I saw an article on a news feed the other day that indicated there has been a change in the amount of cheating in business over the last several decades. The article also indicated that the level of cheating in universities is also increasing. It seems that the ends justify the means. Not only have we lost some of our moral fiber in this country, we are seeing this degradation emphasized in schools, business practices and even the media. I think a person only has to watch a small amount of television (not only the news but in the reality type shows) and you can easily see what I'm talking about. Combine this with major scandals in the last 15 years (Enron, the mortgage crisis and the global financial crisis in 2008 to mention a few) and the trend is not pretty. Individuals can have strong moral compasses but the influence of peer groups is overpowering.
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The Federal Government has specific instances when they can withhold payment of money owed to Government Contractors. Many companies that are in the business of government contracting do not fully realize what this means and they can be surprised when they do not receive the full amount they are due at the time they think they are due the funds. After all, the Federal Government is the world's largest purchaser of goods and services and have an excellent credit rating. There are costs associated with dealing with this customer, however.
The President released his FY 2015 Federal Budget proposal earlier this week. This proposed budget will get reviewed, discussed, negotiated and beaten up over the next 6 months for sure. This year might be a little different due to the Ryan-Murray budget deal. I think it is worthwhile to examine what the White House considers the highlights and also to see if there are any other major impacts to government contractors.
At this time every year I start to think about Incurred Cost Reports. Just like I start to think about my personal income taxes at home right after the holidays. Most companies will have until the end of June to complete the incurred cost submission. That doesn't mean you shouldn't start early and not wait until the last minute. Many companies may enlist their CPA to complete this report to the government. This is the same CPA that is busy right now completing the tax return for the business. I have nothing against that if the CPA is well versed in government contracting and experienced with the format required for submitting the incurred cost proposal. The sad truth is that many of these preparers have not had a lot of experience with either the Federal Government contract requirements and/or with submitting an incurred cost report. Yes, all of this is public knowledge, all the requirements are known and public information but there are many fine points that are gained only through experience. Now, many times the DCAA will audit these incurred cost reports and go over them with a fine tooth comb. Your chances of getting your incurred cost report audited are probably higher than the odds of getting your personal tax return audited. For this reason alone, you want to make sure your incurred cost proposal is as good as possible. When you combine the audit risk with the fact that the DCAA is slightly behind schedule in auditing incurred cost proposals, you could not be audited for several years (some audits are as much as 6 to 7 years after submission). Again, it becomes imperative that the incurred cost report be done correctly. Another point is that if you have your CPA help you with the incurred cost report, they will probably not be able to begin work on the incurred cost proposal until after tax time which means after April 15th. While this is plenty of time usually to complete an incurred cost report for a small business, it could be done earlier and the worry could be eliminated.
Many small businesses are looking to the Federal Government for either a solid first market or a market expansion for their business. I think the Federal Government is a good customer to have, as long as you understand the pros and cons of doing business with this customer (in other words, the risks).
As we did a webinar this morning for quite a few SBIR award winners from the Navy regarding the DCAA and the DCMA, it occurred to me that there could be a lot of small business government contractors that are slightly confused about these agencies roles. I thought it would be useful to go over a little bit of the discussion from the webinar here.
There is usually no argument that timekeeping and labor recording are the most important part of government contracting. We have written many blogs on the subject. One thing that is perhaps not clear is the retention of records relating to this labor recording. If you are using a manual timekeeping system, there is usually no issue with keeping timecards. I think most people have a hard time discarding paper records.