Representative Cases and Engagements
Chess Consulting’s professionals bring decades of experience that include a broad spectrum of services and backgrounds. The following examples represent a small sample from a large population of matters for which we have been engaged.
Disputes and Investigations
Corporate Accounting and Fraud Investigations:
- Investigated potential procurement fraud against a publicly traded multinational retail chain, which entailed a detailed review of the retailer’s accounting records, database of expenditures, and internal control processes. Based on our investigation, we identified over $3 million of misappropriated funds through the use of shell companies and fraudulent invoices. The Federal Bureau of Investigation utilized our report to convict the perpetrators for defrauding their employer.
- Retained by outside counsel for a Fortune 500 information technology company to assess and investigate its contract revenue recognition practices as part of a Securities and Exchange Commission (SEC) inquiry. As a result of our investigation, it was found that the company had failed to account for and disclose material losses on its contracts, which resulted in the restatement of prior year financial statements. We also assisted in the design and implementation of new revenue recognition policies and procedures.
- Worked with outside counsel, on behalf of the audit committee of a publicly traded clothing manufacturer with over $300 million/year in revenue, regarding the alleged misappropriation of assets and the improper accounting for related party transactions. We identified numerous accounting and internal control deficiencies resulting in the restatement of prior year financial statements and the termination of the Chief Executive Officer. Over $1.4 million in fictitious employee reimbursements were identified along with evidence of manipulation of sales allowances, inventory, and tax balances.
- Retained by an automotive supply manufacturing company to calculate the financial impact arising from the cost savings that it was promised, but did not realize, from the move to a new facility. We also calculated lost profits associated with bids lost due to the resulting manufacturing cost increases.
- Assisted a franchisee in a dispute with a quick-serve restaurant franchisor over the value of three restaurants permanently impaired due to undisclosed ground contamination issues at the time of contracting. We valued the locations on an unimpaired basis, and our findings were then calibrated against near- and long-term national and local economic growth projections, including current and foreseeable development of demand drivers and competition in the surrounding areas. These valuations were used by the franchisee’s counsel to negotiate a non-litigated sell-back of the locations to the franchisor.
- Evaluated the lost profits damages report submitted by an opposing expert in connection with a breach of contract lawsuit. We also prepared the rebuttal report in this state court proceeding.
Foreign Corrupt Practices Act (FCPA):
- Performed a three-year multinational investigation with outside counsel on behalf of the audit committee of a major oil and gas company that was undergoing a parallel FCPA investigation by the SEC and the Department of Justice (DOJ). The investigation identified payments to government officials using third party agents and other schemes across various locations in Africa and the Middle East. The result required a significant settlement with the DOJ and a revamp of the company’s international FCPA compliance practices and program.
- Worked with outside counsel to investigate the books and records of a global nonprofit education and research organization for potential FCPA violations. After a comprehensive review of import/export transactions covering a six-year period, we identified questionable transactions isolated to a specific vendor. Our client self-reported the results to the DOJ, which accepted the client’s disclosure and remediation plan without further action.
- Analyzed the books and records of the Turkish subsidiary of a publicly held, multinational Fortune 500 communications company for potential bribes to government officials. We reviewed transactions in the form of monetary payments and other items of value through both direct payments and the use of third party agents. The investigation involved gathering and analyzing the company’s books and records, interviewing personnel, and providing the results to external counsel.
Change Orders, Claims, and Termination Settlements:
- Assisted an international aerospace and defense contractor on the termination of a multi-billion dollar government contract to provide aircraft to the U.S. military. We assisted in the preparation of the termination settlement proposal and related bases of estimates used to support the claim. The client favorably settled the claim with the government.
- Prepared termination settlement and contract change claims for a global Fortune 100 defense aircraft manufacturer. Constructive change pricing included discrete, delay, and disruption elements. The effort required significant coordination with the claims pricing team from the contractor’s joint venture partner. The matter was subsequently settled.
- Provided assistance to a Fortune 500 defense contractor to prepare and submit a Request for Equitable Adjustment (REA) to the government. The need for an REA arose when the contractor identified a constructive change related to a large services contract in the Middle East. We worked with the company and outside counsel to review the current contract, the relevant government regulations, and actual costs incurred, and then assisted in the estimation of costs to complete the contract. We identified increased costs, assisted the company in the preparation of the REA, and supported its bases of estimates.
