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Battling with documentation

guest commentary by David Potts

Editor’s note: David Potts is a certified public accountant with more than 33 years experience. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case. Feel free to e-mail topic suggestions or questions to davidpotts@potts-cpa.com

Opinions, commentary and other essays posted in this space are wholly the view of the author(s). They may not represent the opinion of the owners of The City Wire.

Growing up my mother often would warn me as an inducement to behave or face the consequences, “Be sure your sins will find you out.” I have found throughout my life that her admonition is still relevant, for everybody.

It is an intriguing read, The City Wire’s article “Fort Smith officials respond to claims of improper legal billing” (May 22). and Matt Campbell’s blog posts on his Blue Hog Report, “O’er Lawyers’ Fingers, Who Straight Dream On Fees…” (May 20), and “If the Phone Doesn’t Ring, It’s Me” (May 23). If you missed The City Wire’s article, stop and read it now. The City Wire reported on Matt Campbell’s allegation that Daily & Woods, the law firm that represents the City of Fort Smith in all its legal matters, submitted bills for legal fees to the City that were at a minimum in error and in the worst case criminal.

The obvious point of the articles is a claim of wrong doing within the Daily & Woods law firm and the existence of a certain complacency on the part of City Administrator Ray Gosack regarding the allegation. Keep in mind that Daily & Woods has been the City’s law firm since it assisted the city of Fort Smith in adopting the current administrative form of government in 1968, a form of government of which one of its proclaimed benefits, as I understand it, is to prevent cronyism.

Based on the more than $313,000 that Fort Smith paid to Daily and Woods in fiscal year 2013, Mr. Gosack must have a close working relationship with the firm’s attorneys. Because of this it would be expected that Mr. Gosack would be friends with most of the firm’s attorneys. There is nothing wrong with that (in and of itself). However his remarks about Mr. Campbell’s allegations almost seem as if he is defending Daily & Woods. It’s not his job to defend Daily and Woods. It is his job to defend the City of Fort Smith. I would hate that his comments would inadvertently put the focus on him rather than Daily & Woods and Matt Campbell, where it belongs.

I’m also not ready to conclude as to whether Daily & Woods committed a breach of trust with the City. The firm has practiced law in Fort Smith for more than 100 years and the firm’s reputation, as far as I know, has always been a reputation of competence and integrity. But the allegation of wrong doing by Matt Campbell supported by his documentation of recent events seems to put Daily & Woods on the defensive. I imagine their defense will be strong. It will be interesting to watch this situation play out. Will anybody be outraged enough to force an investigation of the matter or will it be old news and forgotten by the end of June?

Many people will see this story as a story about public corruption and malfeasance. Maybe it is; maybe it isn’t. But it is an object lesson for business owners and business professionals. I would even extend the lesson to every taxpayer alive. The lesson is DOCUMENTATION! DOCUMENTATION! DOCUMENTATION! Documentation will almost always win the day.

I see the importance of accurate and adequate documentation of normal and seemingly mundane business events all the time. It’s not often that I have a client that has the pleasure of the visit from the Internal Revenue Service, but it happens. The first thing that the IRS agent will do is request a list of DOCUMENTS that he or she will want to examine. Whether the examination ends with a large assessment of additional taxes plus penalties and interest will depend on the quality and timeliness of the documentation you can provide.

If I was asked to judge the adequacy of documentation generated by small businesses and professionals over my 34 year career, I would conclude that much of our required documentation to support compliance with government regulations is mediocre. Who among us actually keep an accurate mileage log and are ready in a moment’s notice to offer it to an IRS agent for examination? If a tornado came through Fort Smith this year and destroyed your business inventories, could you give the insurance company an accurate count and valuation?

Creating accurate and adequate documentation for business transactions can be a chore. When your focuses is on customer fulfillment and satisfaction, sometimes certain documentation is overlooked because of time constraints and lack of resources. Combined with the knowledge that IRS examinations are not common, motivation to habitually create adequate documentation wanes. Unfortunately for some, when the IRS does knock on your door you cannot defend otherwise allowable deductions because of lack of documentation.

In the end, whether most of us believe Matt Campbell’s allegations over Daily & Woods rebuttal will depend on who has the “best” documentation. As a professional in an industry familiar with timesheets, the discrepancies between Campbell’s records and Daily & Woods records could be explained by a Daily & Woods attorney being lazy, not completing his time sheet on a contemporaneous basis and therefore forced to reconstruct the time sheet at the end of the week. Whatever the story I believe the citizens of Fort Smith are owed the truth. We have to be one of the firm’s biggest clients.

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This story should remind every business person or professional where reputation is valued in the marketplace, it takes years to build a great reputation but minutes for that reputation to be damaged by allegations of wrong doing. And the best defense a business or firm can have against allegations of wrong doing? Documentation.

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Comments

City Attorney

The relationship between Daily and Woods goes back much further than 1967. You are correct that they have a very good reputation and have a lot of institutional knowledge about Fort Smith and its city government. I do not have an opinion about the charges made by Matt Campbell and feel that it needs to be investigated. Be that as it may. I have often wondered why Fort Smith does not hire an in house city attorney and support staff. It could be done for a lot less money and have a lawyer who devotes himself or herself to the cities business 100%. One lawyer and a secretary and an associate that can also handle municipal prosecutions in district court should be sufficient. The cost is set and there is no billing to review.
The relationship between Daily and Woods goes back much further than 1967. You are correct that they have a very good reputation and have a lot of institutional knowledge about Fort Smith and its city government. I do not have an opinion about the charges made by Matt Campbell and feel that it needs to be investigated. Be that as it may. I have often wondered why Fort Smith does not hire an in house city attorney and support staff. It could be done for a lot less money and have a lawyer who devotes himself or herself to the cities business 100%. One lawyer and a secretary and an associate that can also handle municipal prosecutions in district court should be ...>> Read the entire comment.

The Cost of Counsel

Good article and excellent comment "City Attorney". I wonder if the citizens of Fort Smith realize how much money is spent each year to keep Daily and Wood, "handling our business". Or, by comparison, how much more efficiently Little Rock and other large municipalities manage spending in this area. Perhaps instead of a knee-jerk defensive, if not outright adversarial, reaction to the observations made by Matt Campbell, Ray Gosack should take a closer look at the facts himself and make an informed decision in the best interest of the city and its citizens.

Thats Big Money

313,000 thousand dollars for Fort Smith Legal bills in year 2013 is a lot of taxpayer money. How much was the City billed in 2012, 2011, 2010, and 2009, for legal services? How about a five(5) year average?

City Attorney, City Hall

Why doesn't the city hire an in-house legal team instead of spend $313,000 on Daily & Woods? Why does the city continue to lease office space for a city hall at a cost of $240,000 rather than build its own? Because we unquestioningly continue to do things the old, inefficient way they've always been done.

In the past month or so it has appeared like

an old time engineering firm was getting all the business even if it charged many many times as much as others and now it appears an old time law office has about the same deal. Naturally a certain degree of competence is required for both but others who are competent aren't even getting a chance to bid for these jobs. This is almost like asking to pay too much.