Cost Accounting Standards

Cost Accounting Standards (CAS)

CGS has extensive experience in assisting clients navigate the complexities and ambiguities of the Cost Accounting Standards (CAS).  CGS tailors its services to provide clients with efficient and effective solutions to achieve compliance with the applicable standards and regulations while minimizing undue burden on the company.

What is the CAS?

The CAS consists of 19 different standards that were designed to achieve uniformity and consistency in the measurement, assignment, and allocation of cost for the purposes of large Federal contracts.  The CAS requirements, where applicable, affect virtually all areas of a contractor’s cost accounting system.  The standards require cost accounting consistency, compliance with all current standards, a Disclosure Statement, and potential cost impact proposals – to name just a few.

That is, the focus of the 19 CAS Standards includes the following fundamental concepts:

  • Consistency in estimating, accounting, reporting and billing of contract costs.
  • Consistency in treating the same costs consistently for all contracts and customers.
  • Proper segregation of direct contract costs from indirect Overhead and G&A costs.
  • Allocation of G&A costs to contracts in a fair and consistent manner.
  • Equitable allocation of Corporate Office costs to the performing business units.
  • Capitalization and depreciation of fixed assets.
  • Measurement and assignment of pension costs to business units and contracts.

While these CAS concepts appear straightforward and reasonable enough, their implementation in practice is often difficult and subject to disputes and disagreements with government auditors.  CGS has extensive experience in guiding contractors through the CAS and its pitfalls and nuances.

Who Does the CAS Apply To?

Understanding exactly when the CAS comes into play can also be hard to decipher in itself.  Generally, if a government contractor has Federal contracts or subcontracts of $50M or more that include the CAS clauses, they are required to adhere to all 19 of the CAS standards.  If the contractor has Federal contracts or subcontracts between $7.5M to $50M, they are subject to “Modified CAS” and must adhere to 4 of the 19 CAS Standards.  Even if a contractor has contracts that qualify for CAS, the contractor may have exemptions that preclude them from the standards – such as for the purchase of commercial items.  CGS assist your company in determining which of the CAS standards, if any, apply.  

What Solutions Does CGS Provide?

As described below, CGS has helped numerous clients with the full spectrum of CAS considerations from determining CAS applicability; CAS risk assessments; CAS Disclosure Statements; cost impact proposals, etc.     Specifically, CGS provides the following:

CGS performs and prepares a high-level assessment of a contractor’s ability to comply with the 19 CAS Standards. CGS provides clients with a detailed CAS risk assessment including our Go-Forward Actions and Recommendations. CGS’ corrective action plan assigns priority levels to each task and time estimates to provide our clients flexibility and a workable approach that is easier for them to implement.

CGS’ CAS Gap Assessments ensures that each of the 19 standards (if applicable) are met along with other key compliance fundamentals. Some of the key objectives included in CGS’ assessment, are as follows:

  • Review the ability to identify and isolate direct costs for the appropriate contracts or projects.  Specifically, each contract or project should be assigned a unique project number so that direct project costs can be properly segregated and accumulated in the project costing module.
  • Test the ability to properly segregate direct project costs from indirect overhead and G&A costs.
  • Assess consistency. This is a critical principle in government contract accounting and under the CAS. Consistency is important in two separate regards:
    • First, the way that a contractor bids, accounts for, bills and reports costs to the government must be consistent (CAS 401).  For example, if a cost is bid as a direct cost, it must be accounted for, reported and billed as a direct contract cost.
    • Second, similar costs incurred in like circumstances must be accounted for consistently across all contracts and customer types (CAS 402).  For example, if travel is bid as a direct cost on government contracts, it must be treated as a direct cost on all contracts – including commercial projects.    
  • Review time reporting system and policies.  This is another important requirement for government contractors and an area of concern to the DCAA and state DOT auditors.
  • Ensure that unallowable costs are properly identified, isolated and removed from claimed overhead and G&A costs (CAS 404). Unallowable costs are defined in FAR Part 31 and include costs such as interest expense, bad debts, travel costs in excess of the Federal per diem limits, alcohol, charitable contributions, lobbying, etc.
  • Test the ability to accurately bill Federal contracts in accordance with the contract terms and the ability to bill multiple types of contracts (e.g., cost-plus, time & materials, etc.).

The DCAA performs CAS compliance audits – typically on a rotating basis where compliance with certain of the CAS standards is reviewed every few years. These audits often lead to protracted disputes with the DCAA. CGS can help your company to prepare for these audits through developing the compliance strategy and supporting data; working with and negotiating with the DCAA, and in very difficult cases, work with outside consul to rebut the DCAA’s findings.

Large Federal contractors with $50M or more of CAS-covered contracts are required to prepare a CAS Disclosure Statement. The Disclosure Statement is a standard government form that the contractor must complete that describes in detail the contractor’s cost accounting practices. This includes describing how direct labor, material and subcontract costs are captured and assigned to contracts. The Disclosure Statement also covers how Overhead and G&A costs are captured and allocated to contracts. As one can imagine, the DCAA’s review of the Disclosure Statement can also lead to issues and disputes. CGS has successfully drafted 50+ Disclosure Statements and has received DCAA approval, when required.

One of the unique aspects of the CAS is that once a contractor has an approved Disclosure Statement, any changes to the contractor’s cost accounting practices requires the approval of the Administrative Contracting Officer (ACO). Part of this change and approval process is the submission of a Cost Impact Proposal which is basically a comparison of what the contract costs would have been under the old cost accounting practice versus what the contract costs will be under the new cost accounting practice. The good news is that this analysis only applies to CAS-covered contracts which is very helpful. Nonetheless, Cost Impact Proposals often are still very complex, require professional judgement, and like all things CAS-related, subject to disputes. CGS has successfully prepared numerous Cost Impact Proposals including the DCAA audits, ACO negotiations and Disclosure Statement updates.

CGS assists clients with one-off or on-going compliance support related to both the FAR and CAS as they are often interrelated. CGS can offer our guidance and expertise in navigating the complexities and nuances of the FAR and CAS.