{"id":2001,"date":"2024-09-23T09:30:51","date_gmt":"2024-09-23T13:30:51","guid":{"rendered":"https:\/\/www.diener.org\/?p=2001"},"modified":"2025-12-29T14:39:20","modified_gmt":"2025-12-29T19:39:20","slug":"overcoming-common-compliance-challenges-in-government-contracting","status":"publish","type":"post","link":"https:\/\/www.diener.org\/overcoming-common-compliance-challenges-in-government-contracting\/","title":{"rendered":"Overcoming Common Compliance Challenges in Government Contracting"},"content":{"rendered":"

\"blankGovernment contractors<\/a> are responsible for maintaining regulatory compliance to renew their contracts and avoid legal penalties. They must have in-depth knowledge of the relevant compliance standards, which include regulations of the Federal Acquisition Regulation (FAR), Cost Accounting Standards (CAS), and Fair Labor Standards Act (FLSA<\/a>).<\/p>\n

Before the Defense Contract Audit Agency<\/a> (DCAA) conducts an audit, government contractor accounting processes should be examined for bottlenecks, gaps in employee education, and potential liabilities. Challenges in maintaining compliance vary by contracting agency and industry. However, across the board, accounting and timekeeping are common compliance challenges.<\/p>\n

The following highlights those issues and solutions to help government contractors prepare their staff for the audit process, and avoid penalties.<\/p>\n

Accounting Compliance<\/h2>\n

Compliant accounting systems can be a challenge for new and old contractors alike. For regulatory compliance, Federal Acquisition Regulations (FAR)<\/a> and Cost Accounting Standards (CAS)<\/a> dictate how contractors should maintain their systems to pass DCAA audits.<\/p>\n

Combining direct and indirect labor is one common mistake that contractors make in trying to maintain DCAA-compliant accounting practices. While direct and indirect labor can be accounted for together in commercial contracting, they must be separated in the ledgers of government contractors.<\/p>\n

This means that administrative tasks, a common example of indirect labor, must be recorded separately from production labor. Labor segregation allows DCAA auditors to compare a contractor\u2019s stated cost objectives with its recorded work hours.<\/p>\n

DCAA-compliant accounting also requires labor to be clearly distributed between tasks, projects, and contracts, and tracked via work orders so auditors can match payroll records to individual workers.<\/p>\n

They compare this paper trail to the contractor\u2019s labor cost attribution to separate activities from processes, fixed and variable costs, and other aspects of compliance.<\/p>\n

For contractors to maximize their contract eligibility, accounting systems must be compliant as well as transparent, with a paper trail that can be easily followed by DCAA auditors<\/a> and compared to the contract terms, cost objectives, and relevant federal statutes.<\/p>\n

Timekeeping Compliance<\/h2>\n

Effective timekeeping in government contracting means accurately recording employee labor hours and costs with clear identifying information that meets DCAA standards for compliance. This includes identifying labor by the relevant cost objectives.<\/p>\n

Timekeeping compliance also involves internal oversight of employee labor-tracking in accordance with FLSA, FAR, and state labor laws. Common timekeeping compliance<\/a> challenges include:<\/p>\n