Your accounting system is part of your contract.
For most businesses the books are an internal matter. For a government contractor they are evidence — examined at award, at audit, at incurred cost, and again by a buyer.
You will recognise this if…
- You won a prime contract and nobody has touched the chart of accounts since
- Indirect rates live in a spreadsheet that no longer matches the ledger
- Labour cost cannot be traced back to individual timesheets
- Unallowable costs get sorted out at year end, if at all
- An incurred cost submission means weeks of reconstruction
- You are bidding work you cannot confidently price because you do not trust your rates
What makes GovCon books different
Six requirements that do not apply to a commercial business, and that the general ledger has to be built for rather than adjusted into.
Direct and indirect costs have to be segregated from day one
This is the requirement everything else rests on. Direct costs are traceable to a single contract; indirect costs benefit more than one. The books have to keep them apart at the point of entry, in the general ledger, with the contract or job identified. Reconstructing the split later is exactly what auditors treat as a red flag, and it is the single most common reason a contractor's accounting system is judged inadequate.
Indirect rates are a chart-of-accounts decision, not a spreadsheet
Fringe, overhead, and G&A each need a pool and a base, and each has to be defensible. Which costs land in which pool, and what the allocation base is, are structural decisions made in the general ledger. Where a contractor maintains rates in a spreadsheet alongside books that do not reflect them, the two diverge — and the version that matters is the one in the ledger.
Timekeeping is an accounting control, not an HR process
Labour is usually the largest cost on a government contract, and the timekeeping system is the primary evidence supporting it. Daily entry by the employee, supervisor approval, a documented correction trail, and allocation to the right contract and cost objective. If the labour distribution in the books cannot be traced back to individual timesheets, the labour cost is unsupported.
Contract type changes how revenue is recognised
Firm-fixed-price, time-and-materials, and cost-plus each behave differently in the books. FFP carries the performance risk and needs percentage-of-completion or milestone treatment. T&M revenue follows approved hours at contract rates. Cost-plus recognises allowable cost plus fee, which makes allowability a bookkeeping question every month rather than a year-end one.
Unallowable costs get identified as they happen
FAR Part 31 makes certain costs unallowable — and they still have to be recorded, just segregated so they never reach an indirect pool or a billing. Screening them at entry is routine. Screening them at year end, across twelve months of transactions, is a project.
Everything has to survive being examined
An incurred cost submission, a pre-award survey, a DCAA accounting system review, and a buyer's diligence all examine the same records. Books maintained in that condition monthly make each of those an exercise in retrieval. Books that are not make each one a reconstruction.
What we do about it
- Chart of accounts structured to segregate direct, indirect, and unallowable cost
- Indirect rate pools and bases maintained in the ledger, not alongside it
- Labour distribution reconciled to the timekeeping system each month
- Provisional rate tracking against actuals through the year
- Contract-level profitability by contract type
- Schedules and support maintained in incurred-cost-ready condition year-round
Not sure where you stand? The GovCon controller diagnostic walks twenty questions across five domains and takes a couple of minutes.
Frequently asked
Do you provide DCAA-compliant bookkeeping?
DCAA does not certify accounting systems or bookkeepers — it evaluates whether a contractor's system meets the criteria. What we do is maintain books that meet those criteria: segregated direct and indirect costs, defensible indirect rate pools and bases, labour traceable to timesheets, unallowable costs identified and excluded, and records ready when someone asks.
Can you prepare our incurred cost submission?
We maintain the records and schedules the submission is built from, and work alongside whoever prepares and files it. The filing itself sits with your CPA or a specialist GovCon accounting firm.
We just won our first prime contract. Where do we start?
With the chart of accounts. Almost every problem contractors have later starts with a general ledger that was never structured to segregate direct from indirect. Fixing it before there is a year of history is dramatically cheaper than after.
Do you handle timekeeping systems?
We integrate them into the accounting so labour distributes correctly to contracts and cost objectives. Selecting and administering the timekeeping system stays with you — but we will tell you plainly if the one you have cannot support what the books need.
What about small business and 8(a) contractors?
The requirements do not scale down. A small contractor faces the same segregation and rate structure expectations as a large one, usually without anyone in-house who has done it before. That is a common reason to bring in the controller function rather than hire for it.
Do you do GovCon M&A or exit preparation?
Not under Averan. Valuation, buyer readiness, and transaction work for government contractors is handled by our sister firm, Sync CFO, which runs a dedicated GovCon practice. We keep the books in the condition that work depends on.
Where to next
Want your books audit-ready year-round?
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