Frequently Asked Questions
From tax advisory services to outsourced accounting services, our collaborative approach brings the best of our firm to you.
Yes. It is essential to discuss accounting systems, budgets, entity structure, and much more with a CPA before starting a business. Without seeking advice from a CPA, you could be making decisions that could end up hurting you financially or legally.
Rubino can provide the following financial statement services:
- Preparation: A preparation is intended for business owners’ use only to manage the business. For financial statement preparation services, Rubino will not verify the accuracy or completeness of the information, and we are not required to issue a formal report on the financial statements.
- Compilation: A compilation is intended for use by outside parties who may appreciate the business’s association with a CPA without requiring a level of assurance on the accuracy of your financial statements. For compilation services, Rubino is required to read the financial statements in light of the financial reporting framework being used and consider whether the financial statements appear appropriate in the form and are free from obvious misstatements.
- Review: A review is intended for use by outside parties with limited assurance on the accuracy of financial statements. A review is appropriate as an organization grows and seeks larger, more complex levels of financing and credit. During a review, Rubino will perform analytical procedures, inquiries, and other procedures to obtain “limited assurance” on the financial statements, and review is intended to provide a user with a level of comfort on their accuracy.
- Audit: An audit is intended to provide outside parties with a higher level of comfort on the accuracy of the financial statements. An audit is typically appropriate and often required when an organization is seeking complex or high levels of financing and credit. In an audit, Rubino is required to obtain an understanding of the organization’s internal control and assess fraud risk. In addition, Rubino is also required to corroborate the amounts and disclosures included in the financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures, and other procedures.
We recommend keeping all tax returns and support for the income and deductions claimed on those returns for seven years after the date the return was filed.
Nonprofit organizations, and in some cases for-profit organizations, are required to have a Single audit performed under the Uniform Guidance or a Uniform Guidance Audit if they incur Federal expenditures of $750,000 or more in a fiscal year.
Yes, in certain cases, commercial or for-profit entities may be subject to the audit requirements of the Uniform Guidance. For instance, HHS regulations state the following:
Recipients and subrecipients that are commercial organizations and incur more than 750,000 of Federal expenditures under have two options regarding audits:
- A financial-related audit (as defined in the Government Auditing Standards, GPO Stock #020-000-00-265-4) of a particular award in accordance with Government Auditing Standards, in those cases where the recipient receives awards under only one HHS program; or, if awards are received under multiple HHS programs, a financial-related audit of all HHS awards in accordance with Government Auditing Standards; or
- An audit that meets the requirements contained in this subpart (45 CFR Part 75.501)
SHOULD I CONSULT A CPA IF I AM STARTING A NEW BUSINESS?
Yes. It is essential to discuss accounting systems, budgets, entity structure, and much more with a CPA before starting a business. Without seeking advice from a CPA, you could be making decisions that could end up hurting you financially or legally.
WHAT ARE THE DIFFERENT TYPES OF FINANCIAL STATEMENT SERVICES?
Rubino can provide the following financial statement services:
- Preparation: A preparation is intended for business owners’ use only to manage the business. For financial statement preparation services, Rubino will not verify the accuracy or completeness of the information, and we are not required to issue a formal report on the financial statements.
- Compilation: A compilation is intended for use by outside parties who may appreciate the business’s association with a CPA without requiring a level of assurance on the accuracy of your financial statements. For compilation services, Rubino is required to read the financial statements in light of the financial reporting framework being used and consider whether the financial statements appear appropriate in the form and are free from obvious misstatements.
- Review: A review is intended for use by outside parties with limited assurance on the accuracy of financial statements. A review is appropriate as an organization grows and seeks larger, more complex levels of financing and credit. During a review, Rubino will perform analytical procedures, inquiries, and other procedures to obtain “limited assurance” on the financial statements, and review is intended to provide a user with a level of comfort on their accuracy.
- Audit: An audit is intended to provide outside parties with a higher level of comfort on the accuracy of the financial statements. An audit is typically appropriate and often required when an organization is seeking complex or high levels of financing and credit. In an audit, Rubino is required to obtain an understanding of the organization’s internal control and assess fraud risk. In addition, Rubino is also required to corroborate the amounts and disclosures included in the financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures, and other procedures.
HOW LONG SHOULD I KEEP TAX RETURNS AND SUPPORTING DOCUMENTS?
We recommend keeping all tax returns and support for the income and deductions claimed on those returns for seven years after the date the return was filed.