General Services Administration (GSA) Schedule Contracting:
- Assisted a Fortune 100 government contractor with its evaluation of a potential violation of the Price Reduction Clause after an initial internal investigation. We reviewed the company’s applicable commercial sales practices, compared those with its government sales, and determined that the problem was not pervasive. We also conducted an analysis to facilitate a settlement with the government.
- Engaged to assist a Fortune 500 software provider and its external counsel in determining the extent of a potential violation of the Price Reduction Clause and Defective Pricing Clause of its GSA contract. We analyzed the company’s commercial and government sales data, calculated potential damages, and acted as an expert in this qui tam matter. Based on our analysis, a settlement was negotiated with the government.
- Hired by a publicly traded Fortune 100 computer software company to defend a multibillion dollar False Claims Act matter. We provided the company with investigative services which included: technical accounting, internal control and government contract regulatory guidance, and data collection review and analysis. Additionally, we prepared an expert report describing our findings. This matter was settled favorably in mediation.
Labor and Employment Claims:
- Retained by the DOJ to calculate lost salaries, retirement annuities, survivor annuities, and life insurance benefits in nearly a dozen lawsuits and administrative actions in which more than 3,200 federal judges were retroactively awarded statutory cost of living adjustments blocked by Congress between 1995 and 2010. We also created a claims administration process to allow the judges to review their individual claims, provide comments, and execute settlement agreements.
- Retained by outside counsel for a large grocery store chain to evaluate lost earnings and benefits models prepared by an economist in a wrongful termination claim. We identified flaws in the damages models, as well as significant assumptions that lacked evidentiary support. These flaws were cited in motions to exclude sizable portions of the economist’s testimony and challenge the inference of harm to some plaintiffs.
- Worked with outside counsel of a restaurant group to provide expert services related to a class action suit by servers for underpayment of overtime compensation over a multiple-year period. Our work involved investigating the compensation records and related payroll timekeeping system to identify potential underpayments and calculate damages used to settle the suit.
- Performed a cost impact analysis for an aerospace company regarding overstatements in its general and administrative (G&A) rates caused by improper recognition of research and development expenses. We evaluated the appropriateness of the G&A rates used to price government contracts and corrected the rates to be in accordance with the Cost Accounting Standards (CAS). These corrected rates were then applied to affected contracts to calculate the potential overbilling impact that was favorably settled with the government.
- Assisted a Fortune 1000 international logistics contractor in the preparation of analyses required to negotiate with the Defense Contract Audit Agency (DCAA) in relation to disputed charges. We supported the contractor regarding a range of investigations related to major logistics contracts and procurement activities, including but not limited to, false claims and potential FCPA violations. We also performed a review of the procurement system and cost and pricing data.
- Provided expert consultation and testimony on behalf of a Fortune 100 Air Force contractor in rebuttal to a government allegation of over $100 million of defective pricing. Issues addressed included adequacy of cost and pricing data, and the nature and extent of government reliance on such data.
Purchase Price Disputes:
- Provided expert consulting and testimony on a working capital dispute involving two large publicly traded aerospace and defense companies. Our work involved analyzing the seller’s contract accounting and the basis for estimates at completion on contested contracts, reviewing the assertions of the opposing party, and creating an expert report and other materials in preparation for expert testimony.
- Engaged by outside counsel as experts for a privately held distributer of industrial and commercial products regarding whether an acquired company breached the terms and conditions of its stock purchase agreement. The dispute focused on the proper accounting treatment of inventory and shipping costs along with other questionable representations and warranties provided as part of the acquisition. We provided a rebuttal report to the opposing expert’s report, which also included damage calculations associated with the transaction.
- Retained by outside counsel as experts to represent the seller in a $1 billion purchase price dispute regarding the sale of its satellite business. The dispute involved multiple issues questioning the seller’s long-term contract accounting and practices. We provided expert reports and testimony resulting in the favorable settlement of the matter for our client.
