{"id":1789,"date":"2023-12-25T09:30:13","date_gmt":"2023-12-25T14:30:13","guid":{"rendered":"https:\/\/www.diener.org\/?p=1789"},"modified":"2025-12-29T14:32:35","modified_gmt":"2025-12-29T19:32:35","slug":"best-practices-for-government-contract-accounting-compliance","status":"publish","type":"post","link":"https:\/\/www.diener.org\/best-practices-for-government-contract-accounting-compliance\/","title":{"rendered":"Best Practices for Government Contract Accounting Compliance"},"content":{"rendered":"

\"professionalThe term government contracting<\/a> is often correlated with profitability. That means many established and emerging businesses compete for these lucrative contracts. To distinguish between competent and incompetent firms and ensure the proper use of public funds, the government, through various agencies, implements stringent compliance standards for contractors.<\/p>\n

Below are some best practices every business should follow to achieve and maintain government contract accounting compliance<\/a>.<\/p>\n

Working Comprehension of Government Regulations<\/h2>\n

The government has set up numerous regulatory structures to keep contractors in check. The Federal Acquisition Regulation<\/a> (FAR) and Cost Accounting Standards (CAS) apply to all government contractors.<\/p>\n

Special regulations apply to specific sectors, including the Defense Federal Acquisition Regulation Supplement<\/a> (DFARS) and the Defense Contract Audit Agency (DCAA) for defense contractors.<\/p>\n

Establish a Solid Accounting System and Internal Control Structure<\/h2>\n

Before a government contract is awarded, the contractor must demonstrate its ability to execute the project efficiently in a pre-award survey or SF 1408 criteria<\/a>. The design of the accounting system and internal control structure is part of this assessment.<\/p>\n

The accounting system should comply with the generally accepted accounting principles<\/a> (GAAP), which require an accrual-based and auditable system.\u00a0Unlike conventional contractors, federal contractors must adhere to Cost Accounting Standards<\/a> (CAS).<\/p>\n

This ensures that incurred contract costs are identified, allocated, and reported correctly and consistently. The internal control structure should protect the contractor’s assets against theft and waste, ensure timely and accurate recording of transactions, and help with compliance.<\/p>\n

Maintain Accurate Timekeeping Records<\/h2>\n

Timekeeping<\/a> records are the foundation upon which labor costs, which usually comprise a significant portion of contract costs, are allocated and charged.<\/p>\n

Timekeeping should accurately record daily attendance, actual labor hours spent on a particular job, and indirect labor that is not tied to the contract but required for organizational support. This extends to both full-time and part-time employees and consultants.<\/p>\n

Establish and Uphold Written Policies and Procedures<\/h2>\n

Written policies and procedures serve as a contractor’s accounting<\/a> playbook. They guide staff in executing their contractual responsibilities and meeting government contract accounting compliance. They can include guidelines on cash management, asset management, recording of labor hours and costs, and record retention and retrieval.<\/p>\n

Train Employees on Government Contract Accounting Compliance<\/h2>\n

\"businessAll employees should be trained on compliance policies when hired and periodically after that. Larger firms should maintain an internal audit<\/a> department that can provide the training.<\/p>\n

For smaller contractors with a limited budget, hiring the services of external accounting experts for training is the best option.<\/p>\n

Record and Allocate All Costs Correctly<\/h2>\n

In government contracting, the costs involved are categorized as direct and indirect. Both are reimbursable, but their recording and allocation methods differ.<\/p>\n

Direct costs include labor and materials and can be traced directly to a specific contract. They are tracked using contract line-item numbers<\/a> (CLIN). Indirect costs are less obvious and require pools and indirect cost rates for allocation.<\/p>\n

Maintain Proper Documentation<\/h2>\n

Documentation serves as evidence of the legitimacy of all accounting transactions and can be pivotal during audits or disputes. It should be clear, concise, and systematically organized for easy retrieval.<\/p>\n

Invoices, receipts, contracts, timesheets<\/a>, and expense reports are essential records for government contracting.\u00a0The records should be retained for a minimum period after final payment as stipulated by the FAR<\/a>.<\/p>\n

Contract proposals and related records must be maintained for at least six years after final payment. Payrolls and associated records must also be retained for at least three years after the final payment.<\/p>\n

Conduct Internal Audits and Reviews<\/h2>\n

To maintain compliance and ensure profitability, government contractors should conduct regular internal audits and reviews. The frequency will depend on the size and complexity of the contract, but a good practice is to conduct them at least once a year.<\/p>\n

A knowledgeable internal staff or a consultant who’s well-versed in the intricacies of government contract<\/a> accounting compliance should do this. The aim is to scrutinize the accounting system, internal controls, and cost allocation methods for compliance and efficacy. If any shortfalls are discovered, corrective action should be taken immediately.<\/p>\n

Stay Updated Through Continuous Learning<\/h2>\n

Government contract accounting compliance is subject to changes. The main governing bodies, the FAR and CAS<\/a> boards, release amendments, updates, and clarifications periodically, with the latest FAR update<\/a> having taken effect on Oct. 22, 2023. Contractors should remain updated with these changes to ensure continuous compliance.<\/p>\n

Benefit from Professional Assistance<\/h2>\n

For first-class government contract accounting and to spare enough time to manage other aspects of the contract, it’s advisable for contractors to hire a qualified accountancy firm.<\/p>\n

This can save resources that would have been wasted through back-pedaling due to non-compliance and legal costs. It also ensures sustainability through smooth delivery of the contractual obligations, as well as optimal cost recovery and profitability.<\/p>\n

Diener & Associates has a team of experienced certified public accountants (CPAs)<\/a> specializing in government contract accounting compliance.<\/p>\n

We can help with contract administration, including but not limited to the design and implementation of an accounting system, drafting policies and procedures, training employees, and conducting internal audits and reviews. Contact Diener & Associates<\/a> today to ensure government contract accounting compliance.<\/p>\n","protected":false},"excerpt":{"rendered":"

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Discover best practices that every business should follow to achieve and maintain government contract accounting compliance.<\/p>\n<\/div>\n

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Read More<\/span> <\/i><\/span><\/a><\/p>\n<\/div>\n<\/div>\n","protected":false},"author":13,"featured_media":1790,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[6],"tags":[],"class_list":{"0":"post-1789","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-government-contract-consulting","8":"entry"},"acf":[],"yoast_head":"\nBest Practices for Government Contract Accounting Compliance<\/title>\n<meta name=\"description\" content=\"Discover best practices that every business should follow to achieve and maintain government contract accounting compliance.\" \/>\n<meta name=\"robots\" content=\"index, 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