AS A NONPROFIT RECEIVING FEDERAL GRANTS, WHAT ARE THE AUDIT REQUIREMENTS?
Nonprofit organizations, and in some cases for-profit organizations, are required to have a Single audit performed under the Uniform Guidance or a Uniform Guidance Audit if they incur Federal expenditures of $750,000 or more in a fiscal year.
ARE FOR-PROFIT ORGANIZATIONS REQUIRED TO HAVE SINGLE AUDITS OR UNIFORM GUIDANCE AUDITS?
Yes, in certain cases, commercial or for-profit entities may be subject to the audit requirements of the Uniform Guidance. For instance, HHS regulations state the following:
Recipients and subrecipients that are commercial organizations and incur more than 750,000 of Federal expenditures under have two options regarding audits:
- A financial-related audit (as defined in the Government Auditing Standards, GPO Stock #020-000-00-265-4) of a particular award in accordance with Government Auditing Standards, in those cases where the recipient receives awards under only one HHS program; or, if awards are received under multiple HHS programs, a financial-related audit of all HHS awards in accordance with Government Auditing Standards; or
- An audit that meets the requirements contained in this subpart (45 CFR Part 75.501)
Government Contractors
Answer: The Defense Contract Audit Agency (DCAA) is responsible for auditing Department of Defense (DoD) contracts and ensuring that government contractors comply with federal regulations, particularly the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS).
DCAA compliance is critical for government contractors because failure to adhere to these standards can lead to penalties, loss of contracts, or disqualification from future contract opportunities. DCAA audits focus on verifying the accuracy and allowability of costs charged to government contracts, ensuring that the contractor’s accounting systems can properly segregate direct and indirect costs
Answer: Indirect costs are expenses that cannot be directly attributed to a specific government contract or project but support the overall operation of the business. Common examples include utilities, administrative salaries, and office supplies.
In government contracting, indirect costs are categorized into different pools, such as overhead, general and administrative (G&A), and fringe benefits, which are then allocated to contracts based on a consistent and logical method. Proper management and allocation of indirect costs are essential to ensure compliance with government regulations and avoid under- or overcharging the government.
Answer:
- A fixed-price contract is an agreement where the contractor agrees to deliver a product or service for a set price. The contractor assumes most of the risk because they are responsible for any costs that exceed the agreed-upon price.
- A cost-reimbursement contract, on the other hand, allows the contractor to be reimbursed for allowable, allocable, and reasonable costs associated with fulfilling the contract. However, cost-reimbursement contracts often come with more oversight, including strict auditing and reporting requirements to ensure compliance with FAR and other regulations.
Answer: Allowable costs are expenses that are reasonable, allocable to the contract, and compliant with the specific terms of the contract and FAR Part 31. Common examples of allowable costs include direct labor, materials, subcontractor costs, and indirect costs that support contract performance.
Unallowable costs, on the other hand, are expenses that cannot be billed to the government under any circumstances. Examples include entertainment, lobbying expenses, fines and penalties, and personal expenses. Unallowable costs must be segregated in the contractor’s accounting system to avoid charging them to the government, which can lead to audit findings or penalties.
Answer: A compliant accounting system is critical for government contractors because it ensures that costs are accurately recorded, allocated, and reported in line with FAR and DCAA requirements. A compliant system must:
- Segregate direct and indirect costs.
- Identify and track allowable and unallowable costs.
- Provide timely, accurate financial reports.
- Support audits and other reviews by government agencies.
DCAA audits will evaluate whether a contractor’s accounting system meets these standards. Failure to maintain a compliant system can result in contract delays, disallowance of costs, or loss of government business.
Answer: Incurred Cost Submissions (ICS) are required for government contractors with cost-reimbursement contracts or other types of contracts that require cost data reporting. The ICS details all costs incurred by the contractor during the fiscal year, including direct and indirect costs.
Contractors are required to submit their ICS within six months after the end of their fiscal year. The DCAA reviews these submissions to ensure that the costs billed to the government are allowable, allocable, and reasonable. Failure to submit an accurate and timely ICS can lead to penalties, disallowed costs, or increased scrutiny in future audits.
Answer: Allowable costs are expenses that are reasonable, allocable to the contract, and compliant with the specific terms of the contract and FAR Part 31. Common examples of allowable costs include direct labor, materials, subcontractor costs, and indirect costs that support contract performance.