Complex Accounting and Risk Management
Technical Accounting Consultation:
- Assisted a Fortune 1000 defense contractor with the evaluation and conversion of their existing revenue recognition methodology and processes to the requirements under Accounting Standards Codification (ASC) Topic 606 – Revenue from Contracts with Customers. We supported all phases of the implementation, which included: an initial evaluation and review of the contract population, the identification of key risk areas, and the calculation of the revenue impact of affected contracts. We also assisted with the development and implementation of new policies and procedures and the preparation of financial reporting disclosures.
- Provided accounting support in relation to the spin-off and sale of a management and information technology consulting firm’s commercial business segment. Additionally, we provided technical accounting guidance and support related to the purchase accounting and complex equity structures and plans in connection with the sale of the parent company.
- Evaluated proposed stock compensation programs and their contractual terms for a Fortune 500 company to determine and establish the initial accounting model for new stock option awards and exercises. In addition, we evaluated and advised the company on the government contract allowability and cost accounting for the stock awards based on the relevant government contract regulatory requirements.
Interim Financial Management and Accounting Support:
- Provided interim Chief Financial Officer (CFO) services and accounting support staff to manage the accounting and reporting functions of a light ordnance government contractor. Our professionals helped expedite the completion of the external audit process and remediated or enhanced the company’s accounting processes and management reporting. In addition, we assisted in the identification of and transition to a new CFO.
- Supported the accounting function of a billion dollar business process outsourcing company, including budgeting, forecasting, and system implementations. We also assisted with the accounting of discontinued operations and the segmentation of business units for financial reporting, which included the set-up and development of the general ledger structure and reports within SAP. Additionally, we assessed the government contract regulatory compliance of the new accounting structure and practices.
- Provided interim CFO services and accounting support to a health care physicians practice group to develop and manage the company’s cash flow forecasts, budgets, and management reporting needs. We also assisted in the redesign of the patient billing and collection processes, including the implementation of an electronic billing function to help expedite and improve the accuracy of insurance billing and collection.
Audit Readiness and Support:
- Subsequent to the spin-off of the government contract cyber solutions division of a Fortune 500 public company, we assisted the newly formed stand-alone company develop and establish its accounting policies and procedures as well as prepare for its first audit. Our work to support the audit and year-end close included, but was not limited to, investigating and reconciling large inventory variances and contract cost and revenue recognition issues. Our efforts assisted the company in receiving an unqualified/clean audit opinion from its external auditors.
- Assisted a government contractor in the completion of its external audit after the auditors pulled out of the field due to the condition of the company’s general ledger and related support. Our work involved the cleanup of the books and records, and the development of account analyses and reconciliations needed to support the financial statements. The company was able to obtain an unqualified/clean audit prior to its covenant deadline and subsequently maintained enhanced accounting and reporting practices due to the improvements made to the monthly closing processes and procedures implemented as part of our engagement.
- Assisted a national spinal healthcare physician group with its initial purchase accounting of several practice groups and accounting support to close its year-end books and records in preparation for its first audit. Our work included the initial set-up of the opening balance sheet and related intangible assets plus the accounting for a new compensation structure and earnout formula. We assisted the company with the development of financial statement closing procedures and other related accounting policies to support its ongoing accounting needs. Our efforts assisted the company in receiving an unqualified/clean audit opinion from its external auditors.
Internal Audit and Sarbanes-Oxley (SOX) Compliance:
- Tested the effectiveness of internal controls and prepared deficiency analyses, including quantification of potential misstatements, for a global biopharmaceutical government contractor. Additionally, we worked to refine the contractor’s existing SOX program by conducting process walkthroughs and flowcharting, and identifying key controls and opportunities for enhancing process efficiencies. Over the eight years that we assisted the company, its external auditors increasingly relied upon our work and did not identify any material weaknesses or significant deficiencies warranting disclosure.
- After a publicly traded Fortune 500 engineering, technology, and management consulting firm spun-off its government sector business, we were engaged to assist in the set-up of its accounting system and SOX infrastructure prior to its initial public offering. We also assisted with the transition from a co-sourced SOX program to an in-house program.
