of this Task Force is to promote the early detection, prevention and prosecution of procurement fraud. With the objective of criminal enforcement, the Task Force will be focusing on the following areas:

• Defective pricing
• Other contractual pricing irregularities
• Product substitution
• Misuse of classified procurement or procurement sensitive information
• False claims
• Grant fraud
• Labor mischarging
• Accounting fraud
• Fraud involving foreign military sales
• Ethics and conflicts of interest violations
• Public corruption associated with procurement fraud.

• Implement a strong system of internal controls. The best way to ensure that fraud is not occurring in your company and that management’s objectives are being adhered to, is to implement a strong system of internal controls.
• Obtain an independent assessment of the effectiveness of your control structure. Most small to mid-sized companies do not have the experience with these types of investigations, nor the resources to devote to it. Consider engaging your independent auditors or a Firm with specialized knowledge in this area to provide you with an objective review of your controls and recommendations for improvement.
• Establish a Code of Ethics. A corporate code of ethics is the heart of any effective compliance program. Ensure adherence to this code through strict enforcement
• Conduct internal training for employees. Education programs teaching employees of the various land mines that exist with procurement fraud as well as its prevention will provide corporate awareness of possible fraud matters and convey to the employees the seriousness of the company in this area.

How does the strategic business decisions you are making impact the value of your organization? Why does one company with $100M in revenue sell for $125M while another of the same size sells for $50M? How does your company align with the value drivers in the marketplace? With the number of mergers and acquisitions in the government contracting industry remaining at or near record highs, now more than ever organizations should consider the impact of its strategic business decisions on its shareholder value. This article discusses the convergence of strategic planning with valuation for the government contractor, click below for a full text of the article.

After years of often tumultuous debate, the new rules of accounting for stock-based compensation plans are here to stay. FAS #123R “Share-Based Payments” requires the recordation of compensation expense if your company has any of the following types of stock-based compensation plans:

• Stock option plans
• Restricted stock plans
• Performance-based stock awards
• Share appreciation rights
• Phantom stock plans
• Employee stock purchase plans

Federal Strategies Group is pleased to announce that we have developed and will soon begin teaching three courses on topics of great importance to the government contracting industry. These are:

• Financial Management of Government Contracts
• Successful Management of DCAA Audits and Government Investigations
• Value Maximization Strategies for Government Contractors

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