Part 3 of 6
Key Details: Navigating the compliance maze in the government contracting industry can be a daunting task. Understanding the fundamental compliance requirements is essential for any government contractor looking to succeed in this highly regulated industry.
In this 6-part series, we break down some of the most critical compliance areas that every government contractor should be aware of. This article series covers the following topics:
- General compliance considerations
- Accounting system compliance
- DCAA and SF 1408 compliance
- Payroll and timekeeping compliance
- Labor law compliance
- Other compliance considerations
Every government contractor’s compliance requirement may vary significantly depending on their company size, the nature of contracts, and the specific government agencies they work with. As such, it is critical to consult with a trusted advisor to understand the requirements specific to your company. Note that the items included in this article are not wholly exhaustive but are intended to be used as a guide as you build your compliance program.
At Ryan & Wetmore, we work closely with contractors to ensure they meet relevant requirements and avoid potential pitfalls. To assist in this process, we offer a detailed compliance questionnaire designed to help you assess your unique compliance needs. Speak with a Ryan & Wetmore advisor today to learn more.
DCAA and SF 1408 Compliance
Ryan & Wetmore’s DCAA and SF 1408 section of the compliance questionnaire encompasses a wide range of responsibilities and requirements that contractors must manage to ensure they meet federal regulations and contractual obligations. The following list is not exhaustive; contact Ryan & Wetmore for a more exhaustive list.
- Cost Estimating Methodologies:
- Evaluate if your company is required to submit cost estimating methodologies as part of the bidding process. A compliant cost estimating system provides data that is reliable, verifiable, consistent with related management systems, and is subject to applicable financial control systems.
- Indirect Rate Calculations:
- Determine the method your company uses to calculate indirect rates and ensure rate calculations are consistent.
- Ensure expenses are allocated to the correct cost pools and are treated consistently and in accordance with applicable regulations.
- Internal Assessment of SF 1408 Compliance:
- Your accounting system must be compliant with Generally Accepted Accounting Principles (GAAP).
- Proper segregation of direct costs from indirect costs is required—separate each cost element through different account numbers and names.
- Ensure your accounting system can identify and accumulate direct costs by contract. Job costing is an essential compliance component that requires unique project numbers and a job costing ledger.
- The accounting system must logically and consistently allocate indirect costs (e.g., overhead, G&A, fringe) to intermediate and final cost objectives.
- Ensure the accounting system provides for accumulation of costs under general ledger control.
- The system must properly allocate labor to projects both directly and indirectly. Total employee labor hours and dollars must be tracked by job and account and by intermediate or final cost objective.
- Provide for a labor distribution system that charges direct and indirect labor to the appropriate cost objectives, and require employees to record total time worked.
- Provide for regular (at least monthly) determination of costs charged to a contract. This is done through routine posting of books of account and by generating a report that shows total costs incurred for a given project monthly.
- Properly track any unallowable costs and ensure they are not charged to the government by having separate accounts.
- If required, charge direct costs and allocate indirect costs to line items. Adequately identify costs by CLINs when required.
- Preproduction costs (incurred before the effective date of a contract but required to meet a contract requirement) must be properly accounted for and captured separately.
- Accumulate direct costs by project and allocate indirect costs to relevant projects. Track costs and billings cumulatively and reflect the percentage of funds used.
- Properly track costs and billings and accumulate them under the identified job to support progress payments.
- Continuously track all features (such as costs and billings) in a reliable manner. This means complying with all items above and demonstrating that your accounting system is in full operation.
Conclusion and Action Plan
Navigating the complexities of government contracting requires a rigorous and proactive approach. From adhering to FAR requirements and ensuring proper accounting practices to maintaining ethical standards and labor law compliance, government contractors must remain vigilant in meeting all federal requirements.
To learn more about your compliance requirements or to discuss our compliance questionnaire, contact Ryan & Wetmore today.
Today’s Thought Leaders
About Peter Ryan
Partner, Co-founder, & CPA
Peter T. Ryan co-founded Ryan & Wetmore in 1988 with business partner Michael J. Wetmore. Peter provides clients with the best strategies for success. His expertise extends across various industries. Peter obtained a Master of Business Administration in Finance from the University of Baltimore and a Bachelor of Arts in Accounting from the Catholic University of America.
About Rosie Cheng
Finance Consultant
Rosie Cheng is a Finance Consultant at Ryan & Wetmore. She focuses on government contracting services and produces many of the firm’s government contracting newsletters. Rosie graduated from Georgetown University with a Master of Science in Management and from William and Mary with a Bachelor of Business Administration.
