How Government Contractors Can Solve Accounting Hurdles 

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Isn’t it great that you get to work as a government contractor (GovCon)? You get a chance to do important work for your country and get paid for it, too. 

While starting out, landing the first government contract might feel like the hardest thing. But surprise, surprise! It turned out to be the accounting part. 

Keeping up with FAR compliance, DCAA audits, and paperwork involved in government contracting is a huge challenge. It can make managing your finances feel like an unsolvable puzzle instead of a manageable job. 

The strictness around government accounting exists for a very good reason. Public funds and taxpayer dollars are involved, meaning there is intense scrutiny over how this money is spent.

The good news is, you don’t have to navigate it alone. Here, we’ll share a few tips that can help you handle those accounting challenges like a pro.  

#1 Invest in the Right Accounting System

Tracking every penny for a government project using only spreadsheets can quickly become a nightmare. 

Government contracts, especially those where costs are reimbursed, demand extremely precise tracking. Organizations need to know exactly where every dollar goes and what it is for. The right accounting system can help overcome these challenges. 

This is not just about any accounting software. GovCons need a system built specifically for their needs and one that is Defense Contract Audit Agency (DCAA) compliant. You must look for systems with powerful features.

Real-time tracking is important. It allows you to see money flow as it happens, not weeks later. This means instant visibility into budgets and labor costs.

Robust audit trails are also non-negotiable. Every change and every entry needs a clear digital footprint, which is vital for audits. 

Some advanced systems can even automate tricky indirect cost calculations. Look for software with built-in templates that follow DCAA rules, like having a compliance cheat sheet. Cloud-based access is a huge plus, offering secure access to financial data from anywhere. This makes collaboration much easier.

#2 Propose an Indirect Cost Rate

Many GovCons miss out on significant funding by not establishing a proper indirect cost rate with their federal sponsors. 

Indirect costs are behind-the-scenes expenses. They support the entire organization. They are not directly tied to a single project or contract. These include things like office rent, utilities, human resources, or the salary of an executive director.  

These costs matter greatly in government contracts. When you work for the government, the government is supposed to cover the full cost of that work, including a fair share of these indirect expenses. 

Earlier, the guaranteed de minimis rate for indirect costs was 10%. But last year, the Office of Management and Budget (OMB) has since raised it to 15%. 

What’s more? Agencies cannot compel you to accept a rate lower than 15% unless a specific law dictates otherwise.

The process of developing an indirect cost rate proposal can seem daunting, but it’s worth the effort. You’ll need to analyze your organization’s cost structure and separate direct costs from indirect costs. You’ll also have to present a clear methodology for how you’ll allocate these expenses across your programs.

#3 Keep Timesheets Tight

When you’re working on government contracts, how you track your employees’ time is a really big deal. It’s not just about payroll; it’s a core part of how the government pays you. 

Labor costs are a huge part of government contracts, so timekeeping gets a lot of attention from auditors. Getting it wrong can lead to big problems, like delayed payments, fines, or even legal issues. The DCAA will often check your timekeeping system before you even get a contract.

To meet DCAA requirements, you must follow a strict timesheet checklist. Log all hours worked daily and in real-time. Don’t wait until the end of the week. This includes direct, indirect, leave, and holidays, a concept known as Total Time Accounting. However, you must clearly differentiate between direct and indirect labor hours. 

Provide detailed descriptions of the work being performed and specify which project or task it relates to. Supervisor approval is mandatory, which adds an important layer of verification. 

Use electronic timekeeping systems as they enhance accuracy and provide better audit capabilities. 

#4 Seek Help From Experts 

Government contract accounting isn’t something you figure out through trial and error. It’s totally okay to ask for a helping hand.

The rules, like Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS), are always changing and can be super complex. Experts specialize in staying on top of all these updates. They help you prevent errors that could lead to big fines, disallowed costs, or even losing your contracts.

A GovCon CPA (certified public accountant) can help in this regard. They aren’t generalists trying to apply standard business accounting principles to a highly regulated environment. 

They understand the nuances of FAR compliance, indirect cost rate development, and the specific reporting requirements that government contracts demand. They can also help you establish proper accounting procedures from the start, guide you through indirect cost rate proposals, and provide ongoing support for compliance issues. 

The CPA Department explains that GovCon CPAs specialize in tax strategies and compliance for government contractors. So, they can help you identify opportunities to improve profitability while staying within regulatory boundaries.

Sure, hiring professionals may cost you a bit. But the price would be minimal compared to the potential consequences of getting things wrong—failed audits, contract disputes, or worse, being suspended from the government. 

The takeaway? Don’t try to wing GovCon accounting with your regular business accounting approach. You can handle the red tape by following these measures. When you get your accounting house in order, you not only solve problems, but also gain a competitive edge. You’ll bid more accurately and operate more profitably. 

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