December 16, 2014

6 Common Accounting Challenges for Government Contractors

by Colin Quinn

Government contractors have specific accounting needs. The complex, stringent, and regularly changing requirements and regulations of Government agencies creates many accounting and financial challenges for small and mid-sized contractors.

There are 6 demanding accounting challenges Government Contractors face. We will share those mistakes below:

1. Not comprehending government rules/requirements

Companies that think government accounting involves a slight variation from commercial business are incorrect. Through voluminous and ever-changing requirements, provisions that many contracts carry are understood and solutions are readily available for such components as: FAR compliance, Wage Determination (Service Contract Act/Davis Bacon), ACRN, Wide Area Workflow, Forms: DD250, SF 134/1035, 294/295, 1443 (Progress Payments). Regulations that slice across all contract types that are always considered: DCAA audit, Incurred Cost Submissions, Government Property tracking, Materials Control, Effective labor rate control, etc. Government contractors must comply with criteria above requirements promulgated by the Financial Accounting Standards Board.

2. Building a system around an specific individual

As government contractors grow, they “streamline” the accounting process to improve compliance and may hire a mid or C-level accountant to implement and maintain a system. A question companies should ask, assuming it is financially possible, is how that system can be maintained if the key individual(s) leaves the business or is debilitated.

3. Failure to “keep up”

Government contractors face a multitude of challenges in their battles to win business and remain profitable. Budget reductions, fierce competition, and demanding contract benchmarks weighed heavily on net income in recent years. Given these uncontrollable factors, contractors with a vision strive to master the areas that can be influenced, but it’s much easier said than done. Companies need to anticipate and implement systems, policies and procedures designed to support compliance with changing requirements.

4. Lack of properly trained personnel

The entire system is compromised if data is wrong, entered into the system improperly, or internal accounting processes are performed incorrectly. Companies need to ensure they not only have skilled personnel but also have policies and procedures to avoid mistakes and correct them properly when they occur. Personnel unfamiliar with requirements and accounting processes common to government contract accounting often undermine a company’s investment in the accounting software itself; this is why proper training is essential.

5. Waiting too long

Your company needs to operate on the assumption that it will face a rigorous government audit, with little or no advance warning. You should be ready and confident that you will “pass with flying colors.” Once a company is tagged with having a noncompliant accounting system, it is very tedious, costly and time-consuming to regain the Government’s acceptance. Contracts can be terminated, new business opportunities forgone and even payments on existing contracts withheld until improvements have been made.

6. Failing to use available information

Whether its implementing a new accounting system, creating a new methodology, or adhering to new policies to comply with Government standards, having the right information available to the contractor, has little value if the contractor does not know how to leverage that information to better manage and grow the company. With innovative technology, companies are far better able to comply with government contracting regulations and utilize the new systems and practices to predict, manage, and grow their companies while remaining compliant.