Fundamentals for Government Contractors

Fundamentals for Government Contractors
Barbara Morgan | February 23, 2016
http://blogs.aronsonllc.com/fedpoint/

2© 2016 | www.aronsonllc.com | www.aronsonllc.com/blogs |
Fundamentals for Government Contractors:
Accounting and Compliance Concepts

Managing All of the “Books”

Generally Accepted Accounting Principles (GAAP)
Principles that govern when and how much is recognized, disclosed or
measured for a transaction.
Why important for government contractors:
1. Financing and Bonding
2. Exit activities (equity raise, sale, ESOP, etc.)
3. Compliance with Federal Acquisition Regulations
4. Compliance with SBA 8(a) program
5. Valuations
6. And more..

Federal Acquisition Regulations (FAR)
The Federal Acquisition Regulations System is established
for the codification and publication of uniform policies and
procedures for acquisition by all executive agencies.
[Sec. 1.101 of FAR]
• The “rule book” of government contracting
• Rules federal agencies must and will follow to award
and administer contracts
• The rules you will be expected to follow to bid and
perform contracts
• Some external laws and regulations
http://www.acquisition.gov/far/index.html

Small Business Programs
• Know whether you are a small business
– NAICS Codes (www.naics.com)
• Small Business Set Asides
– Simplified Acquisition Threshold
– “Rule of Two”
– Set aside programs
– 8(a) Program
• Subcontracting Plans
– Prime contracts in excess of $550,000 require the large business
to subcontract with small businesses

Income Taxes (Federal and State)
• Entity choice
– LLC, S corporation
– C corporation, partnership
• Cash versus accrual
• Compensation methods
• State tax impacts – Nexus

Entrepreneurs & Shareholder Value
Most people do not go into business just to be compliant…

Key Indicators
• Working capital
• Debt to equity
• Tangible net worth
• Labor utilization
• Wrap rate
• Accounts receivable DSO
• EBITDA % of sales
• Subcontract versus Prime contract
• Cash flows and forecast
• Backlog (funded & unfunded)

Financial and Accounting Systems – Goals
• Get familiar with basic rules and concepts for contractors
• Set up your system the correct way

Financial and Accounting Systems – Benefits
• Prove your financial worthiness
• Demonstrate your GovCon expertise to potential
partners
• Understand what drives profit for your business

Direct vs. Indirect Costs
G&A
Overhead
Fringe
Indirect Costs
Proj. 1 Proj. 2
Direct Costs
Direct Labor
Direct Material
Other Direct Costs

Direct Costs
• Labor and materials needed to perform your contract

Indirect Costs
• Fringe – related to employees
• Overhead – related to contracts
• G&A – residual costs of running a business

Unallowable Costs
• Not to be confused with the income tax term
• Specifically identified in the FAR
• “Reasonableness” test

Policies & Procedures
• More than a handbook
• The “why” and the “how” of
running your business
• Must be in writing
• Need to incorporate an
understanding of GovCon
rules
• Available to appropriate
employees

Processes to Document
• Timekeeping
• Billing
• Budgeting
• Distinguishing Direct vs. Indirect Costs
• Travel
• Treatment of Unallowable Costs
• Bonus and Compensation
• Accounts Payable
• More, depending on the nature of your business

Timesheets - Rules
• Employees enter time daily
• Enter all time worked
• Review and approval by supervisors or management
• Train your employees

About Aronson LLC
Aronson LLC provides a comprehensive platform of assurance, tax,
and consulting solutions to today’s most active industry sectors and
successful individuals. For more than 50 years, we have purposefully
expanded our service offerings and deepened our industry specialties
to better serve the needs of our clients, people, and community. From
startup to exit, we help our clients maximize opportunity, minimize risk,
and unlock their full potential.

About Aronson LLC
• Thinking ahead for clients for more than 50 years
• 225+ professionals located in Rockville, MD
• 80+ professionals dedicated to supporting government contractors
• Aronson helps clients rethink the way they approach their business
through innovative, industry-specific services and advice:
– Audit, Assurance and Tax
– Deltek Systems and Outsourcing
– Financial and Contract Compliance
– GSA Schedules
• www.aronsonllc.com/blogs/fedpoint/ – News and trends and insight
for today’s savvy government contractor

Awards / Accolades / Affiliations
The Gazette of Politics & Business Exceptional 53 Business Award
In 2012, Aronson received the PB53 award for the third year in a row. The program
acknowledges the top businesses and organizations in Maryland based on criteria that
includes the company’s annual revenue, employee growth, noteworthy product or service
innovations, community service efforts and more.
Accounting Today Top Firm
In 2013, Aronson was once again named to Accounting Today’s list of the top 100 firms in
the country. Accounting Today is a leading provider of online business news for the tax and
accounting community.
Washington Business Journal Top 25
Aronson is ranked #12 on the Washington Business Journal’s Top 25 Accounting Firms in
the DC Metropolitan area.
INSIDE Public Accounting Top 100
Once again, Aronson has earned a spot in the top 100 of this prestigious list, released by
INSIDE Public Accounting. This is the longest running, most comprehensive and accurate
independent analysis focusing on management and operations of America’s large local,
regional and national firms.
Washington Business Journal Best Places to Work
Aronson has been recognized five times as one of the Metro area’s “Best Places to Work.”
The award recognizes a company’s achievements in creating a positive work environment
that attracts and retains employees through a combination of employee satisfaction, working
conditions and company culture.
Montgomery County Chamber Corporate Social Responsibility Award
In 2010, Aronson was honored to receive the MCCC’s Corporate Social Responsibility Award
based on the depth and breadth of the company’s energetic commitment to support young people,
in the areas of education, housing and health.

Barbara Morgan is a partner of the systems outsourcing practice of Aronson's
Government Contract Services Group. She has over 25 years of experience in
both public and private accounting.
Barbara is responsible for integrating new outsourcing clients and
implementing their accounting software systems. Her combined expertise in
generally accepted accounting principles, technical software capabilities, and
the government contracting industry gives her a unique perspective and a level
of knowledge that is unparalleled. As an industry expert, Barbara also provides
consulting services to help government contractors better understand the
accounting matters affecting this complicated industry.
Prior to joining Aronson LLC, she was controller and principal accounting officer
for a publicly traded company in the technology services industry.
In addition to conducting seminars and training classes, she is an author for
the Aronson FedPoint blog and a frequent volunteer business coach for
emerging government contractors.
Partner, Government Contract Services Group
301.231.6238
bmorgan@aronsonllc.com
Barbara W. Morgan, CPA

301.231.6238
Contact Barbara Morgan
bmorgan@aronsonllc.com
https://www.linkedin.com/in/barbara-morgan-
cpa-1b64a215
https://twitter.com/Aronsonllc

Fundamentals for Government Contractors

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Fundamentals for Government Contractors