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Government Contract Cost Accounting Software - What makes it different from the rest?

undraw_Contrast_re_hc7kSince the time of Luca Pacioli who created the double-entry system of bookkeeping over six centuries ago, the art of accounting has evolved considerably although the fundamentals have not changed. Debits are debits, and credits are credits much as they were in Pacioli's day. 

Since this remains true to this day, then why does not just any accounting software package meet the particular needs of Government contractors? Why would you invest in a more costly product when virtually all accounting software - no matter the price tag - can provide you with a general ledger trial balance and financial statements, generate accounts payable checks, record cash receipts, and reconcile your bank accounts among other basic accounting functions? And, it is a fact that job cost is often provided by accounting software publishers as either part of a standard offering or as an add-on module to the core financial suite. 

To understand the differences between a non-industry specific accounting software package and one that is purpose-built for Government contractors, let's start with the general ledger (simply referred to as the GL). What could you expect to gain in a GL feature set in a government contract cost accounting software product that you wouldn't find in a mainstream GL? Your GL should at least include-

  • Multi-Tier Indirect Rate Setup: This is the capability of defining expense pools and allocation bases for indirect tiers including Fringe, Overhead, G&A, Facilities and Cost of Money.  
  • Indirect Rate Calculations: This feature automatically computes your actual indirect expense rates for a point in time expressed as a percentage for each defined indirect tier.
  • Cost Center/Org Breakdown Structures: This provides the ability to segment your GL by division, department, work group, geographic location and to generate profit and loss data by various lines of business.
  • Incurred Cost Electronically (ICE) Schedules: The DCAA requires that contractors with flexibly-priced contract awards true up their actual indirect rates incurred during a one-year span with their provisional billing rates for the same period of performance. Your GL should be capable for providing the schedules that are based on your trial balance. 

Now let's consider the feature set for a suitable Job Cost subsystem designed for federal contractors. Your Job Cost software capabilities should include-

  • Multiple Revenue Types including Cost Reimbursable, Time & Materials, Level of Effort and Fixed Price: The ability to define the revenue type by task order is critical for costing and invoicing. Cost Plus Fee is widely used in federal contract awards but is an uncommon revenue type in business-to-business commercial commerce. 
  • Accumulation of Costs and Funding by CLIN, SLIN & ACRN: Agencies of the US Government are funded by appropriations from Congress. In turn, federal contract awards are often funded in granular increments by CLIN, Subcontract Line Item and Accounting Classification Record Number. Your job cost system should have a mechanism to enter and track funding modifications as such. 
  • Contract Modifications and Contract Change Orders: As is the case with commercial contracts, government contracts include modifications and change orders. Your job cost system must track modifications and change orders that alter the original statement of work. There is often a requirement to track incremental funding at the task level in addition to the deobligation of funds. Many contracts include a clause for compliance with the Limitation of Costs and Funds clause where the onus is on a contractor to notify their contracting officer within a specified time period (e.g., 60 days) that overall funding is approaching its allotment. Your job order accounting system should report as to when the anticipated LOF notification letter needs to be prepared.
  • Multi-Level Work Breakdown Structures: During the course of conducting business with the federal government, you may at some point be awarded a contract with a WBS where cost elements need to be tracked by CLIN, task order, subtask or at an even more detailed level of the project hierarchy. The actual cost of worked performed reporting should be available at any level of the WBS. This is particularly true with product manufacturers. 
  • Authorized Workforce: An AWF is comprised of employees, consultants and subcontractors who are assigned to work on a contract. Depending on the work being performed, your federal government customer will often dictate that specific individuals within a PLC perform the statement of work. Your job cost system must enable you to restrict certain staff member's time entries to only those tasks that they are authorized to charge.  

Labor-intensive government contractors need a labor recording system that meets the criteria on the SF1408 and more. Your Labor/Payroll system should include capabilities for-

  • Timekeeping/Labor Distribution: Labor distribution is the methodology of assigning hours entered on a timesheet with the associated dollar amounts for a particular project and general ledger account. Your timekeeping software should provide the ability for a user to enter hours against a project for each day worked and your labor distribution system should summarize those daily hours for a labor period (weekly, biweekly, semimonthly) with the raw cost by employee and by project for the period. 
  • Total Time Accounting: Employees of Government contractors are expected to record each hour worked per day no matter the work performed. For example, if you work 6 hours on a direct project and then spend 2 hours working on a bid and proposal effort and then one-half hour on an administrative task, you should record 8.5 hours on your timesheet for the day. Over the course of a semi-monthly or bi-weekly labor period, you quite possibly may end up with more hours worked than actual hours in the period. If you are a salaried (i.e., exempt) employee, then your labor distribution system must have the capability to calculate your effective hourly rate by dividing your period salary (based on a 2080 hour work year) by the total hours recorded for the pay period. 
  • Service Contract Labor Standards: Certain types of services provided to your Government customers are covered by a law that until recently was known as the Service Contract Act. Where applicable, your labor accounting system should be able to readily identify hours charged by your non-exempt (i.e., hourly) staff to your SCA covered contracts and to automatically append the "Health and Welfare" fringe benefit rate amount to all covered employees' hourly wage.  

Last but not least, we must take into consideration the all-important capability of invoicing your government customers at a frequency and format that is mandated by your contract. A previous post addresses the capabilities you will need to accurately and efficiently bill your Government contracts. 

To conclude, while there are hundreds of commercial accounting software packages to choose from and all include basic features and functionality that will not vary much from one system to the next, the reporting requirements that beset Government contractors narrows the field of available options. As you gain an understanding of the differentiators, it will become evident that only a system that is designed and purpose-built specifically for Government contractors will meet your unique needs. And, of course, SYMPAQ has all of the features described above - and then some.

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