The US Government is the largest purchaser of services and goods not in the US but also comparatively the world. Our country has been in procurement for a very long time now and is very successful at it. This is why a lot of companies have gone into federal contracting.

This is true considering that accounting, one of the major challenges of government contracting, is very different from that of the private sector. In federal contracting, there are rules and regulations over other rules and regulations. These rules constantly change and some are forgotten some are replaced, and not just with every new administration. There are rule changes brought about by technology, economic situations, and even international challenges that come into effect.

Not to mention the fact that federal contracting treats every aspect of accounting differently than in the private sector. Greater emphasis is given to time management, and types of fees.

Here’s a quick rundown of:

6 Accounting Challenges of Government Contracting and How to Solve Them

  1. Contractors’ Understanding of Government Requirements 

There are more than enough requirements for government contracting to scare a company into packing up. 

Some of these criteria, from the FASB or Financial Accounting Standards Board:

✔️  Cost Accounting Standards (CAS)

✔️  Federal Acquisition Regulations (FAR)

There are even more if you chose to go into military contracting. When you do, you have to answer the Defense Contract Audit Agency (DCAA).

What To Do: The quick solution for this is to research and do more research. Knowing what rules and regulations you have to follow are key to gaining your foothold in government contracting. 

  1. DCAA Approval of Federal Contractor’s Accounting System.

The Defense Contract Audit Agency or DCAA will be asking you to meet their standards concerning your accounting system Remember that commercial accounting systems may not work with federal contracts because they look at different areas.

What To Do: Make sure to get software that allows for the changes that DCAA requires. Note that there is a certain check before a bid and a more comprehensive audit later on.

  1. Government Regulation Change Constantly.

There are times when rules get tossed, there are times when rules are added, and there are times when rules are amended so little, yet so significant that not knowing them could spell disaster. 

These changes usually come about with a change in administration, but there have been times when situations have forced changes.

The recent pandemic is an example, with people working in their homes, there was a need to change the rules about working environments. The pandemic also indirectly led to more cybercrime like hacking, phishing, and the threat of ransomware attacks. This made the government more conscious of security measures that contractors need to put in place. 

What To Do: Knowledge of regulation and rules should be as constant as change. Dedicate a person to ensure that you are in the loop.

  1. Surprise Audits.

Remember the old saying– “like a thief in the night?” It’s going to be like that with your audits. A full DCAA audit can be like going to your dentist– you’ll never know, and never expect what they’ll find in there.

As you are audited, you’ll be interrupted at your accounting, yet are still expected to continue on with the daily toil of your contracts. Long reports, old reports, and even projections can be asked for. Security can be checked and preparedness for a certain task need to be discovered.

Once done, you’ll be given some time to comply and fix errors,  and if you can’t, you may no longer be allowed to do future bids, and worse, you may forfeit the current contract.

What To Do: You have to be prepared all the time. Make sure your software is in great shape and it can crunch all the time and costs easily. If you were able to prepare the system as suggested before the contract, you should have a few problems. 

  1. Train and Maintain Your Accounting Staff

As mentioned, government contracting focuses on different aspects of accounting than regular accounting. This means that your staff should be knowledgeable about the differences. These dissimilarities extend to the system used to maintain the accounting.

What To Do: Constant training and learning on the part of your staff. They need to know the distinction that federal contracts bring. Not just one but a few of your staff needs to have this knowledge, in case of leaves or attrition.

  1. Changes in Your Point Person.

Working with the government on a contract means that you have a certain point person that conducts all business with you concerning the contract. Like regulations, changes can occur to this relationship as well as any position can be changed when a new administration occurs. 

When this happens, you may end up dealing with another person whose vision of how the contract should be completed is entirely different from the other. 

What To Do:  Like in any relationship, you’ve already worked hard to find the bells and whistles with your former point person, when they get changed it can end up being a problem to the success of the contract.


Preparedness and knowledge are your best bet when starting a contract. Knowing your rules and regulations, and being flexible to their changes can keep you ahead. Always ensure that your systems are up to date, secure, and able to perform all the needed tasks of your contract. Train your people as much as possible to be ready for the future.

Want to know how to cut down on these challenges and ensure that all your energy gets focused on the government contract? Let a team of expert individuals, led by a former DCAA auditor, do the hard work for you. Peter Witts CPA PC has mastered government accounting from top to bottom in our 20plus years. Drop us a line and we can discuss more about your needs.