Executive Compensation

Employee compensation, especially senior executive compensation in small to mid-sized companies, has become the number one area for audit scrutiny.  Such executive compensation audits include adequacy of “internal controls” in establishing the level of compensation as well as questioning executive compensation as “unreasonable.”  DCAA, that has dedicated executive compensation teams, takes a highly controversial approach to evaluating contractors’ executive and increasingly non-executive compensation levels.  They typically use 2-4 compensation surveys, compute an “average” compensation level for specific positions, benchmark their surveys results to compensation levels of contractors being audited, and compute an “excessive” amount after applying a 10% “range of reasonableness” factor.  Though initial audit positions may be quite harsh, we find such initial government positions on executive compensation is often highly susceptible to being challenged where DCAA is, interestingly, often quite open for fact based, well presented arguments.  In addition, there are recent cases that have significantly challenged DCAA’s approach to conducting executive compensation audits that are being addressed both within industry and the government.

Our staff has unique experience “on both sides of the table” which gives us a particular advantage to challenging audit positions.  We have actually engaged in executive compensation audits as DCAA auditors and supervisors.  We have had over 100 consulting engagements in challenging DCAA executive compensation positions where we have an excellent track record in successfully resolving positions at both the audit and ACO level.  Our access to compensation surveys and other resources together with our extensive knowledge of the rules and guidelines for executive compensation allow us to put forth reasoned positions that usually result in modifications to audit positions on executive compensation.

Typical engagements include:

• Helping establish reasonable executive and non-executive compensation levels
• Reviewing the process of establishing executive compensation levels to help ensure proper procedures are used to minimize opportunities for negative findings
• Evaluating reasonableness of government positions on executive compensation
• Countering the government’s use of compensation surveys and percentile level assumptions
• Preparing reasoned position papers that provide the basis to either challenge an audit position or, at least, provide the justification for arriving at a compromise solution.
• Participating in meetings with DCAA and ACOs to resolve issues