By Bernard Mustafa, PVBS Chief Executive Officer
Large commercial companies with substantial government contracting operations now have an ERP solution that can handle both business lines.
I recently blogged about how home office allocations are covered in CAS (Cost Accounting Standards) 403 – Allocation of Home Office Expenses to Segments and why commercial enterprises with government contracting operations need to consider one ERP solution to account for both the home office and the government contracting division. The need for efficiency continues to be at the top of the list for enterprise CFOs, such as ways to improve the consolidation process. Let’s look at some other reasons why one ERP solution for the enterprise that can handle commercial and government business makes sense.
Just by way of background, this was a moot issue until we introduced our government contractor project accounting functionality for Microsoft Dynamics AX earlier this year. There was no ERP system on the market that could handle both commercial and government contracting business management until then.
Government Contracting Division Has Different Requirements than Commercial Side
The government contracting division needs an ERP solution that can handle its unique reporting requirements to ensure it will pass DCAA and other compliance audits. Typically the government contracting division will manage its own accounting and submit divisional incurred cost submissions to DCAA. This usually satisfies the government reporting requirements but always leads to costly challenges reporting back to the ERP system in place at the corporate headquarters. In order to consolidate financials, we have even seen over-worked accounting teams reduced to spending weekends drilling through manually-entered spreadsheets to make the numbers fit.
Moving to one ERP system across the enterprise (and thus removing the legacy accounting system at the government contracting division or other divisions for that matter) will help improve efficiency and profitability. Having multiple systems for government contracting and commercial operations can be like working with two different companies. Even generating something as common as an intercompany invoice requires many manual steps. But too many companies are doing this today. They’re downloading files, uploading files, re-entering information, etc. It’s a lot of wasted time, energy, money and resources.
Another problem is that if you have multiple systems, you’re probably dealing with different software vendors for support and maintenance. If the systems do not integrate well, which even today is almost always the case, the business gets harder to manage and can put future opportunities at risk.
Government Contracting Divisions Need to Let Go of Obsolete ERP Systems
There are some seemingly legitimate reasons why government contracting divisions within a commercial enterprise have held onto their disparate legacy systems even though having a singular corporate-wide solution would benefit them. For example, government contractors are required to submit incurred cost submissions, pricing submissions, and CAS disclosure statements by certain dates and must follow a specific timeline to do so. Unfortunately the home office and government contracting business units operate on different reporting timelines and usually have challenges getting in sync. Government reporting requirements make it difficult for both corporate and the government contracting divisions to get in sync if multiple systems are in place.
A primary advantage of using an ERP solution such as Microsoft Dynamics AX would be the ability for the government contracting division to be treated as a business operating unit. With the government contracting project accounting functionality, costs from the home offices can be allocated to the different business units. Accounts can be created to track costs directly allocated to each business unit. Costs which are allocable among business units are tracked in separate pools on a uniform base (e.g., payroll dollars, headcount). This is most easily done if the same chart of accounts is maintained across business units, which will be much easier to do with one ERP system.
Large commercial enterprises with substantial government businesses have been hampered by being forced to utilize disparate ERP systems at corporate and in the government contracting division for too long. With project accounting functionality for government contractors now available in Microsoft Dynamics AX, this is no longer the case.