January 24, 2025
GRF held its first annual GovCon Summit on December 12, 2024. Led by Sue Chon, CPA, CFE, Partner, Audit & Assurance, the program focused on equipping government contractors with strategies to enhance their competitive edge in the marketplace heading into 2025. The summit gathered industry experts to explore critical topics such as the effective management of DCAA audits, the pressing sustainability and cybersecurity challenges faced by government contractors, the accounting system considerations essential for driving results, and the current mergers & acquisitions (M&A) landscape within the industry.
Key Takeaways
How to Manage Your DCAA Audit
The discussion focused on managing a Defense Contract Audit Agency (DCAA) audit, emphasizing the complexity and regulations involved when working with the U.S. government, particularly within the Department of Defense (DoD). Paul Calabrese, Principal, Outsourced Accounting & Advisory Services, highlighted common misconceptions and issues faced by contractors when interacting with DCAA, such as receiving incorrect guidance or being overly concerned about audits. The importance of understanding the nature of your contracts—whether fixed price or cost reimbursable—and your relationship with the government (prime contractor or subcontractor) was stressed, as these factors decide whether DCAA will audit your organization. Additionally, he recommended DCAA’s audit portal as a valuable tool, outlining the steps contractors need to take to submit their incurred cost audits and the criteria for DCAA’s involvement. The risk of audit matrix was used to explain the varying levels of scrutiny based on contract types and roles.
Further, the session advised contractors to maintain consistent communication with auditors, emphasizing the need for regular interim discussions and proactive engagement throughout the audit process. Contractors should ensure they are “audit ready” by preparing necessary documentation, such as labor backup and proposal materials before an audit takes place. The role of independent public accounting firms (IPAs) was also addressed, noting their professionalism and efficiency compared to DCAA. Finally, the presentation stressed the importance of understanding DCAA’s advisory role, particularly when cost findings or audits are issued. Contractors should respond to such findings and work with the Administrative Contracting Officer (ACO) to resolve any issues. The key takeaway is that while DCAA may offer advice, it is essential for contractors to rely on their own accounting systems and seek decisions from the ACO if disputes arise.
Future-Proofing Government Contracts: Tackling Sustainability and Cybersecurity Challenges
GRF Senior Manager, Darren Hulem, CISA, CEH, Security+, led a discussion on recent developments in cybersecurity requirements for government contractors, in particular the Cybersecurity Maturity Model Certification (CMMC). The final rule for CMMC was released in October and includes three levels of certification. Level 1 requires compliance with basic cybersecurity practices that have been in place for nearly a decade, while Level 2 focuses on more detailed controls, with the possibility of self-assessment or third-party audits depending on the contract’s risk. Level 3 involves government-led audits for larger organizations handling controlled unclassified information (CUI). The CMMC applies primarily to Department of Defense (DoD) contractors and subcontractors, with specific requirements for safeguarding CUI and Federal Contract Information (FCI). Contractors must also ensure that their subcontractors meet the appropriate CMMC levels based on the type of information being handled.
Melissa Musser, CPA, CIA, CITP, CISA, Partner and Director, Risk & Advisory Services, discussed the Federal Government’s sustainability goals and introduced the new Federal Supplier Climate Scorecard, a tool that evaluates the climate performance of top government contractors, including greenhouse gas reporting. The government had committed to achieving net-zero emissions by 2050 and was encouraging contractors to disclose their greenhouse gas emissions as part of procurement processes, following frameworks like the Greenhouse Gas Protocol.
Melissa also addressed the uncertainty surrounding the incoming Administration and its potential impact on federal sustainability initiatives. We plan to provide further updates on these evolving regulatory and sustainability trends at the upcoming ESG Summit in April 2025.
From Resolutions to Results: A GovCon’s Guide to Accounting System Considerations in 2025
During a practitioners’ discussion with Outsourced Accounting & Advisory Services Partners, John Pace, CPA, CVA, and Yevgeniy Sukhenko, CPA, Jennifer Arce, Systems Implementation Consultant, Callao Consulting LLC, illustrated when government contractors should consider transitioning from QuickBooks to Unanet, emphasizing that the main trigger for this shift is when a company experiences growth and complexity. QuickBooks may work for smaller organizations or simple operations, but as a company grows, it often needs more advanced reporting capabilities, real-time insights into project performance, and the ability to scale effectively. She noted that Unanet, tailored for project-based organizations, provides robust project management, seamless integration of time and expenses, detailed reporting capabilities, and more efficient invoicing processes, making it ideal for government contractors. These features support better decision-making and more accurate financial tracking, making Unanet a powerful tool for organizations with complex needs.
The conversation also explored the return on investment (ROI) for adopting Unanet. While the system comes with an upfront cost, Ms. Arce explained that the long-term benefits far outweigh the initial expense. Clients typically see a quick ROI through improvements in efficiency, reduced errors, and automation of processes, which free up staff to focus on other areas. The implementation process is flexible, allowing clients to choose their level of involvement, and the system can be tailored to meet specific business needs. Despite concerns about complexity, Unanet’s design and safeguards make it user-friendly, and its capabilities are often more straightforward than QuickBooks, providing a more reliable and scalable solution for growing organizations.
Mergers & Acquisitions Landscape and Tax Developments
GRF Audit & Assurance Partner, Tom Myers, CPA, CGMA, discussed the importance of preparing for an exit event before selling a government contracting business, emphasizing that such a sale is one of the most significant transactions an owner will experience. He recommended that the best approach is to plan 3 to 5 years ahead of the sale, allowing ample time for organizing financials, establishing tax strategies, and forming a dedicated team of experts. This team should include legal professionals familiar with government contracting, as well as investment bankers who specialize in the field. Additionally, Mr. Myers highlighted the key financial preparation steps, such as conducting an audit and ensuring financial statements are accurate and scrubbed for any items that could reduce the business’s value.
On the tax side, Ryan Ham, CPA, Partner and Director, Tax stressed the importance of compliance and the potential risks of non-compliance during due diligence. He outlined several areas of tax compliance, including proper filing of forms such as 1099s and 1095-Cs, and ensuring that personal expenses are accurately classified. Mr. Ham also warned about the potential exposure from state and local taxes, noting that businesses may face complications from taxes specific to certain regions or municipalities. He emphasized the necessity of working with a team early on, as the sale process can involve significant negotiations, and getting ahead of any tax or compliance issues can help avoid complications that could negatively affect the sale price.
We can help
GRF’s Government Contracting practice offers expertise from a wide range of disciplines to help clients maintain compliance, position their business for growth, and prepare for a future transaction. Learn more about what GRF can do for your business.