How long will it take to implement your software?

Earlier this month,  I was presenting our SYMPAQ  product line to a CPA firm that specializes in government contractor audits and with DCAA compliance. While discussing pricing options, one of their professional staff asked a question that is almost rhetorical in nature, but nevertheless  has been asked a thousand times before. That is, “How long does it take,  and what will it cost to get your software up and running?” While on the surface this seems to be a fair question, it also a complex one that simply does not have a set answer. So I replied, “I’d need to know more about particular requirements, because the cost varies from one client to the next.”  “Okay then, can’t you just give me a ballpark figure?”

The truth is there is no ballpark figure as such, or at least no more of one than you’d likely get if you were to ask a general contractor to give you an estimate for remodeling your kitchen without first seeing your kitchen, or for putting an addition on your home without seeing your home. At its core, an accounting software package is a database built around a set of business rules and algorithms. And,  given the available feature set, how much of the system do you intend to utilize? Is it 100% of the available feature set? Perhaps 75%? An independent research study revealed that 45% of a software systems’ features and functions are never used!*  This is because there are many variables. For instance, you might process Payroll in-house or you might outsource it to a third-party service bureau. If it is the latter, then obviously the integrated payroll feature set will not be utilized and there are no related costs associated with its implementation.

You should also consider your role in the process  and keep the following organizational factors in mind that happen to be beyond the control of your software vendor:

•  The amount of your internal accounting staff involvement during the implementation,

•   Staff skill level,

•   Daily workloads during the time of implementation, affecting the amount of time given to concentrate on the implementation.

Always remember to include your internal staff and their time while preparing your budget, because your vendor works in tandem with your staff and delegates responsibilities to them when practical. You don’t want a high-priced consultant doing routine data entry, do you? At the same time, if you would like to have your existing data converted and imported, then be sure to include a budget line item for data transformation.

A software vendor could calculate the average costs of professional services billed to its past several customers and use that as a basis for an estimate, but that would not necessarily yield a meaningful budget figure. The bottom line is that without first conducting a survey to gauge expectations and assigning resources on the front-end of the conversion process, it is just not possible for a software vendor to accurately estimate the time and dollars involved with the goal of getting “up and running”.

* Where do unused features come from?

DCAA Approved Accounting Software Redux

We received an e-mail recently on a topic that won’t seem to go away. In all the years we’ve been doing this, the legend of DCAA approved accounting software remains on par with the Loch Ness Monster and Bigfoot. The e-mail stated, “From time to time articles in trade publications suggest there is a list published by the DCAA or another government office of ‘approved’ software for government contractors.  Is this true, and if so, can you point us to the list?” So, we put the question to the DCAA and received this response from one of their employees at DCAA headquarters in Virgina, “I do not know if any such document exists or if one could be located. Actually, I think that might be illegal for us to do. That is an ethics issue.” So there you go, Nessie. Did you get that, Sasquatch? If an official list of DCAA “approved” accounting software actually does exist, it is as mythical as you are.

Firm Fixed Price Contract Audit Exposure

Fixed price awards don’t require cost accounting, you say? Every so often, we’ll hear  government contractors provide us with words of wisdom to the effect, “We don’t need cost accounting software; all of our government business is firm fixed price. So we’re not subject to audits.”

While it may generally be true that fixed-price contracts do not require DCAA incurred cost audits, you still must justify your cost structure in a pre-award audit with certain FFP contract types.  When your contract is a fixed price incentive contract, for instance,  FAR 16.4 stipulates, “This contract type may be used only when—(1) The contractor’s accounting system is adequate for providing data to support negotiation of final cost and incentive price revision; and (2) Adequate cost or pricing information for establishing reasonable firm targets is available at the time of initial contract negotiation.”

While some FFP contract types (e.g., sealed bid) that are beneath a predetermined dollar threshold may not require supporting cost data, several fixed price contract types do require an adequate accounting system. Besides, don’t you think it would be a good idea to have an accurate picture of your cost structure when bidding on any type of contract, be it fixed price or otherwise?

SF 1408 – Adequacy Checklist

The back page of the Standard Form 1408 features the evaluation checklist that DCAA auditors use to determine the “adequacy” of a contractor’s accounting system.  This form is used primarily when a flexibly priced contract (Cost Plus, Time and Materials) is in a preaward stage, and therefore a survey of your accounting system and its internal controls is in order.  There are five main questions on the form, with a couple of questions broken into detailed subcategories. The question that is possibly most pertinent is the fifth and final question, to wit:

“IS THE ACCOUNTING SYSTEM CURRENTLY IN FULL OPERATION? (if not, describe in Section I Narrative which portions are (1) in operation, (2) set up, but not yet in operation, (3)   anticipated, or (4) nonexistent.)”

Having an adequate accounting system that is not in full operation will count somewhat less than having a non-compliant system that is, so don’t fool yourself into believing that your investment in a compliant accounting package that you’re not currently utilizing will enable you to get past the preaward scrutiny of the DCAA. They’ll likely stump you when it comes to the last question on the SF1408.

SF1408

DCAA Identifies Audit Priorities

A defense industry blogger at About.com is reporting that DCAA has identified a couple of areas of emphasis in their audit activities.

Business Development vs Marketing: They will be looking closely to determine if  marketing costs, which are generally not allowable, are getting rolled into contract specific business development costs, which are allowable.

Travel Expenses: They will also be looking closer at Per Diem expenses for unallowable overages based on your location.

Best of luck with splitting time spent on business development from time spent on marketing. And make sure that business lunch is within your M&IE limits.

DCAA Approved Accounting Systems

We get a lot of visitors to this web site from the search term “DCAA Approved Accounting System.” So I thought this would be a good opportunity to clarify exactly what constitutes a DCAA Approved Accounting System.

The answer is nothing. It doesn’t exist. DCAA does not approve accounting systems. When DCAA audits your company, they are auditing policies, procedures, and the implementation of whatever accounting software you may be using. I won’t go as far as to say every accounting system can be made to be compliant, either. SYMPAQ has the built in audit trails and reports that a DCAA auditor will be examining, so accounting system acceptability when implemented, is much more likely. However, if you have SYMPAQ properly implemented, but have poorly documented accounting policies and procedures, you can potentially fail your audit. If you have good timekeeping policies, but are using QuickBooks which lacks internal controls, you might just fail your audit.

A DCAA audit is a three-legged stool. Software is only one of the legs, and arguably, the easiest one to get right. You should be very skeptical of any vendor or consultant that says a software package will make you DCAA approved. The DCAA does not work like that.

Subcontractors need to be DCAA compliant too

Yesterday, I was speaking with a smaller contractor, a 12 person firm with no direct contracts with the government. All their work is as a subcontractor. One of their primes mandated that they get a DCAA compliant system in place. This will necessitate moving off of QuickBooks.

It’s a myth that subcontractors don’t need to have a compliant cost accounting system. The reforms in late 2008 made prime contractors responsible for ensuring the adequacy of their subcontractor’s accounting systems and procedures. Prime contractors are besieged daily by smaller companies wanting to subcontract for them. If your company isn’t compliant, the  prime can find another sub that is, and they will. The best way to avoid that is to put a compliant system in place before your prime forces the issue. If you are proactive and take the steps to get compliant, and you market that fact to your primes, you will be in a position to pick up work when other subcontractors fail to maintain an adequate (by DCAA standards) accounting system.