DCAA Compliance Blog

Your Source for DCAA News and Information for Contractors

ReliAscent® LLC is the only government contract accounting firm that specializes in all aspects of government contracting compliance.  From our DCAA compliant accounting services, to monthly government contract accounting for all government agency awards, contract management & administration, and financial services & planning, our goal is to ensure the success of our clients, and all small business government contractors and grantees.  

In our DCAA Blog, we discuss the latest government contracting news from the Federal Government, the DCAA, and DCMA, as well as promotions offered by ReliAscent, and helpful tools and resources for contractors.

We hope you will visit and take part in the discussions on our blog on a regular basis. If you ever have any questions or would like to discuss how our experts can help, do not hesitate to contact us at any time!  


 

After COVID, Can you Afford Not to Outsource DCAA Compliant Accounting?

Posted by Mike Anderson on Mon, Aug 31, 2020 @ 09:00 AM

There are several things to consider when a small business contemplates outsourcing its government contract accounting work. One consideration is the cost and experience of the people to do the work. Another consideration is the amount of “opportunity cost” that the company will incur.   It is easy to measure the first and not as straight-forward to measure the second. Both considerations should be evaluated to determine what is the best return for the business.

It is easy to see a direct correlation between hiring a person and paying someone to do outsourced work. What is not readily apparent is the exposure to a larger knowledge base many times in outsourcing.   When a company hires an accountant, the experience is limited to that individual’s experience.   When a company hires an outsourced agency to handle the accounting, the Company is hiring many individuals with not only a larger experience base but also at different levels. For instance, rather than just having an accountant on staff, the Company hiring the outsourced company will have a full accounting team on staff from a bookkeeper, to an accountant to a controller to an Experienced CFO. This level of expertise is obviously more valuable than a single employee working for the company. Let’s take a quick look at a simple comparison.

Hiring a W-2 Accountant:

W-2 Employee

Cost

Description

SALARY

$85,000

Cost for a Senior Level Accountant with experience in Federal Acquisition Regulations, DCAA requirements, GAAP and Job costing.

Fringe cost

$25,500

Assuming an average competitive fringe package including FICA, FUTA, SUTA, Medicare, Worker’s Compensation, health insurance premium, vacation, sick leave and 9 holidays.

Monthly Cost

$9,167

 

Annual Cost

$110,000

 

 

Now, many entrepreneurs think that they can do their own accounting and it doesn’t cost them anything. Nothing could be further from the truth. Not only is there an opportunity cost of taking the owner away from higher ROI activities, but this can hamper the business growth since rarely is the entrepreneur an expert in accounting. This puts the company in jeopardy of growth, not to mention the possible failure of the business altogether.  Let’s try to put some numbers on this.

Owner Doing the Accounting:

OWNER

Cost

Description

SALARY

$150,000

This is a conservative estimate of the value of the owner’s time. Many times the owner is charging the Government much more than this rate in which case it becomes even more problematic to do the accounting themselves.

Fringe cost

$45,000

Assuming an average competitive fringe package including FICA, FUTA, SUTA, Medicare, Worker’s Compensation, health insurance premium, vacation, sick leave and 9 holidays.

Total Cost

$195,000

 

 

 

 

Time Spent on Accounting

45 hours/mo

Assuming a small business of 10 employees, semi-monthly payroll, 3 government contracts, Invoice monthly, several expense reports each quarter, 40-50 monthly journal entries per month – about 10 hours per week

Accounting Cost/Mo

$4,648/mo

Assumes equivalent hourly rate = (Annual Salary)/(2,080 – PTO)

Annual Cost (Accounting Only)

$55,773

 

 

Now let’s talk about the secondary cost for the owner doing their own accounting.   Every high-level executive for a company has activities that can be classified as either high ROI activities or low ROI activities. High ROI activities include those tasks that when the owner completes them, they have the highest impact on the ROI of the company, and thus, the best chance to fuel growth. The owner should organize their “To-Do” list with the highest ROI activities at the top of the list to do. These activities would include work in the owner’s field of expertise (developing the core competency of the business) as well as business development activities that would affect the revenue side of the business and activities affecting raising capital for the business to grow.   Low ROI activities are usually things that are mundane, routine, and otherwise distract time from High ROI activities.

Maintaining FAR and DCAA compliance, as well as business accounting, are such tasks. Not to say accounting is not important to the business; it is. It just doesn’t register as a high ROI activity for the top executive. It should be delegated.   I would venture to say the 45 hours that were lost doing the accounting each month in the above example would easily cost the business twice the actual cost calculated above since the 45 hours were lost from pursuing high ROI activities.   So, the real cost to the business is not $55,773 but actually over $110,000 per year.  

OWNER

Cost

Description

Annual Cost (Accounting Only)

$55,773

Cost of time to do accounting

Annual Cost (Opportunity cost)

$55,773

Opportunity cost of not doing a High ROI activity. This is a conservative estimate. Just working direct work on a government contract would bring in this much in revenue.   A high ROI activity, such as productive business development, could easily provide a 3X or 4X return on the owner’s time.

Total Cost

$111,546

 

 

What if you hired an outsourced accounting firm, such as ReliAscent to do the FAR / DCAA compliant accounting?   Not only would you have a qualified bookkeeper, but you would also have a highly qualified and trained accountant, a controller/CFO, and a team of government contract management experts working for you.   This would not be a full-time staff; just working as needed to complete the monthly tasks.

Remember: this is a full staff, not just one individual as we had in the two examples above; a complete accounting department if you will. Let’s look at the costs of such an arrangement.

Hiring ReliAscent as an Outsourced Accounting Department:

OUTSOURCING

Cost

Description

Average Monthly Cost

$3,500

Includes bookkeeping, accounting and controller efforts to do full accounting and month-end closes.   Includes time billing customers and processing payroll.

Annual Cost

$42,000

 

 

This simple analysis doesn’t include other factors that impact your business like:

  • What if your employee quits? You lose out on the substantial investment of hiring, on-boarding and training that employee.   This is not a concern with outsourcing your accounting.
  • A full team to do your accounting, like a full accounting department at a larger firm, provides more bandwidth, experience, knowledge, and efficiency than a single hire or an owner trying to learn how to do accounting and be compliant in their spare time.
  • With a W-2 employee, you will have overtime pay, 401K benefits, maternity leave, bereavement leave, sick leave, jury duty, voting time off among other concerns.   These issues are not a concern when you outsource your accounting.
  • Outsourcing your accounting provides a secure location of your accounting files on a Fed Ramp certified network and the file is backed up daily.

There are some other positives to consider by hiring internally, including being able to see a “friendly face” every day. The question you must ask yourself is, “at what cost?”   With modern tools such as cell phones, internet, e-mail, video conferencing, shared computer screens and others, the outsourced virtual accounting department can be the most cost-effective solution and the best solution for a small to medium-sized business. Please don’t hesitate to contact us today to explore this further.  

Topics: DCAA Compliant Accounting, government contract accounting, DCAA compliant accounting services, dcaa outsourced accounting services, cost to outsource dcaa compliant accounting, outsourced accounting for government contractors