It is no secret that the federal budget is riddled with waste and errors. Tell us something we don’t know.

This fact is the type of thing most Americans have accepted with death and taxes. As our culture grows more cynical, there is an overwhelming sentiment of “There is nothing I can do to change the way things are.”

We must fight against our apathy and use technology to assist us in forging ahead into what we know to be better government and “a more perfect union.”

The DATA Act (Digital Accountability & Transparency Act) is one of the few opportunities we have to change not just some things – but everything about the way the government distributes money. I will be the first to admit that it is a long shot for any government agency to do something efficiently and effectively, but even if they get this legislation half-right it would be a great improvement.

Another piece of potential good news for the DATA act is that it has a very recent, major government implementation process to learn from and improve upon. The process I am referring to is the Securities & Exchange Commission’s implementation of eXtensible Business Reporting Language (XBRL) from 2009-2012.

This SEC action plan for implementation of XBRL into public company filings incorporated a two-year voluntary-filer pilot-program, followed by a gradual phase in of the biggest companies to the smallest public companies from 2009-2012. This roll out allowed both the SEC and small companies to learn from early mistakes and refine the process quickly. The phase-in also allowed for milestones to be achieved with regard to the level of detail in the data.

Where the SEC went wrong is not demanding enough standardization of data-tagging. It allowed for over 15,000 definitions public companies could choose from and also offered companies the ability to create their own customized definitions on top of the 15,000 options. So the reality was “infinite possibilities”. Not so surprisingly, customization was rampant in early XBRL filings and created high “extension rates”, which make it difficult to get apples to apples comparisons. What one company termed as “Sales” another could customize their definition slightly in order to not have their numbers directly compared for fear of looking bad against the competition.

This single point of failure can be avoided in the DATA Act implementation and in future transparency efforts. Minimizing the number of customized ways to say the same thing will increase the accuracy of comparison between municipalities, grant recipients, companies and agencies that receive federal money.

The good people at POGO have put together 10 questions that should be easy enough for even moderate transparency to answer. 

While what is below is an over-simplification of a complex tagging-service process using a complex software product, it will show how it should look to the lay person who wants to know where their tax dollar are getting spent. This way of looking at the data is, in fact, the end goal of transparency. All of us being able to see how the government is spending the money we (the citizens) agree to give.

Question: What small businesses in my community are receiving federal dollars?

How XBRL would allow for easy comparison:

<smallbusinessname>ABC Fictional Company</smallbusinessname>
<federaldollarsreceivedtotal>$100,000</federaldollarsreceivedtotal>
<federalagencyDoD>Department of Defense</federalagencyDoD>
<datereceived>1/31/2013</datereceived>
<expecteddateofuse>6/30/13</expecteddateofuse>
<intendeduse_militaryfacilityconstruction>Fort Fake Barracks Improvements</intendeduse_militaryfacilityconstruction>

According to an online column on CFO.com by Nicolas Morgan and Jennifer Feldman, 2014 is a good year to ensure that your XBRL code is of the highest quality. Morgan and Feldman give their column — “No More Mr. Nice Guys: SEC Sharpens Talons for 2014” — a helpful subtitle:

“Don’t be complacent. The recent trough in the SEC’s enforcement of financial-reporting regulations will turn around this year.”

In addition to an alarming title, the article contains a series of warnings that could worry the Officers for any public company. As a result of an increasing “interest in pursuing enforcement of financial reporting regulations,” Morgan and Feldman write that the SEC “will be making more inquiries, analyzing more periodic reports and financial statements, and ultimately filing more lawsuits.”

This redoubled effort by the SEC to detect and prosecute fraud will include the new “Financial Reporting and Audit Task Force,” which was formed in July 2013 by the SEC’s Enforcement Division. This group will consist of “enforcement attorneys and accountants from across the country who will be tasked with identifying financial-statement, issuer-reporting and disclosure violations.”

