Government contracting can be a lucrative opportunity for businesses, but it also comes with unique risks and challenges. As a government contractor, you need to comply with various regulations and requirements to avoid financial penalties or even legal action. It’s important that you utilize practices and strategies that mitigate these risks and keep you in compliance with government standards. Keep reading to learn about some accounting strategies that can help you do this, and protect your business in the process.
Maintain Accurate Records
Accurate record-keeping is essential in government contracting. You need to be able to track and document all transactions related to the contract, from invoicing and payments to expenses and reimbursements. This will not only help you comply with government regulations, but it will also help you identify and resolve any issues or discrepancies quickly.
It’s crucial to have a system in place for organizing and storing your records. You may want to consider using a cloud-based accounting software that can help you manage your finances, automate your invoicing and payments, and generate financial reports. This will also make it easier for you to share your financial information with the government agency or auditor when necessary.
Understand the Cost Accounting Standards
The Cost Accounting Standards (CAS) are a set of rules and regulations that apply to government contractors. These standards govern the way you account for and allocate costs related to government contracts. Understanding these standards is essential for compliance and can also help you avoid financial penalties or legal action.
To comply with CAS, you need to have a comprehensive understanding of the rules and how they apply to your business. You also need to ensure that your accounting systems and processes align with the standards. You may want to consider hiring a government-compliant accountant who can help you navigate these rules and ensure that your accounting practices are in compliance.
Implement Internal Controls
Internal controls are policies and procedures that help you safeguard your assets, prevent fraud, and ensure accuracy in your financial reporting. Implementing internal controls is essential for any business, but it’s particularly important in government contracting, where you are held to a higher standard of accountability.
Some examples of internal controls include:
- Separation of duties: This involves dividing responsibilities among different individuals to prevent any one person from having too much control over a transaction or process.
- Regular audits: Conducting regular audits of your financial records can help you identify and resolve any issues or discrepancies quickly.
- Authorization controls: This involves setting up controls to ensure that all transactions are authorized and approved by the appropriate individuals.
- Physical security controls: These controls help you protect your physical assets, such as inventory or equipment, from theft or damage.
Implementing these and other internal controls can help you mitigate risks and ensure compliance with government regulations.
Monitor Cash Flow
Cash flow is the lifeblood of any business, and it’s particularly important in government contracting, where payments may be delayed or staggered. To avoid cash flow issues, it’s essential to have a clear understanding of your contract terms and payment schedule.
You may also want to consider implementing strategies to improve your cash flow, such as:
- Invoicing promptly: Invoicing promptly after completing a project can help you get paid faster.
- Offering discounts for early payment: Offering a discount to the government agency for early payment can help incentivize them to pay faster.
- Negotiating payment terms: If possible, negotiate payment terms with the government agency that align with your cash flow needs.
Having a solid cash flow management strategy in place can help you avoid financial difficulties and ensure that you have the funds you need to continue operating and fulfilling your government contract obligations.
Consult with an Expert
Navigating the complexities of government contracting accounting can be challenging, and it’s essential to have the right expertise and support. A professional accountant can help you ensure compliance with regulations, implement best practices, and mitigate risks. However, bear in mind that not all accountants are familiar with the unique needs of government contractors. Your accounting needs differ from those of other types of businesses, and it’s important to find a company that understands that.
At Peter Witts, CPA, we specialize in working with government contractors like you. We’re familiar with the requirements of DCAA audits and FAR compliance standards, and we can help ensure your company stays in alignment with these standards at all times, thereby reducing your risk of penalties, legal action, or the loss of your standing as a government contractor. Contact us today to schedule a consultation with one of our government contract accounting experts.