Accounting Challenges Facing Government Contractors and How to Solve Them

Government contractors have unique accounting requirements. They have a variety of complexities, putting them in a different category in comparison to other niches in the industry. They are not only subject to standard accounting practices, but their field is riddled with accounting regulations, requirements, and other challenges.

The complicated and frequently changing rules and requirements in government agencies creates several accounting and financial challenges for contractors. They are faced with new and complex responsibilities such as continual audit readiness, the need for diligence, and the requirement to be on the cutting edge of practical solutions in order to establish solid accounting processes.

Here are a few common challenges yet overlooked regarding financial government and accounting systems for government contractors. This will allow them to be aware, improve, and increase their competitive edge as a government contractor and their likelihood of success in their assessments.

  1. Not comprehending the constant change in Government requirements

Accounting standards for government contractors are far more stringent than those set out for regular businesses. The requirements and regulations are not only more complicated, but they are also more volatile because many of the rules can change quickly.

With the government’s already voluminous requirements constantly changing, government contractors must keep an eye on standards and regulations such as Cost Accounting Standards, Federal Acquisition Regulations, and FAR agency supplements. Whether they are new to the industry or seasoned professionals, it is essential to keep an eye on the standards and regulations. They must know what requirements have changed and be fully aware of what auditors look for throughout their evaluation. 

  1. Maintaining Documentation Regarding Regulation Changes

As previously stated, accounting regulations for government contractors are continuously changing, finding it is challenging to stay up to date on new legislation. Even more difficult is ensuring that corporate documentation, policies, procedures, and systems are abreast of the changing requirements. Many new government contractors are at a loss in this area and cannot keep up with the rapid flow of changes.

Staying on pace with federal regulations requires vigilance. Managing a perpetual stream of changes in requirements is one of the ways operations are done in government contracting. Contractors should always prepare for changes, especially keeping an eye on federal regulations for transparency, finances, and the economy, and also be flexible to make way for modifications and adjustments around current operations and documentation.

  1. Timely Preparation for Surprise Audit

Audits are necessary to ensure that government contractors maintain compliant systems and ethical financial activities. Audits can occur without advance notice. Businesses must operate under the assumption that they will be subjected to a thorough government audit. 

The best thing government contractors can do is to maintain a state of readiness, anticipating that an auditor could come knocking on the door at any time. They should keep procedures concise and consistently inspect systems/documentation to confirm compliance to guarantee that the audit results will be a positive evaluation.

  1. Gaining DCAA Approval

Prospective government contractors face various unique challenges while certifying their accounting systems with the Defense Contract Audit Agency (DCAA). Obtaining approval is no easy task, whether dealing with timekeeping, direct/indirect cost segregation, invoicing conditions, or one of the many other DCAA/DCMA regulations. Many government contractors struggle to keep up and receive clearance for their accounting systems because they lack the necessary infrastructure and human resources. It is critical in this field to have someone dedicated to completely understanding all accounting regulations and analyzing the accounting system.

 

Bottom Line

Government contracting accountants and accounting systems face several challenges. However, with the right actions, preparation, and methods, businesses can attain compliant accounting systems and practices, receive approval, and be ready for the long haul in government contracting.

To be successful, it is highly recommended that government contractors collaborate closely with an accounting firm to ensure they comply with contract requirements. Organizations must have an experienced accounting firm to keep contracts going forward without delay and prepare for any potential audits.

HWA Alliance of CPA Firms, Inc. is well-versed in government contract accounting essentials. Our accountants and advisors work as experienced partners, assisting clients with contract success and strengthening the company’s position toward compliance and development. Our specialized knowledge allows us to understand regulations and grasp compliance standards and manage an accounting environment capable of a successful audit.


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