Are you an aerospace and defense company or perhaps an architectural or engineering firm considering bidding on your first federal government contract? If so, navigating the complexities of CAS may seem daunting at first, but with the right guidance and preparation, you can position your organization for success in this exciting and potentially profitable new business segment.
What is CAS?
CAS is a set of federal rules and regulations established to ensure consistency and uniformity in cost accounting practices. The standards are important for companies involved in government contracts to maintain transparency, fairness, and accuracy in cost allocation. There are two types of CAS coverage to be aware of:
- Full CAS. Under this standard, contractors are subject to all applicable standards in Defense Contract Audit Agency (DCAA) Contract Audit Manual, Chapter 8. Full CAS is triggered when a single CAS-covered award is $50 million more in the current cost accounting period, or you’ve received cumulative CAS-covered awards of $50 million or more in the preceding cost accounting period.
- Modified CAS coverage. Modified CAS is a lighter set of standards, requiring compliance with:
- CAS 401: Consistency in estimating, accumulating, and reporting costs.
- CAS 402: Consistency in allocating costs incurred for the same purpose.
- CAS 405: Accounting for unallowable costs.
- CAS 406: Cost accounting period.
For small to medium-sized businesses entering into government contracting, modified CAS is typically the standard you’ll encounter. Modified CAS covers:
- Consistency in estimating, accumulating, and reporting costs. The goal is to ensure that costs are consistently managed across different projects and periods.
- Allocation of indirect costs. These guidelines ensure indirect costs are distributed fairly across different cost objectives.
- Cost allocation for facilities and administration. This defines how costs related to facilities and administrative functions should be allocated.
- Criteria for allowable costs. This specifies which costs can be considered allowable under government contracts and how they should be treated.
- Uniformity in cost treatment. This ensures that similar costs are treated alike, regardless of the circumstances under which they are incurred.
Creating a roadmap to effective CAS compliance
Compliance with modified CAS requires meticulous attention to detail. The following steps are designed to help your organization navigate the complexities of federal cost accounting, reduce audit risk, and build a strong foundation for long-term success in government contracting.
1. Obtain a pre-award survey for federal contracts
The request for proposal (RFP) for a federal contract will often require a pre-award survey. This is an evaluation of your accounting system to ensure its properly configured to comply with modified CAS. Carefully review the RFP to determine what qualifications are acceptable for the entity conducting the review. In some cases, a qualified CPA may be able to perform the review. Note that the DCAA can perform them; however, they can be asked but not compelled to perform a pre-award survey.
2. Assess current personnel capabilities
A well-rounded and competent team is crucial for maintaining compliance and effectively managing cost accounting processes. Conduct an assessment of your current accounting personnel to determine whether they possess the necessary skills, knowledge, and experience to comply with modified CAS. This evaluation should include a review of their qualifications, past work experience, and any relevant certifications. Identify potential gaps in expertise and consider providing targeted training or hiring additional staff or advisors with specialized knowledge in federal contract requirements and cost accounting standards. It’s possible to bring in a consultant to help build the skill set and experience necessary to get your accounting team started.
3. Utilize cost accounting software
Invest in reliable cost accounting software that aligns with CAS requirements. This software can automate processes, reduce errors, and ensure consistent application of standards across the organization.
4. Implement robust internal controls
Establish robust internal controls to monitor and manage cost accounting practices. Regularly review and assess these controls to ensure they are functioning as intended and are compliant with CAS. Establish a solid monitoring program to ensure you’re in compliance throughout the life of the contract.
5. Document and report compliance efforts
Maintain thorough documentation of all compliance-related activities. Detailed records of training sessions, audits, policy changes, and other efforts serve as evidence of compliance and provide support during external reviews.
6. Stay informed about regulatory changes
Regularly monitor updates from the CASB and other regulatory bodies to stay informed about any modifications to the standards. Subscribe to newsletters, attend industry seminars, and consult with experts to keep current.
7. Conduct regular training for accounting personnel
Ensure that your accounting team is well-trained in the latest CAS requirements. Support and invest in regular training sessions, workshops, and CPE. Any combination of these activities can help the team understand and implement the standards effectively. There are organizations that offer extensive CAS training, with some even providing options for free training.
Organizational alignment is critical for CAS compliance
Noncompliance with CAS in government contracting can severely impact your organization’s cash flow and operations through payment withholds, cost disallowances, or even contract termination. To avoid such risks, it’s critical to secure full organizational buy-in to adhere to CAS standards. Everyone — from top leadership to operations-level personnel — must understand and support compliance practices, including seemingly minor routine tasks such as timesheet approvals. Without this alignment, small oversights can quickly lead to major consequences.
Win more by getting CAS right
If your company has decided it’s time to explore federal contracts, launch your first bid with clarity and discipline around CAS. By understanding the standard, and aligning your staff, systems, policies and procedures, you’ll reduce audit risk, prevent withholds and claw backs, and protect cash flow. Think of compliance is an operating advantage, not a hurdle. Establish consistent practices, monitor them continuously, and you’ll be prepared to bid competitively, pass reviews, and confidently grow in the federal contracting market.
