5 Key Focus Areas in Government Contract Accounting
Government contract accounting can be a very different animal for those not familiar with Federal Acquisition Regulation (FAR) regulations or changing mandates from the Hill. Why, just the FAR alone consists of over 2,000 pages of policies and procedures required by contractors, in addition to the specific performance guidelines outlined in the contract’s statement of work.
Federal Government Contractors are also subject to external audits performed by the Defense Contract Audit Agency (DCAA). These audits can be daunting and intimidating as the FAR is complex and subject to interpretation. Should the business be cited for non-compliance, payment suspensions, or contract terminations, future ineligibility could result. For costs reported to the government which are specifically identified as being unallowable under the FAR, the DCAA is authorized to assess a penalty of up to twice the disallowed cost in addition to transferring the cost to an unallowable account.
In addition to these particulars within the government contracting space, we’ve identified 5 key areas to pay close attention to.
1. Cash flow: Cash flow is paramount for a small government contractor or subcontractor. While the good news is the government does pay its bills, the bad news is you may not get paid as fast as you’d like. Managing cash for a small government contractor requires knowledge of government contract types and specific clauses related to contract payment. Negotiating the most favorable terms may mean the difference between long term success or failure of the contract and possibly even the firm.
2. Pricing: Pricing in the proposal stage of a contract is crucial. Knowing how to leverage government cost rules when budgeting and pricing new proposals will directly affect cash flow after the award of the contract. With all the FAR regulations and other flow-downs on most government contracts, it is critical that an experienced CFO anticipate and construct pricing models accordingly.
3. Compliance: Depending on your mix and dollar amounts of the contracts, financial and business systems may be heavily scrutinized by the government through audits. Most small businesses simply don’t have the expertise to survive the scrutiny if it focuses on your firm. Your CFO should provide that expertise and stability to carefully assist in navigating this process.
4. Profitability: Success as a government contractor means monitoring profits and threats to performance on a job-by-job basis. Understanding the unique contractual obligations required by government work statements is critical to maximizing profitability. The government imposes a complex matrix of requirements and applies them strategically to leverage a “fee” under regulatory contracting guidelines.
5. Objectivity: An outsourced CFO provides an unbiased perspective from an independent source that is not ‘drinking the koolaid’. This type of objectivity ensures a fresh perspective to safeguard the businesses and provide the best tactical decisions for long term strategy.
BONUS: Flexibility: The volatility of the government contracting space can be maddening for some, and unnerving at very best. For the most part, Employers do not enjoy layoffs or downsizing due to a non-renewed contract. At CFO Strategic Partners, we offer experienced CFO personnel on an outsourced basis. All of our CFO’s have extensive experience with government contracting, small business management and financial responsibilities. Call today to discuss how the potential impacts of those key areas on your government contracting business.