Redstone Government Consulting Blog | Government Regulations (10)

Well – besides being the first thing your friendly DCAA auditor will ask you for, they should be something your employees use and rely on daily. The last thing you want is one of your employees telling an auditor they have never seen or read the company’s policies and procedures. The joy that will come across the auditor’s face will be truly shocking – and – the sadness that will come across your face when the Business System Deficiency Reports start to arrive, requiring endless responses and corrective action plans, will be just as shocking. This fairytale has no happy ending, at least not for you and your company – just a drain on your resources and more audit oversight.

Basic Requirements

CAS 410 provides the criteria for allocating business unit general and administrative (G&A) expenses to final cost objectives based on their causal beneficial relationship. The standard requires that one of three cost input bases must be used unless there is a special allocation to a particular final cost objective. Contractors should select the cost input base which best represents the total activity of a typical cost accounting period for the production of goods and services for the business unit.

In our article, Understanding your Lower-Tier Relationships with Subrecipient and Contractor Determinations under 2 CFR 200, we addressed the required determination as to whether the lower-tier organization supporting your Awards or Subawards are classified as subrecipients or contractors. Now that the determination is made and documented is that all that needs to be done? Well no.

Basic Requirements

This standard vastly expands on the FAR requirements related to direct and indirect costs. FAR 31.202 and FAR 31.203 give a basic definition of each, but little else. CAS 418 provides guidance on accumulating indirect cost pools, including service centers and overhead costs. Furthermore, it requires the costs be allocated on the causal or beneficial relationship between the indirect cost pool and the related cost objective. In addition, CAS 418 requires each business unit to have written policies and practices for classifying costs as direct or indirect.

Any company receiving a government contract for the first time will have lots of questions and changes to their operations as a result of that contract. The question is, will the accounting structure and approach to the company’s accounting practices have to change?

If you are awarded a fixed priced contract or a commercial FAR part 12 contract with the Federal Government with payment on delivery, you should not need to make any changes to your accounting practices based on US Generally Accepted Accounting Practices (GAAP). However, even a fixed priced contract or a commercial (FAR part 12) contract can become complex and require specific accounting be applied should the Government make changes to that contract after award, which they often do, during performance, or terminate the contract for the Government’s convenience.

As the fiscal year draws to a close, government contractors are gearing up to meet their year-end reporting requirements. Navigating the maze of regulations and clauses can be daunting, but with a clear understanding, the process becomes manageable. This article aims to shed light on the major contract reporting requirements for all government contracts.

The National Defense Authorization Act (NDAA) for Fiscal Year 2022 and 2023 permanently authorized the Department of Defense (DoD) “to acquire innovative commercial products and commercial services through a competitive selection of proposals resulting from a general solicitation, known as a commercial solutions opening (CSO).” On August 17, 2023, the final rule was published in the Federal Register under DFARS Case 2022-D005 changing several parts of the DFARS – with most of the changes within DFARS part 212.

On June 27, 2023, The Small Business Administration (SBA) Inspector General issued a White Paper titled “COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape.” The paper states the IG “estimate[s] that SBA disbursed over $200 billion in potentially fraudulent COVID-19 EIDLs, EIDL Targeted Advances, Supplemental Targeted Advances, and PPP loans.” The paper going on to state: “OIG is working on tens of thousands of investigative leads on alleged fraud, waste, and abuse of taxpayer resources. Thousands of investigations will ensue for years to come because of swift congressional action to increase the statute of limitations to 10 years for COVID-19 EIDL and PPP fraud.”

In government contracting, three critical sets of guidelines govern the recognition of expenses for financial reporting and cost accounting practices: Generally Accepted Accounting Principles (GAAP) govern financial reporting, and Federal contracts require Federal Acquisition Regulations (FAR) part 31 and Cost Accounting Standards (CAS). While both frameworks are focused on assigning expenses to the appropriate accounting period, they have distinct roles and implications for government contractors. This article explores the key differences between CAS and GAAP, focusing on their significance and application in government contracting.

So, why is it that the Federal Government has a list of cost it will not pay for on Government contracts? These rules related to what costs the Government will pay for and what costs it will not pay for (i.e., unallowable costs) were developed around the Government’s belief that most companies doing business with the Government are not operating in a competitive market. As a result of the Government developing these unallowable costs, companies doing business with the Government have to take the unallowable cost they do incur out of the fixed amount of profit or fee the Government has agreed to pay these companies.