Maintain Successful Government Contracts with a Focus on Cost Accounting Standards
Securing government contracts can bring significant opportunities and resources to your organization; however, contracts bring specific requirements—particularly cost accounting standards (CAS)—that can lead to major penalties if not followed properly.
Fortunately, understanding CAS fundamentals, as well as addressing common misconceptions and following practical implementation tips, can help you improve compliance and avoid potential pitfalls.
CAS can become a manageable and integral part of your accounting practices, supporting successful and compliant government contracts with continuous learning and adaptation.
Fundamentals of Cost Accounting Standards (CAS)
This set of 19 standards is designed to achieve uniformity and consistency in the measurement, assignment, and allocation of costs to government contracts. It was administered by the Cost Accounting Standards Board (CASB) so that contractors accurately charge costs to government contracts, preventing overcharging or misallocation of costs.
Key Components of CAS
Understanding the key components of CAS is crucial for compliance. Here are some primary standards and their relevance.
CAS 401: Consistency in Estimating, Accumulating, and Reporting Costs
CAS 401 ensures that contractors consistently apply the same practices in estimating and accumulating costs.
CAS 402: Consistency in Allocating Costs Incurred for the Same Purpose
CAS 402 prevents contractors from charging the same type of cost in different ways to various contracts.
CAS 403: Allocation of Home Office Expenses to Segments
CAS 403 governs how home office expenses are distributed among the company's segments.
CAS 404: Capitalization of Tangible Assets
CAS 404 defines the criteria for capitalizing costs associated with tangible assets.
CAS 405: Accounting for Unallowable Costs
CAS 405 ensures that costs not allowable under the contract are identified and excluded from billings.
Common Misconceptions About CAS
Many misconceptions surround CAS, often making it seem more intimidating than it is.
Myth 1: CAS Is Only for Large Contracts
While CAS primarily applies to larger contracts, smaller contracts can also fall under CAS requirements if they exceed certain thresholds.
Myth 2: CAS Compliance Is Optional
Compliance with CAS is mandatory for applicable contracts, and noncompliance can result in penalties and contract termination.
Myth 3: CAS Is the Same as FAR
Although CAS and the Federal Acquisition Regulation (FAR) are related, they serve different purposes. CAS focuses on cost accounting practices, while FAR governs the overall acquisition process.
Practical Tips for Implementing CAS
Implementing CAS can be straightforward with the right approach. Here are some practical tips to help you get started.
Understand the Standards
Take the time to read and understand each of the 19 standards. Knowing the requirements is the first step towards compliance.
Develop a CAS-Compliant Accounting System
Ensure your accounting processes and system can accurately track and report costs according to CAS requirements. This may involve revisions to processes, software upgrades or system overhauls.
Train Your Team
Educate your accounting and project management teams on CAS requirements and best practices. Regular training can help maintain compliance.
Document Your Practice
Keep detailed records of your cost accounting practices, including policies and procedures. Documentation provides evidence of compliance and can be invaluable during audits.
Seek Professional Guidance
If you're unsure about any aspect of CAS, consider consulting with advisors who specialize in government contracting and CAS compliance.
Real-World Examples
To illustrate how CAS works in practice, let's look at a couple of scenarios.
Scenario 1: Allocating Home Office Expenses
A contractor has a central office that provides administrative services to various project segments.
Under CAS 403, the contractor must allocate these home office expenses to each segment based on a fair and consistent method, such as the percentage of total contract costs attributable to each segment. This ensures that no single project bears an unfair share of the home office costs.
Scenario 2: Accounting for Unallowable Costs
During a contract, a contractor incurs certain entertainment expenses, which are unallowable under the terms of the contract and the FAR. According to CAS 405, these costs must be identified and excluded from billings to the government.
The contractor must maintain records that clearly segregate allowable and unallowable costs, ensuring that only permissible expenses are charged to the contract.
We’re Here to Help
If you have questions regarding how CAS could impact your government contracts, please contact your Moss Adams Professional.