Redstone Government Consulting Blog | Government Regulations (8)

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.

In all types of industries, organizations of any size, located in any part of the world, contracts are the lifeblood that binds their operations. These legal documents delineate the relationship between the parties, becoming the backbone of any commercial transaction, thereby maintaining the health of the organization. But merely having contracts is not enough. How these contracts are managed, specifically how they are filed and stored, plays a crucial role in a company’s overall efficiency and effectiveness. In this blog, we delve into the significance of a contract filing system and its benefits.

2 CFR 200.331, Subrecipient and contractor determinations, requires that an organization performing a grant or cooperative agreement document a case-by-case determination as to whether each sub-agreement it makes classifies the lower-tier organization in the role of a subrecipient or a contractor. The guidance provided to assist with this required determination is extremely subjective.

Indefinite Delivery Indefinite Quantity (IDIQ) contracts often look like a big money opportunity for contractors – but looks can be deceiving. Many IDIQs are multi-awards, meaning you are just one of many contractors that may get task orders awarded under the contract. On top of that, the required minimum the Government must buy under the IDIQ is, in most cases, very low. So, it turns out that millions of dollars of anticipated business fizzles down to $2,500 – which may have a shocking impact to your return on investment.

Comparison to FAR

Like CAS 401, CAS 402, and CAS 405, CAS 406 is part of modified CAS coverage and is one of the first CAS standards a company encounters. It likely will not call for any changes to the company’s cost accounting system if you are compliant with FAR 31.203(g)(2) (Indirect costs). FAR states that for contracts not subject to CAS: