The United States Federal Government is the largest purchaser of goods and services worldwide. And since its purchases are taxpayer-funded, the U.S. government has stringent accounting standards, policies, and regulations in place designed to safeguard the interests of taxpayers. All government contractors are required by law to ensure that their accounting practices are fully compliant with government regulations. Is it worth it to outsource accounting as a government contractor? Keep reading to understand why support from experts may benefit your bottom line.
Should Government Contractors Outsource Accounting?
If you provide goods and services as a government contractor, you face accounting requirements that are above and beyond those which are typically required of other businesses. Staying compliant with regulations and passing audits is critical. That’s why, often, many government contractors outsource accounting to a team with the specific expertise needed to navigate the world of government contracts. Let’s explore a few of the complexities an expert can help navigate.
Compliance with Government Regulations
All government contractors are required by law to adhere to strict government regulations, including the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS), which require specific accounting practices, including cost accounting standards and indirect cost rates.
Indirect Rate Cost Audits
All government contractors are obligated to track and report all costs associated with their government contracts, including direct and indirect costs. Direct costs are expenses that can be directly attributed to a specific government contract, such as labor costs, materials, and equipment, and government contracts will usually specify how much money will be paid for direct costs.
Unlike direct costs, indirect rate costs are generally calculated not as a dollar amount but as a percentage of the direct costs. Indirect costs are costs that are not directly related to the specific goods or services being provided under the contract — such as rent, utilities, and administrative costs — but that are still necessary to the overall operation of the business providing those goods and services. Indirect costs are negotiated between the contractor and the relevant government agency as part of the contract agreement, and they are typically based on the contractor’s actual costs for the previous year.
All government contractors are subject to indirect rate audits throughout the course of their contract: typically at the start of the contract and during each new fiscal period, although timing can vary. Passing these audits requires meticulous, accurate, and detailed accounting of all indirect costs to justify the indirect rate.
Timekeeping and Labor Requirements
Government contractors must also accurately record and report employee time and labor costs (including regular and overtime hours) to ensure compliance with all requirements under the Fair Labor Standards Act (FLSA) and the Davis-Bacon Act.
DCAA Audit Prep
All government contractors are subject to regular government audits to ensure compliance with accounting standards and regulations. The audits cover a wide range of financial and accounting areas, including cost accounting, pricing, and estimating practices. Preparing for these audits, which are conducted by the Defense Contract Audit Agency (DCAA), can be extensive and time-consuming.
Avoiding Penalties
Failure to comply with the myriad accounting regulations required for government contractors can result in severe penalties, including the loss of present and future contracts, fines, and even criminal charges.
Outsourcing accounting to a team with specialized expertise in government contracting accounting practices and regulations can help ensure you avoid costly mistakes and penalties. It also frees you up to focus on running your business with the certainty that your accounting is in the hands of experts.
GovCon’s team of accounting compliance experts has 20+ years of experience in helping government contractors achieve worry-free compliance. We offer a range of partial to complete accounting services to help you ensure that your books are always DCAA-compliant and prepared for an audit. Whether you need support ensuring that your bookkeeping is on track for government contracts or you want to completely outsource your accounting to an expert, GovCon has experts ready to help. We offer four different levels of full or partial accounting services and support to meet your accounting and DCAA compliance needs. And as a QuickBooks Solutions Provider, we also offer an unbeatable accounting software solution package specifically designed for government contract bookkeeping to help you remain DCAA compliant.
Working with GovCon, you can trust that your financials are in the hands of DCAA compliance experts. Contact us today for a free consultation to determine which package is the best fit for you.