Outsourcing Do’s, Don’ts and Pitfalls for Government Contractors

ERIC POPPE: Welcome to Cherry Bekaert's GovCon podcast, where we discuss current government contracting trends, compliance matters, and best practices to guide federal contractors forward.

ERIC POPPE: My name is Eric Poppe. I'm a managing director with Cherry Bekaert in our GovCon advisory group.

ERIC POPPE: With me today is Jonathan Reid, a director in our outsourcing practice who focuses specifically on government contractors. Today we will discuss outsourcing dos, don'ts, and pitfalls, and best practices for outsourcing arrangements for government contractors.

ERIC POPPE: Jonathan, thanks for joining me. To start, can you give a little background about yourself and then lead into what outsourcing means, to level set?

JONATHAN REID: Absolutely. My name is Jonathan Reid. I have been with the firm for nearly ten years, focused mainly on government contracting and providing managed accounting services.

JONATHAN REID: Some people call it back-office accounting or backroom accounting services. To level set and define outsourcing, I describe it as a way to engage another business to perform a function you would otherwise not be able to perform or not perform as well as another firm can.

JONATHAN REID: Our topic today is accounting outsourcing. I'm happy to answer or clarify any questions you have.

ERIC POPPE: For government contractors specifically, there are many nuances for why companies seek outsourcing for their accounting. Can you explain the difference between what you do versus what people often think is just bookkeeping?

JONATHAN REID: The biggest difference is that you get people with industry knowledge specific to Cherry Bekaert and government contracting. We help clients stay compliant, so they can have confidence that their accounting follows the rules applicable to government contracts.

JONATHAN REID: We're not just entering transactions. We analyze what transactions mean for the business and place them correctly in financial reporting to maintain compliance.

ERIC POPPE: We work with a variety of clients—from small mom-and-pop firms to very large organizations that want to silo accounting for compliance reasons. We also see larger companies with $100 million, $200 million, or $500 million in revenue that dabble in government contracting and don't want to expose the rest of the organization to audit or compliance risk for a small segment of government work. Do you see those situations moving to outsourcing?

JONATHAN REID: Yes. We see businesses of all sizes. For smaller firms, outsourced accounting makes sense because we handle payroll, accounts payable, cash collection, and vendor payments so they can focus on growth.

JONATHAN REID: For larger firms, they often need support with a specific function, such as customer invoicing. Compliance around invoicing the government has many requirements that in-house accountants may not have specialized knowledge to handle.

JONATHAN REID: In those cases, we often enter co-sourcing arrangements where we work with their accountants, program managers, or operations team to ensure compliance and to avoid disrupting business operations.

ERIC POPPE: For example, an organization focused on designing rocket ships for NASA may have scientists who want to focus on technical work, not accounting. If they want to move to an outsourcing arrangement, what advice do you have for a smooth transition?

JONATHAN REID: All relationships start with communication. Establish clear communication lines and identify who to contact for specific questions so we can handle accounting while they focus on their technical work.

JONATHAN REID: Provide the data we need up front. Many outsourcing engagements start with reviewing the contract. We've had engagements where getting data from clients was difficult, so setting communication expectations early is critical to success.

ERIC POPPE: Defining monthly, quarterly, and yearly tasks and who is responsible is also important. Once tasks are identified, you know whether the provider is helping with payroll, invoicing, or the full accounting cycle, which affects how much information flows back and forth.

JONATHAN REID: Exactly. We're forming a partnership. We help clients, but we also need their cooperation. Building off each other ensures everyone gets what they need.

ERIC POPPE: If a company is considering outsourcing with any provider, communication and documentation at the outset are crucial. What pitfalls should companies avoid or hurdles they should clear before entering an outsourcing relationship? Should they clean up their books or address system issues?

JONATHAN REID: Understand that accounting is more than numbers. We will make suggestions for achieving compliance and delivering timely, valuable data. Be willing to work together and accept guidance that may require investment in critical areas.

JONATHAN REID: For smaller businesses, adopting the right accounting software that supports compliance is often necessary. Approach the relationship as a close partnership focused on ensuring compliant books and useful financial data.

ERIC POPPE: You've emphasized compliance, such as revenue recognition implications for different contract types, agency nuances, and having an adequate accounting system. Those should be part of vetting an outsourcing provider, especially their understanding of government contracting, project cost reporting, CLIN-level reporting if needed, and indirect rates.

JONATHAN REID: That's correct. Unlike a typical bookkeeper, we can explain what the government requires, help set up a chart of accounts to group costs into homogeneous cost pools, and assist with cost pool setup if the client is unfamiliar with the concept.

ERIC POPPE: If a company is seeking that level of support, planning key elements up front is essential. This has been helpful, Jonathan, in outlining considerations for companies thinking about outsourcing.

ERIC POPPE: We're about out of time. Thank you for joining.

JONATHAN REID: Thank you.

ERIC POPPE: Make sure you follow the Cherry Bekaert GovCon podcast wherever you get your podcasts.