Understanding Specialized Government Contract Accounting

Importance of Specialized Accounting for Government Contracts

Government contractors must follow specific rules and procedures to maintain their contracts and receive reimbursement. Specialized accounting systems and procedures are important because of the audit requirements, specific forms, and procedural demands imposed by the government. Outsourced accounting services can help meet these requirements and achieve success in government contracting.

Accurate and compliant accounting ensures that:

• Contracts remain in good standing: Non-compliance can result in penalties, contract termination, or in egregious situations, debarment from future government contracts.
• Costs are reimbursed: Proper documentation and adherence to regulatory and contractual guidelines are necessary for cost reimbursement.
• Future contracts are secured: A history of compliance and good financial practices enhances a company’s rating and credibility.

Types of Government Contracts

The type of contract you have with the government depends on the goods or services you provide. Here are the most common types:

• Fixed-Price Contracts: These award a specific price for services. They may include price adjustments based on the consumer price index and incentives or award fees for desirable performance. They offer predictability but require accurate cost estimation.

• Time and Materials Contracts: These pay contractors for the time and materials used during a funded project. They provide flexibility but need rigorous tracking of hours and materials. 

• Cost-Reimbursement Contracts: These reimburse businesses for allowable costs plus an additional amount for fixed fees, incentive fees, or award fees. They are beneficial for projects with uncertain costs but require meticulous record-keeping.

Accounting System Adequacy

All Federal contracts require compliance with accounting principles set forth by the Financial Accounting Standards Board (FASB).

What Sets Government Contract Accounting Apart

Businesses contracting with the federal government must adhere to specific accounting standards, including GAAP (Generally Accepted Accounting Principles) and additional standards by the FASB. These requirements often necessitate an accounting expert or CFO specializing in government contract accounting. Key requirements include:

• Compliance with FAR (Federal Acquisition Regulation) Part 31: This part outlines the cost principles for contracts with the federal government.
• Cost Accounting Standards (CAS): These standards govern the measurement, assignment, and allocation of costs.
• DCAA-compliant accounting and timekeeping systems: Ensures that all accounting and timekeeping meet the standards of the Defense Contract Audit Agency.
• Cost allocation and approved indirect cost rates: Proper allocation of direct and indirect costs is essential for compliance and cost recovery.
• Billing and invoicing using SF forms (Standard Forms): Required for standardized reporting and billing.

Key Differences Between Government Contract Accounting and Commercial Accounting

Government contract accounting differs significantly from commercial accounting. Some key differences include:

• Robust Internal Controls: Necessary to comply with federal audit agency standards.

• Compliance with FAR, CAS: Often more stringent than commercial standards.

• Federal Invoice Standards: Invoices must comply with federal standards and use specific forms.

• Timekeeping: Required for all employees, ensuring accurate labor cost allocation.

• Cost Segregation: Direct and indirect costs must be clearly segregated, which is critical for accurate billing and compliance. It is also critical to segregate costs that are “unallowable”.

Essential Business Systems for Government Contractors

Small government contracting businesses may use QuickBooks for record-keeping, but larger businesses need specialized systems like PROCAS, Unanet, or Deltek Costpoint. These systems help minimize compliance risks and support contract and operational requirements. PROCAS, Unanet, and Deltek Costpoint all have integrated Time and Expense systems that support compliance as well. QuickBooks as a standalone product does not include a compliant time tracking system. There are several adequate time tracking applications that can integrate into QuickBooks.

QuickBooks for Government Contractors

While QuickBooks can handle basic accounting needs, government contractors may require additional functionality to ensure compliance with federal requirements. QuickBooks can be supplemented with modules and add-ons specifically designed for government contracting.

Specialized Systems: PROCAS, Unanet, and Deltek

• PROCAS: This system is tailored for government contractors, offering features like DCAA-compliant timekeeping, expense reporting, and job cost accounting.
• Unanet: Provides project management, resource planning, and financials in one integrated system. It ensures compliance with DCAA and other government regulations.
• Deltek Costpoint: Known for its comprehensive suite of solutions for project-based businesses, Deltek Costpoint offers robust accounting, project management, and compliance features tailored for government contractors.