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.
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.
Understanding the key components of CAS is crucial for compliance. Here are some primary standards and their relevance.
CAS 401 ensures that contractors consistently apply the same practices in estimating and accumulating costs.
CAS 402 prevents contractors from charging the same type of cost in different ways to various contracts.
CAS 403 governs how home office expenses are distributed among the company's segments.
CAS 404 defines the criteria for capitalizing costs associated with tangible assets.
CAS 405 ensures that costs not allowable under the contract are identified and excluded from billings.
Many misconceptions surround CAS, often making it seem more intimidating than it is.
While CAS primarily applies to larger contracts, smaller contracts can also fall under CAS requirements if they exceed certain thresholds.
Compliance with CAS is mandatory for applicable contracts, and noncompliance can result in penalties and contract termination.
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.
Implementing CAS can be straightforward with the right approach. Here are some practical tips to help you get started.
Take the time to read and understand each of the 19 standards. Knowing the requirements is the first step towards compliance.
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.
Educate your accounting and project management teams on CAS requirements and best practices. Regular training can help maintain compliance.
Keep detailed records of your cost accounting practices, including policies and procedures. Documentation provides evidence of compliance and can be invaluable during audits.
If you're unsure about any aspect of CAS, consider consulting with advisors who specialize in government contracting and CAS compliance.
To illustrate how CAS works in practice, let's look at a couple of scenarios.
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.
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.
If you have questions regarding how CAS could impact your government contracts, please contact your Moss Adams Professional.