and Synergy, we would be struggling with government
compliance. They make it
so much easier!”
Department of Energy…”
Accounting System Requirements
It’s important for government contractors to understand government compliance and be confident their accounting system is able to effectively handle the requirements before entering into a contract.
Pre-Award Accounting System Survey
Contractors are subject to a pre-award survey (Standard Form 1408), which includes the following requirements:
- Proper segregation of direct costs from indirect costs.
- Identification and accumulation of direct costs by contract.
- A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives or contracts.
- Accumulations of costs under general ledger control.
- A labor distribution system that charges direct and indirect labor to the appropriate cost objectives (contracts).
- Interim (at least monthly) determination of costs charged to a contract through routine postings of books of account.
- Exclusion from costs charged to government contracts of amounts which are not allowable in terms of FAR 31, Contract Cost Principles and Procedures, or other contract provisions.
- Identification of costs by contract line item and by units (as if each unit or line item were a separate contract) if required by the proposed contract.
- Segregation of preproduction costs from production costs.
- The provision of specific financial information regarding limitation of cost, limiation of payments, and progress payments.
For details, see Standard Form 1408.
Cost Accounting Standards
Contractors with contracts between between $7.5M and $50M (modified coverage) must meet the four requirements below. The threshold drops to $650K during the performance of a single “trigger” contract greater than $7.5M. Contracts over $50M (and others that add up to $50M during a preceding accounting period) must meet an additional 15 requirements:
- CAS 401 – Be consistent in methods of estimating, accumulating, and reporting costs.
- CAS 402 – Be consistent in allocating costs incurred for the same purpose.
- CAS 405 – Identify unallowable costs and those mutually agreed to be unallowable, and exclude from billings, claims, or proposals.
- CAS 406 – Follow consistent practices in selection of a cost accounting period and the way expenses and adjustments are accumulated and allocated.
- Follow 15 additional CAS standards as stipulated in the Cost Accounting Standards Board Regulations, Standards, and Rules book.
For more details, see 19 CAS Standards. It is recommended you have the right cost accounting system in place before you bid on a government contract.