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Navigating Complexities | The CARES Act and 3610 Guidance for the Intelligence Community

Guidance for the Intelligence Community is always changing. Yet currently those changes seem to be in hyper-drive. Luckily, we have experts like Amy Hernandez at BOOST LLC and partners like Pete Ragone from the SC&H Group to help us navigate these waters.

In an information-packed hour-long virtual discussion, Amy and Pete walked attendees through the top questions (and answers) they’ve received regarding this spring’s pressing changes as they pertain to the Intelligence Community. Below, you’ll find some of what they discussed. For the full discussion, please visit the webinar replay here.

Where do we stand in regard to PPP/Tax Credits vs. Class Deviation 3610?
Questions and dilemmas abound. Amy & Pete advised clients in the intel space that they may be able to invoice regarding lost time. Many contractors wanted to apply both the PPP Loan and the Class Deviation 3610. Yet, the CARES Act  did not fill the gap of March 13th-March 27th (as of May 28th) when many contractors were suddenly not able to work at their assigned location in support of Government programs.  Unfortunately, you are unable to invoice under 3610 and take the PPP loan or tax credit. It’s one or the other. If you take the tax credit or PPP, you won’t get 3610. But stay tuned, this could be modified as updated guidance related to the CARES Act is released in the coming weeks.


What key guidance has come out relating to 3610?
Key guidance posted on May 18th includes an overarching implementation guidance and checklist (with instructions). The guidance references that contractors can be reimbursed at their bill rates, which include profit. However, companies have to certify costs without profit for reimbursement.  When seeking reimbursement, contractors are effectively having to disclose profit to the government and primes. Those without cost-plus contracts may not have fully-FAR-31-compliant cost accounting systems (which best practice says you should). In the long run, this may change the landscape for the IC in billing and proposals going forward due to the fact that 3610 is only reimbursing costs for 2020. The worry is that in the next option year negotiations may be adversely affected, given that companies invoicing under 3610 have now informed customers/primes what their profit is on individual labor rates.

What are the cost accounting implications of invoicing under 3610?
If you’re having to track costs by contract, you need to make sure you have a separate time charge/leave code for COVID Leave or however you’re tracking work changes due to the pandemic. Most banks are sending PPP funds to a separate account, to assist with tracking as everything needs to be specifically tagged in regard to these funds. If you’re able to invoice under 3610, leave recorded as fringe costs do not stay as fringe, they need to be reclassified as direct labor once invoiced. We repeat, once you invoice it is no longer fringe, but a direct cost under that contract. Those costs can only be billed under that contract, by FAR definition it becomes a direct cost. When calculating your indirect cost rates, ensure that COVID costs invoiced under 3610 are removed from the fringe pool. (Check out the video for some of the more in-the-weeds, guidance for your chart of accounts.)

What are potential future contracting implications once things return to “normal”?
Depending on the funding of certain programs, there may be more limited additional 3610 availability. They will be funded but increases to contract funding will need to be priced out and supported. Short term, the government will continue with current spending habits as the debt ceiling raises. In the long term, there may be some tightening of funding on the horizon. Be prepared for a higher likelihood of justification for pricing going forward. To prepare, document, document, document. This exercise requires businesses to have elements of a compliant accounting system.

Action Items:

  • Have a good, clean accounting system.
  • Determine your financial health by contract and your business as a whole when deciding which funding/opportunities to take.

If you find yourself looking for additional guidance, a resource for implementing compliant accounting systems, or other questions regarding the most up-to-date released guidance, let’s connect. Our BOOST experts can get the information you need or connect you with our smart partners, like Pete, who have a breadth of knowledge in these areas.

SF1408, What is it? Why is it important for you?

Letters, numbers, acronyms, and more. It’s like a GovCon fairytale minus the lions, tigers, and bears. Oh my!
Today we’re discussing SF1408. What is it and why is it something you should be familiar with?

A 1408 assessment is the Pre-Award Accounting System Survey (SF1408).  The Accounting System Survey is sometimes referred to as a “pre-award audit” and it is necessary for the award of any Cost Type contract.

A few points to note:

This comes BEFORE contract award.
Imagine losing a bid because you didn’t have your act together in your financials!

• This is not an audit.
They (DCAA) focus on your accounting system’s ability to be compliant if you were to receive the award.    It is simply a review to determine if your system is set up and operating in accordance with the criteria on page 2 of Standard Form 1408.

This is where policies and procedures rule (Here’s a tip: an accounting system is not just the software being utilized).
DCAA is looking for you to document what your system does – think segregation of indirect vs. direct costs and unallowables (our favorite); how are costs captured and classified?; how and where do you charge your time?

If you plan on priming this year on a Cost Type contract or are awarded a cost type subcontract (looking at you DOD peeps!), make sure you are prepared with documented policies and a compliant accounting system.

Note that this is different than an Accounting System Audit!  An audit of your accounting system is much more in-depth and includes tests of internal controls (e.g., segregation of duties, etc.).  Know what you need when you read through the RFP.  If you have a question, ask the COR during the Q&A time – the difference between the two is huge!

Do you still have questions or want to discuss this as it pertains to your business specifically? Contact us here.

