While Congress debates the debt ceiling and spending cuts, government contractors and entities - and the accounting firms that serve them - are functioning under an increasing regulatory environment that's testing some of their business fundamentals.

"With the [regulatory] landscape of the industry, firms and their clients need to create an infrastructure to make business decisions quickly," said Lexy Kessler, lead partner in the Government Contract Services Group of mid-Atlantic accounting firm Aronson. "They have to be nimble and agile."

Kessler's team offers traditional tax and audit services, transactional and advisory support, and contract solutions to Aronson's government clients. She cited one major contactor client tripling its compliance department over the last two years as an indication of the current administration's focus on transparency and oversight.

And the cost of compliance is having an impact on the bottom line. "Clients are really feeling it for how they price," Kessler said. "They are competitively pricing to get work, but increasing cost to do the work and get it. There are competitive pressures because the budget is shrinking - budget pressures are a unique animal."

And one that is not likely to be put out to pasture anytime soon, with the lead into an election year expected to stymie significant resolution on the national budget.

Kessler said that while some "companies get in [the government sector] and don't believe [the regulations] are applicable to them," they need to respect them, and not just because they are mandatory. The rules and restrictions also influence an organization's internal business mechanics. "Compliance really starts with something as simple as employees filling out time sheets and plays all the way through to what you charge through to the government," he said.

Regulations are also beneficial from the firm's perspective. "The positive is that [government clients] usually perform well on contract, go by the rules, get paid, and are not a big credit risk," Kessler elaborated. "It's a big differential from a commercial customer."

HIGH TOUCH, LOW INTERFERENCE

The scrutiny, of course, remains high when clients do not fulfill those functions.

"We always apply the headline test," revealed Scott Kies, managing partner at Arizona and New Mexico CPA firm Heinfeld, Meech & Co. "We try to keep clients out of the headlines. They end up in the paper for various reasons - it's the nature of government and cities, school districts and other entities we audit - that high level of scrutiny."

In addition to the firm's audit services, which comprise about 75 percent of its workload and are provided to entities such as the Arizona Department of Transportation and the City of Tucson, the firm also consults for governmental and nonprofit organizations. These clients are "definitely needing a really high level of service right now," Kies said. "We are constantly communicating, being a partner in their business. We are looking at it from their perspective of how to provide value, especially from an audit perspective, because otherwise they can just be a commodity."

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