DCAA Audit Compliance, 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 audit 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 compliance and cite it as a reason to drive a ton of changes.
Here is what we think is more important:
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, almost certainly forgetting to install the add-ons that will make it DCAA audit compliant?
- 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 DCAA compliance consulting and accounting experts have years of experience keeping all of the ducks in a row. If you’re worried about DCAA audit compliance, or are wondering if it’s time for DCAA compliance consulting, visit us at www.BOOSTLLC.net/consultation and let’s get the important things in order.