As a small government contractor, you may think you can cut corners because you’re not being held to the standards of the “big guys.” That type of thinking can cause you big problems.
Here are common myths that can lead to financial missteps.
Reality: Regardless of size, ALL contractors will be audited by DCAA even before winning a contract. This is to ensure that you have the financial capabilities, and a system to accumulate direct and indirect cost information. Audits conducted prior to the contract award are referred to as a “Preaward survey.” Once the contract begins, the same audit will be done as a periodic check-in to ensure that you are staying compliant.
Reality: The goal of government procurement is to be a good steward of taxpayer dollars by ensuring that contractors spend those dollars wisely. Therefore, even if an expenditure is allowable, the government will try to make sure those costs are “reasonable” – i.e. competitive, cost-conscious and fair.
Here are some common examples:
Reality: Timekeeping is an area where the government pays special attention because they can’t verify its accuracy other than questioning the employee. Even though electronic timekeeping systems have internal checks and balances, the government still uses a forensic lens to ensure that the recorded time is accurate and documented as per regulation.
Reality: The government wants to know how long a job actually takes to get done. So even if an employee is exempt, all their hours must be documented, including when associated overhead costs are calculated.
Reality: Your indirect rates are calculated based on what the government considers to be reasonable overhead costs. Executive compensation should be comparable to companies with similar employees, sales revenue and industry. Some of the guidelines the government uses to determine your indirect rates include: