The Importance of a Compliant Accounting Structure

SCSTips from SCS

When I started my first job in accounting with a government contractor, I was fresh out of college with a Master of Accountancy degree.  Like many, I thought I knew much more than I really did.  But it didn’t take long to realize that I had a lot to learn about accounting, and even more to learn about government contracting.  Fortunately, I had the opportunity to work with seasoned professionals in the industry and was able to learn from them.  Over the years, I was fortunate to land great opportunities that allowed me to grow in this industry and also learn more about the tools and software that could help government contractors meet their compliance needs.   I remember at one point looking around and wishing for better resources to help find the answers to complicated compliance questions.   At that time, you would have to bring in the experts from the Washington, D.C. area, which charged D.C. rates, to get the support you needed.

Over the years, I have been fortunate enough to work with some great people who have related and/or complimentary experience in the government contracting industry.  I have discovered that while it is important to learn as much as possible, it’s also important to know where and how to get the right information.  Building a network of colleagues has been critical in supporting our clients.

Most government contractors start out with a great service or product, but don’t understand the regulations associated with working with the federal government.   Many times, these contractors will reach out to someone with experience in this area to begin with a proper structure.  But other times, they are not even aware of the stringent contracting requirements and do not place enough emphasis on this area of the company’s structure.  It’s not until there is a government audit that they realize the importance of accounting and compliance.  At this point, it could be too late and result in not being awarded a contract.  It could also involve ‘leaving money on the table’ by inaccurate pricing.

The impacts of an inadequate accounting system can be detrimental to any company but especially to one that significantly participates in government contracting.  As mentioned above, a contract award could be contingent upon a compliant accounting system or the proposal could be priced incorrectly due to not fully knowing and understanding the costs.   Other impacts of an inadequate accounting system could be delay of payment or suspension of a contract.

While the accounting department of a company is crucial to proper financial management, it sometimes is viewed as a ‘necessary evil’.  Many people tend to shortcut in this area to save money by hiring someone without experience in the government contracting arena.  While the person may be an excellent accountant, not knowing the rules and regulations could be more costly in the long run.  These are lessons not taught in a classroom.

With ever-changing regulatory requirements, it  is increasingly important to start out with a compliant structure to your accounting and contracts management systems.  Even if you are never audited, it provides great tools to manage the business and individual projects, as well as providing information for bidding on future work.

What makes an accounting system compliant?

In general, the major areas of compliance are:

  • Segregation of direct from indirect costs
  • Collection of direct costs by project at the appropriate level required by the contract
  • Collection of indirect costs by indirect cost pool
  • Segregation of unallowable costs
  • Ability to demonstrate the frequent calculation and monitoring of indirect rates
  • Timekeeping system that collects costs by final cost objective
  • Appropriate policies and procedures

While an auditor is primarily looking at the items above, keep in mind that it is an auditor’s judgment call in many cases whether to pass or fail an accounting system.  It can boil down to a simple human error that will cause an auditor to fail the system, when the basic system is designed and operating in a manner that is compliant.

Since the rules and regulations for accounting for government contracting aren’t taught in a classroom or cannot be found (easily) in a textbook, it does require experience to understand the requirements.  It is important that contractors work with people who have the experience and understand these requirements.

About SCS

SCS is the leading provider of compliant solutions to government contractors. We specialize in GovCon Finance Support, Outsourced Accounting, Software Sales and Hosting, System Implementations, Training, Compliance, Proposal Support and Contract Administration. Our knowledge and hands on experience with Deltek, Unanet and QuickBooks software, combined with with our consultative approach, ensures that your requirements and goals will be matched to the appropriate solution.

Whether you are preparing for a pre award audit, updating your existing processes and systems, or are in need of compliance advice and support, SCS can help. Please contact us for more information.

www.scsconsults.com

info@scsconsults.com

865-220-0051

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