What Does the Government Require?
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Government Contracts:
- Are subject to GAAP and the Federal Acquisition Regulations (FAR)—a really big book.
- Are generally not awarded until a contractor passes a pre-award accounting system survey (Standard Form 1408).
- Must meet four requirements (401, 402, 405, and 406) of the Cost Accounting Standards (CAS)—a slightly smaller book—if between $7.5M and $50M (modified coverage). The threshold drops to $650K during the performance of a single "trigger" contract greater than $7.5M.
- Are subject to all 19 requirements of the CAS if over $50M (full coverage) or a number of smaller CAS-covered contracts that total $50M.
- Requirements flow down to the subcontractor(s).
- When subject to CAS, require a CAS Disclosure Statement, which must validate a company's accounting system.
- Must have all direct or indirect costs consistently allocated to a contract to be accepted
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Your Accounting System:
- Only reflects your potential for compliance. How it is implemented and the procedures employed are more important than brand. Deploy a system that handles both effective compliance procedures AND your business model.
- Needs to cost-effectively handle all types of contracts and government requirements and enable you or an auditor to prove costs were determined using appropriate and consistent techniques.
- Must pass this test: Pre-Award Accounting System Survey (Standard Form 1408) and, if subject to CAS, requires a CAS Disclosure Statement.
Risks:
- If you don't have a good system to estimate costs—particularly a consistent method of allocating indirect costs—you can lose money on a contract.
- If an auditor finds errors that favor your company, you can be fined.
- Non compliance can result in lost current and future contracts.
You need the right cost accounting system in place before you bid on a government contract.
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Access Tours, Demos, and Resources for Government Contractors:
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