GovCon Accounting Compliance Guide | Part 2 | Ryan & Wetmore

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. 

Accounting System Compliance Considerations 

Ryan & Wetmore’s accounting system compliance 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. 

• Review your accounting system to gain an understanding of any potential gaps. 
  • Evaluate your chart of accounts to ensure there is a clear distinction between direct and indirect costs, as well as separate cost pools. 
  • The accounting system should be designed to comply with FAR Part 31 and Cost Accounting Standards (CAS). This includes a system that can provide clear segregation of costs, detailed tracking of expenses, and proper reporting mechanisms. 
  • Verify that your accounting system is capable of generating financial data that complies with Generally Accepted Accounting Principles (GAAP).
• Review your timekeeping system and its integration with your accounting system. 
  • Ensure employee labor can be identified at both intermediate and final cost objectives and that total hours worked is captured. 
  • Regularly reconcile the accounting system, payroll system, and timekeeping system. 
  • Provide ongoing timesheet preparation training for employees, ensuring that timesheets are prepared and submitted daily. Implement clear documentation for any timesheet edits and ensure proper approval processes are followed to maintain a reliable audit trail.
• Ensure your accounting system is cost accounting compliant.  
  • Review potential CAS coverage and ensure compliance with applicable standards.
  • Government contractors may be subject to a wide range of cost accounting standards such as: 
    • CAS 401: consistency in estimating, accumulating, and reporting costs. 
    • CAS 402: consistency in allocating costs for the same purpose. 
    • CAS 403: allocation of home office expenses. 
    • CAS 404: capitalization of tangible assets. 
    • CAS 405: accounting for unallowable costs. 
    • CAS 406: cost accounting period. 
    • CAS 407 – 417: addressing various specific areas such as depreciation, compensated absences, pension costs, and IR&D. 
    • CAS 418: Allocation of direct and indirect costs.
    • CAS 420: Accounting for independent research and development (IR&D) costs and bid and proposal (B&P) costs.
• Ensure your company has established and implemented policies and practices to prevent unallowable costs from being charged to the government. 
• Conduct an internal review of your system to ensure that it can perform at least monthly interim cost determinations to ensure that costs charged to projects are accurate and up to date. 
• Ensure your accounting system is able to generate accurate financial data in line with contract clauses regarding limitation of cost (FAR 52.232-20) and limitation of payments (FAR 52.216-16). Also ensure your accounting system provides notifications to the applicable individuals when funding reaches certain thresholds. 
• Determine if your accounting system is set up to support progress payments and provide details of allowable costs and work completed. 
• Determine if your company is required to have an earned value management compliance system, a material management and purchasing system, an estimating system, a purchasing system, etc. 
• Develop and manage a detailed job schedule to track progress on all contracts and to accurately adjust for over and under billings on contracts. 
• Regularly review your backlog of active contracts to ensure it is up to date and correctly reflects funding levels. 

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. 

To learn more about your compliance requirements or to discuss our compliance questionnaire, contact Ryan & Wetmore today.