Unallowable costs, on the other hand, are expenses that cannot be billed to the government under any circumstances. Examples include entertainment, lobbying expenses, fines and penalties, and personal expenses. Unallowable costs must be segregated in the contractor’s accounting system to avoid charging them to the government, which can lead to audit findings or penalties.
Answer: A forward pricing rate is an estimate of future indirect costs that a contractor anticipates over the life of a contract. These rates are typically negotiated with the government in advance of contract performance and are used to establish billing rates for cost-reimbursement contracts.
Accurate forward pricing rates are important because they help both the contractor and the government plan for the financial aspects of contract performance. Therefore, forward pricing rates must be reasonable, realistic, and justifiable.
Answer: A timekeeping system is an essential component of a government contractor’s accounting system because it tracks the hours worked by employees on various projects or contracts. For labor costs to be allowable under government contracts, timekeeping systems must:
- Record time daily.
- Properly allocate labor hours to the appropriate contract or indirect pool.
- Ensure that employees certify the accuracy of their time records.
Inadequate timekeeping systems can lead to audit findings, penalties, or disallowed labor costs. A compliant timekeeping system ensures that labor costs are accurately recorded and allocated, minimizing the risk of noncompliance.
Answer: The Cost Accounting Standards (CAS) are a set of standards designed to ensure uniformity and consistency in cost accounting practices across government contracts. Key CAS requirements include:
- Consistent treatment of costs (CAS 401).
- Allocation of costs based on their beneficial or causal relationship to cost objectives (CAS 403).
- Treatment of direct labor, materials, and indirect costs in a consistent manner (CAS 418).
For contracts exceeding certain thresholds (currently $2 million), compliance with CAS is mandatory. Non-compliance with CAS can lead to penalties, increased scrutiny in audits, and potential contract loss.
Answer: FAR Part 31 governs the principles for determining the allowability, allocability, and reasonableness of costs charged to government contracts. It applies to all contracts, regardless of size, and provides guidelines on allowable and unallowable costs.
Cost Accounting Standards (CAS), on the other hand, are more specific rules that apply to larger contracts. CAS focuses on the methods and practices used to allocate costs, ensuring that costs are consistently treated across all government contracts.
While FAR Part 31 applies universally to government contracts, CAS only applies to contracts that meet specific thresholds. However, both sets of regulations must be adhered to by contractors, and non-compliance can result in serious repercussions.
Answer: Contract closeout is the process of completing all the necessary administrative and financial tasks associated with a government contract once the work is finished. This process includes ensuring that all costs are correctly billed, all deliverables are submitted and accepted, and any remaining payments or adjustments are made.
From an accounting perspective, contractors must ensure that:
- All allowable costs have been billed.
- Final indirect rates are applied.
- Final financial reports and incurred cost submissions are filed.
Failure to properly close out a contract can delay final payments, lead to disallowed costs, or create challenges in future contract negotiations.
Answer: Yes, small businesses can seek help from specialized accounting firms, consultants, and outsourced accounting services that focus on government contracting. Many of these providers have expertise in DCAA compliance, FAR regulations, and CAS requirements, and they can help small businesses navigate the complexities of government contract accounting.
In addition, the Small Business Administration (SBA) and other government organizations offer resources and training programs to help small businesses understand and comply with government contract regulations.
Answer: A compliant accounting system for government contracting should have the following features:
- Ability to segregate direct and indirect costs.
- Support for tracking allowable and unallowable expenses.
- Real-time tracking of project costs.
- Automated timekeeping integration.
- Reporting capabilities that comply with FAR, CAS, and DCAA requirements.
Additionally, the system should be scalable to accommodate the growth of your business and the complexity of future contracts.
We Help You See the Big Picture
We bring a unique understanding of the difficult and ever-changing regulatory challenges your organization faces every day. From tax advisory services to outsourced accounting services, our collaborative approach brings the best of our firm to you. This is the Rubino advantage.
Rubino's Webinar: Total Time Accounting: Exploring Compliance Through Time-Keeping Methods
Our expert speakers, Scott Flaherty, CPA and Patrick Curtis, CPA, CGMA are seasoned professionals with extensive experience in government contracting and financial management. They will share their knowledge and provide actionable strategies to help you navigate the complexities of total time accounting.
Rubino's Webinar: How to Leverage Financial Consulting and Outsourcing Services
Our panel of industry experts provides valuable insights, shares successful stories and answers questions about Outsourced Accounting. Don’t miss this fantastic opportunity to gain a competitive edge and take your financial operations to the next level!
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