The article certainly is attention grabbing, but we at RDG want to highlight the aspect of this article that is of immediate value to those companies with nothing fraudulent to hide, but who share the perfectly reasonable desire to stay out of the SEC’s search lights. Happily, this is also a thing that is completely within the control of companies themselves: Taking steps to ensure your XBRL data is of the highest quality.

Almost as an afterthought, Morgan and Feldman write that “one weapon in the task force arsenal is the much-discussed Accounting Quality Model (AQM), colloquially known as RoboCop. The SEC describes AQM as a quantitative analytic ‘model that allows us to discern whether a registrant’s financial statements stick out from the pack.’” What they do not mention, however, is that the RoboCop uses XBRL data as the first line of defense in its search for outliers.

For more helpful insight, we turn to a recent online article for Forbes, in which John Carney and Francesca Harker explain that “because RoboCop is an automated system looking for oddities, it is unable to account for mistakes made. This is particularly important because the AQM relies on the newly-mandated XBRL data which is prone to mistakes by the inexperienced. Sloppy entries could land your company’s filing at the top of the list for close examination.”

For those companies with nothing fraudulent to hide in their books, we like to think of investigation by the Financial Reporting and Audit Task Force as analogous to getting audited by the IRS when your taxes are properly paid but your From 1040 was filled out incorrectly. The IRS will find nothing amiss after the audit, but the process will be awful, time consuming, and expensive. This idea applies to your XBRL data. If your financial statements are in good order, but your XBRL is improperly built, the RoboCop may highlight your company as a candidate for further investigation. By ensuring your XBRL is of the highest quality possible, you can avoid any flag that the Accounting Quality Model RoboCop system might have otherwise raised.

We at RDG can help any SEC Filer who wants to know that their XBRL filings exceed SEC validation requirements, and will be in line with the enhanced standards, protocols, and guidelines already put forward by the FASB, the AICPA, the US-GAAP, XBRL-US, and others.  RDG offers exhaustive XBRL Quality Assurance Services, and we have the knowledge, expertise, and experience to ensure that your XBRL documents are not vulnerable to the AQM-RoboCop and any future analysis tools deployed by the SEC.

Contact us.

Stewart Walker – SVP, Director of Sales

415.643.6017

Having previously worked in an SEC Reporting role, I now specialize in helping my industry peers find Financial Reporting solutions that best fit their organizations. You can count on me to help you navigate any questions you might have as they relate to your SEC Compliance. I’ve helped my clients reduce their SEC Compliance costs without compromising any value to their services. I have developed business relationships with industry leaders in the oil & gas, steel, transportation, biotech, technology, financial, and healthcare sectors. It’s been a pleasure being a part of growing RDG Filings to be the 5th most active filing agent in the industry.

With the end of the limited liability exemption for XBRL, the future of reporting is in increased transparency and validations of your reports. There will be an ongoing need for guidance from XBRL experts. Companies have and will be striving to find a balance between time and cost efficiencies, all the while adhering to all SEC Requirements.

I know firsthand just how incredible RDG Filings is as an XBRL service provider.  RDG provides clients with everything they need to be ready for the future of XBRL: a full-service platform managed by CPA’s who are fluent in the XBRL taxonomy. This platform enables you to create your own customizable timelines and offers fixed pricing. You will automatically receive a two tiered validation on all your reports, guaranteeing that you are following all US GAAP, AICPA, FASB and XBRL Reporting guidelines. On average, we have been saving our clients between 35-90% off of their SEC filing costs and trimming down their wait times between drafts by half. In addition to these metrics, you get to work with a group who was independently surveyed to offer the best customer service in the industry.

A common misconception is that in-house control increases XBRL data quality. This is simply not true. While software gives the illusion of control, without the knowledge and tools to produce high quality XBRL data with proper understanding of the current taxonomy AND the proper methodology for XBRL data construction, it’s similar to expecting a novice driver to race in the Indy 500. Sure, you can do it, but you may not finish the race.

The RDG team’s goal is to help as many organizations as possible achieve the same results as my current clients. – Divya Patel

Feel free to contact our Director of Sales, Stewart Walker, at : 415.643.6017.