DCAA, Part II

(As promised, here’s the Part II to “DCAA Trends in 2020“)

We’re preparing to make a bold statement that is practically blasphemy in our industry and especially with what BOOST does.

Care less about DCAA compliance and more about financial acumen.

There.  We said it.  Here’s what we mean and our rationale:

As we learned in the seminar briefing from DCAA earlier, small GovCons between $5-$50M have a 5% chance of being audited on your incurred cost submission.  Smaller GovCons (under $5M) have ½ of 1% chance.  In general, if you submit the paperwork on time (ICS, forward pricing), you aren’t getting audited.  Especially if you are going after prime work that is T&M or FFP (which most people are).  So why do we hit people over the head with “you must be DCAA compliant” time and time again?  Why do we scare off non-traditional companies who may consider playing in the federal space?  We hit them over the head with FAR and cite it as a reason to drive a ton of changes.

Here is what we think is more important:

  • Profitability
    Are you in the green and have long-term positive net cashflow?  This is all your banker cares about.  Are you a safe bet to lend money to?  If you aren’t making money, why are you in business?  (Note to reader: this is our completely biased view that you should run companies to make money.  None of this “operate in business for years without a profit to show for it.”  Not very Silicon Valley of us, but hey, we’re capitalist!).
  • Competent Financials
    Does your balance sheet balance?  No seriously…this is a thing!  Does your P&L look reasonable and is it prepared in a logical manner?  Are you using accrual basis accounting?  Did your 18-year-old nephew/neighbor/spouse do your QuickBooks setup without any understanding of the federal market?
  • Job Cost Accounting
    Do you know your gross margin and profitability by project/customer?  Do you know and track your indirect rates?
  • Pre-award Surveys (i.e. 1408’s)
    This is way more important in our mind. Can you pass the audit to win the work?  To lose revenue or new opportunities simply because you don’t have your financials in order absolutely blows our mind.  Do you know how hard it is to win work as a prime?  Good grief, do not lose it on a technicality!

We view the above as the floor in terms of expectations.  If you can’t pull it together, you are dead in the water.  We’ve seen companies go out of business as they didn’t manage their wrap rates or their profitability.  This market is uber competitive and if you can’t win from a cost perspective, you will never grow.

Now that we’ve effectively scared the pants off of you (and if we didn’t it had better be because you are doing all of the above, and more) we can provide you with a solution. You guessed it, BOOST!  Our compliance and accounting experts have years of experience keeping all of the ducks in a row. Visit us at www.BOOSTLLC.net/consultation and let’s get the important things in order.

BOOST Accounting

 

Connect with BOOST to discuss how we can help with your accounting initiatives. [email protected]

Accounting Keeping You Up At Night?

It’s the middle of the night, and you are wide awake…from a nightmare about the state of your accounting system. It happens all the time. The accounting system struggle is real for government contractors.  Your accounting system is the backbone of your company.  If your accounting system is in pain, the effects are felt in all areas of your company.  And let’s get real…nobody wants to hear from an employee that their paycheck was incorrect (again) or hear from a customer that an invoice has to be resubmitted because the proper format wasn’t followed.  Never mind the impact on cash flow!

Do you have any clue what is really going on inside your accounting system?

  • Are you panicked, wondering if it is DCAA compliant?
  • Do you have an accurate understanding of your indirect rates? Where do things stand from a cash flow perspective?
  • What about did you fudge on a proposal that your system is DCAA compliant and you have no idea if it is?
  • Are your invoices a nightmare to produce? Are you preparing them manually in excel?
  • Is your timekeeping system cumbersome, clunky or not syncing correctly?
  • Are your managers not approving timesheets when they are supposed to?
  • Is payroll a stressful event that everyone dreads?
  • When is the last time your books were closed?
  • Do you have the financial reporting to guide your company?

It can be difficult to see the big picture of your accounting system when you are in the weeds.  Hence the need for an accounting assessment.  Process improvement is best done by an outside party to evaluate what you currently have in place. GovCons should work with companies that have expertise in govcon accounting (not only for an assessment but for all things accounting).

What can you expect from an accounting assessment?
A good accounting assessment will evaluate:

  • current accounting system (chart of accounts, AR/AP, general ledger)
  • systems information and set-up (timekeeping, payroll, bill pay, expense reimbursement)
  • reporting capabilities (balance sheet, profit/loss, cash flow, income statement, job costing)
  • banking, 401K requirements (what reporting is required, what is being submitted)
  • timekeeping system (project codes, approvals, prime/sub timekeeping)
  • invoices (process, how they are generated, accuracy, timeliness)
  • policies and procedures (what is currently being documented)

An assessment final report should provide you with insight into your current system overview, what can be streamlined for greater efficiency and what is needed for DCAA compliance.  The report should include recommendations for resolving any identified issues.

BOOST can help you with an accounting assessment. This assessment will provide insight into your accounting system, a plan forward for fixing any issues and creating a seamless, fully functional, effective accounting department.  This will give you peace of mind and help you sleep better at night.  Or at the very least, you won’t be able to blame your accounting system for your lack of sleep.