- Provided outsourced internal audit and government contract compliance functions to a privately owned, mid-size government contractor. Additionally, we performed an enterprise-wide risk and control assessment and developed an audit/compliance plan. We also assisted in the preparation and review of the company’s forward pricing rates and incurred cost submissions, and served as a liaison with government agency auditors.
Private Equity and Lender Services:
- Performed financial due diligence on a government contractor for a private equity firm. We also assessed the seller’s government contract control environment related to contract performance, monitoring, pricing, and regulatory compliance risks. Included in this assessment was an evaluation of the quality of earnings and potential risks associated with the seller’s anticipated future contract awards.
- Performed an independent review for a regional bank of a manufacturing and distribution company. This review focused on inventory processes and valuation, intercompany transactions and balances, and the financial reporting process. We provided a report detailing our findings, observations, and recommendations that resulted in improved transparency and reliability of the company’s financial statements and cash flow projections.
- Performed a forensic accounting investigation of a portfolio company for a major investment firm. Our investigation focused on unusual or questionable transactions and financial results. We also reviewed and analyzed select expenditures and receipts in connection with our work.
Government Contract Regulatory Compliance
Billings Reviews and Internal Assessments:
- Assisted a government contractor with closeout and true-up procedures for several multi-million dollar information technology contracts. These procedures included: tracking billed and unbilled revenue, analyzing earned versus billed award fees, reconciling invoices, revising estimates at completion, and calculating available contract funding.
- Provided support to a major aerospace and defense contractor with a billing review stemming from the transition to a new accounting system. Our work involved a detailed review and analysis to ensure completeness and accuracy of inventory costs, with a focus on the prepayment and procurement transactions process. We worked extensively with the client to identify root causes of issues and developed a plan for implementing corrective actions.
- Assessed the reasonableness and adequacy of a defense services contractor’s labor reconciliation related to overbillings on a government contract. We performed a review of the invoicing system, including timesheet entries and biometrics to determine the net billing corrections required. We also provided path forward recommendations and performed sample testing to ensure that the issues cited in our assessment were adequately addressed.
Defense Contract Audit Agency (DCAA) Audit Services:
- Provided internal accounting support for the preparation and presentation of the financial statements of an information technology services company for a year-end DCAA audit. We also evaluated the company’s internal processes and procedures relating to project set-up, accounts payable, accounts receivable, project reporting, and general ledger reconciliation.
- Performed a preliminary Contractor Purchasing System Review (CPSR) for a publicly traded government contractor in preparation for a Defense Contract Management Agency (DCMA) audit. Though the contractor had made adjustments to address deficiencies in its system after a previously failed CPSR, several key risk areas required remediation, including sole/single source justification and supporting documentation. We worked with the contractor to address these risk areas, and it successfully passed the DCMA’s next CPSR.
- Performed an accounting system and estimating system assessment and review for a global information technology company in preparation for potential DCAA audits. This included evaluating the policies and procedures for the estimating system and each component of the accounting system, including billing, labor, and timekeeping, among other subsystems. We also prepared the annual incurred cost submission for the company and assisted with final submission to the government.
Change Orders, Claims, and Termination Settlements:
- Assisted an international aerospace and defense contractor on a termination related to a multi-billion dollar government contract to provide aircraft to the U.S. military. We assisted in the preparation of the termination settlement proposal and related bases of estimates used to support the claim. The client favorably settled the claim with the government.
- Prepared termination settlement and contract change claims for a global defense aircraft manufacturer. Constructive change pricing included discrete, delay, and disruption elements. The effort required significant coordination with the claims pricing team from the contractor’s joint venture partner. The matter was subsequently settled.
- Provided assistance to a publicly traded defense contractor to prepare and submit a Request for Equitable Adjustment (REA) to the government. The need for an REA arose when the contractor identified a constructive change related to a large services contract in the Middle East. We worked with the company and outside counsel to review the current contract, actual costs incurred, and estimated costs to complete the contract, as well as relevant government regulations. We identified increased costs and assisted the company in the preparation of the REA, along with supporting bases of estimates.
Government Contractor Business Systems:
- Evaluated and assessed Department of Defense Federal Acquisition Regulation Supplement (DFARS) and other required regulatory compliance for a publicly traded, international biopharmaceutical company. This included evaluating the existing internal controls environment, assessing the effectiveness of the controls, identifying control gaps, and providing implementation assistance to remediate identified gaps or weaknesses. Within one year after completion, agency auditors did not identify any deficiencies within the company’s Earned Value Management System (EVMS) and accounting systems.
- Performed an estimating system review and assessment for a health and human services contractor. This review included a gap analysis of the existing policy and internal control structures, which resulted in recommendations to address the identified deficiencies. We also performed an evaluation of the company’s accounting policies in accordance with the DFARS business system rules requirements.
- Assisted a publicly traded information technology consulting company with a review of its critical business systems, including the accounting, estimating, EVMS, purchasing, and property systems. The scope was to evaluate the related policies and procedures per the DFARS business system rules requirements and other applicable government regulations such as the Truth in Negotiations Act (TINA), the Federal Acquisition Regulation (FAR), and the Cost Accounting Standards (CAS). We evaluated the design and operating effectiveness of the internal controls and provided management with recommendations based on the results.
- Performed a cost impact analysis for an aerospace company related to overstatements in its general and administrative (G&A) rates caused by improper recognition of research and development expenses. We evaluated the appropriateness of the G&A rates used to price government contracts and corrected the rates to be in accordance with CAS. These corrected rates were then applied to affected contracts to calculate the potential overbilling impact that was favorably settled with the government.
- Assisted a multi-billion dollar logistics contractor in the preparation of analyses required to negotiate with the DCAA in relation to disputed charges. We also supported the contractor regarding a range of investigations related to major logistics contracts and procurement activities, including but not limited to, false claims and potential FCPA violations. In addition, we performed a review of the contractor’s procurement and estimating system.
- Provided expert consultation and testimony on behalf of a major Air Force contractor in rebuttal to a government allegation of over $100 million of defective pricing. Issues addressed included adequacy of cost and pricing data, and the nature and extent of government reliance on such data.
Incurred Cost Submissions (ICS) Review:
- Provided support to a privately held government contractor that needed to reduce administrative expenses, thereby reducing its general and administrative indirect cost rates. The company was considering cost reduction options in the internal audit and compliance functions yet wanted to ensure continued compliance with government contract requirements. We provided outsourced internal audit and government compliance services resulting in significant cost savings. As part of this effort, we also completed the company’s ICS at a reduced cost compared to previous years when completed by its internal compliance group.
- Revised seven years of past ICSs for a not-for-profit government contractor that identified potential fraud perpetrated by a company official. Our work initially focused on review of the general ledger and source documentation to verify costs were supported and properly recorded. We then worked with the accounting department to ensure necessary adjustments were recorded in the general ledger. The revised general ledger data was used to update and complete the ICSs.
- Assisted a prominent government services contractor in the preparation of multiple ICSs, which included over 2,000 manual contract reconciliations, reconciling accounting system data, contractor information, time and expense reports, and billings to the government. This included preparing detailed schedules to support the submissions and calculations of appropriate indirect rates.
New Contractor Services:
- Developed the indirect rate structure and prepared proposed indirect cost rates for a growing software development government contractor preparing to graduate from its 8A small business status with the government. We also completed a DCAA Pre-award Survey, which included performing walkthroughs of the policies, procedures, and systems, and provided recommendations for improvement. Additionally, we assisted with the review of proposals to confirm compliance with DFARS pricing requirements and supported efforts to substantiate commerciality of its software products.
- Reviewed and evaluated the wrap rate of a technical engineering firm to identify potential areas for cost and rate reduction. As part of this evaluation, it was determined that the fringe rate structure for the technical engineers was higher than that of the company’s competitors. We assisted with the revision of their rate structure by creating a new fringe pool for lower-level professional services. Additionally, we updated the firm’s disclosure statement to properly describe the revised practice.
- Assisted a Fortune 500 public company expanding into the U.S. government contracting space as a result of the American Recovery and Reinvestment Act of 2009. We set up the company’s cost accounting system, indirect rate structure, and accounting policies and procedures. We also assisted the company with its initial DCAA Pre-award Survey and ICS preparation, and we provided additional government contracting support.