Brought to you in partnership with NeoSystems
Key Takeaways
- Compliance is essential for avoiding fines, contract termination, and reputational damage in government contracting.
- Strong financial controls, accurate timekeeping, and FAR-aligned accounting are critical for audit readiness.
- Data protection and CMMC compliance are now core requirements for handling FCI and CUI information.
- New contractors should assess compliance gaps, document policies, and train staff within the first 90 days.
- Working with a compliance partner like NeoSystems can centralize controls, improve audit readiness, and reduce risk.
Government contracting is a beneficial endeavor for businesses, especially for growing companies. Compliance with regulations gives you a strategic advantage over competitors by fostering trust and building a solid reputation from the start. You can ensure compliance by working with a trusted partner, such as NeoSystems, which can provide valuable regulatory advice and comprehensive services.
Why Compliance Matters for Government Contactors
The consequences of noncompliance can be intense. If you violate a government contract, you could incur criminal charges, contract termination, fines, debarment and potential suspension. Failing to comply with data protection rules can cost an average of $14.82 million, which could significantly impact your business. A public violation can also damage your business’s reputation, leading to fewer future opportunities as a contractor or partner.
How Can You Ensure Compliance with Regulations as a New Government Contractor?
To foster strong relationships and ensure smooth operations, there are several important areas to consider when assessing your business’s level of compliance.
Maintain Organizational Integrity
Maintain integrity by communicating thoughtfully and conducting ethical practices. The Procurement Integrity Act states that you cannot receive sensitive data until you sign a contract. If an audit determines the company lacks integrity, then you may not receive a contract.
Create strict rules for your company to follow that identify conflicts of interest. Remedy them to the best of your ability. Also, ensure you are producing proposals with accurate representations and certifications to boost your credibility as an organization.
Practice Accurate Finances
Businesses must keep an accurate record of all expenses, including direct and indirect costs. Direct costs are funds spent on a singular project. Indirect costs include overhead, fringe and administrative costs.
Overhead may consist of costs from the Human Resources department as they recruit new employees or travel costs as managers survey different jobsites. Administrative expenses include leadership salaries and software subscriptions. Fringe costs are related to your workforce, such as holiday pay and health insurance.
Isolate items in your budget to avoid overspending, and practice efficient timekeeping strategies. The Federal Acquisition Regulation (FAR) identifies the rules for a company’s purchasing process, so business leadership must understand each requirement and document finances accordingly. Before winning a contract, ensure all the money you plan to spend is approved to avoid fines or discrepancies later. The Defense Contract Audit Agency (DCAA) performs audits to check this step.
A DCAA audit may seem daunting for a new government contractor. The agency’s website provides an in-depth look at the audit process, but there are a few main areas to focus on. The DCAA will check whether your costs comply with the FAR and whether you have included indirect costs in your timekeeping. DCAA identifies any unallowable costs and flags them, and subsequent removal is the contractor’s responsibility. They also verify that each financial element is appropriately and distinctly separated.
Protect Confidential Data
Cybersecurity is becoming a primary component of new regulations amid the rise in cyberattacks and technological advancements. The Cybersecurity Maturity Model Certification protects sensitive information and data shared between departments and contractors. Pay close attention to Federal Contract Information (FCI) and Controlled Unclassified Information (CUI), which are sensitive areas that auditors check.
How to Create an Initial Action Plan
Create an actionable plan as you start your business to ensure initial compliance. The following tasks should be done within the first 90 days.
Find Gaps in Compliance
You must have a general understanding of the target compliance requirements relevant to your industry to assess your current systems. Document existing policies and processes, and compare them to how daily operations are actually performed. This process often involves observing and conversing with legal, HR, IT, operations and frontline staff.
Compliance gaps may include missing or inadequate controls or a lack of proper documentation. High-risk gaps should be addressed first.
Consult with Compliance Experts
Once you locate gaps, call in an expert to double-check your findings and provide additional insight. As a new government contractor, there are areas you may not fully consider or regulations you did not know about. Experts can bridge these knowledge gaps and help your business succeed as a government contractor. They can also help you stay current on evolving standards and regulations.
Draft Cybersecurity and Accounting Policies
Develop a robust cybersecurity policy that protects your information. Cybersecurity threats are on the rise, so a protection plan is crucial when working under a government contract or handling sensitive data.
Additionally, ensure you have a solid accounting policy for measuring and planning your funds to avoid overspending. Accurately recording the many initial investments made when starting a company is crucial for future operations. Having a thorough policy also prepares you if the government audits your organization.
Train Employees on Records and Ethics
Your employees must also be aware of compliance regulations to follow them in daily operations. Train employees to accurately record financial data and to follow other essential practices. Provide ethics education to ensure they do not violate any rules. Prepare for a mock audit to ensure that your staff can follow all necessary procedures.
A Robust Compliance Framework
New government contractors may lack the capabilities to assess your business for compliance thoroughly. Consider partnering with NeoSystems to receive full-scope CMMC-compliance solutions. The company integrates with systems and meets compliance needs while promoting your business’s core missions. Its dedicated team of compliance experts can work with organizations of all sizes.
NeoSystems uses the NeoSystems Cloud to help keep your company’s systems and data secure. The partner offers additional government services and solutions, including accounting, financial planning, IT, consulting, software, staff management and security. These features can help your business meet compliance requirements.
The overall benefits of partnering with a compliance professional are centralized documentation, free leadership, automated controls and audit readiness. Partners assess all compliance areas and provide you with a comprehensive report, saving time spent gathering information. Giving compliance duties to a partner also allows you to focus on business growth, which is essential for new businesses to stay competitive in their industry. Automated controls can limit human interference and errors, boosting efficiency.
By partnering with an experienced firm like NeoSystems, you can enhance your audit readiness and stay compliant over time.
Ensure Sustainable Government Compliance
Government compliance is a serious endeavor that requires a focus on accounting, integrity and data protection. Remain proactive by conducting your own compliance check or hiring a trusted partner, such as NeoSystems, to ensure your company adheres to all regulations. Robust compliance helps you retain government business and maintain a solid reputation as your company establishes itself as a reputable contractor.
FAQs
Why is compliance so important for government contractors?
Noncompliance can lead to fines, contract termination, suspension, or even criminal charges. It can also severely damage a company’s reputation and reduce future contracting opportunities.
What financial practices are required to stay compliant?
Contractors must accurately track direct and indirect costs, follow FAR rules, and maintain proper timekeeping and documentation. These systems are reviewed during DCAA audits to confirm allowability and separation of costs.
What is CMMC and why does it matter?
The Cybersecurity Maturity Model Certification (CMMC) sets standards for protecting sensitive government data such as FCI and CUI. Compliance is required to reduce cyber risk and qualify for many government contracts.
What should a new contractor do in the first 90 days?
They should identify compliance gaps, consult experts, draft cybersecurity and accounting policies, and train employees on records and ethics. A mock audit can also help test readiness early.
How can a compliance partner like NeoSystems help?
A compliance partner can provide centralized documentation, automated controls, and ongoing audit readiness. This allows leadership to focus on growth while reducing regulatory risk.