By Bernard Mustafa, PVBS Chief Executive Officer
Plain and Simple, Your ERP System Should Improve Your Incurred Cost Submission Process
In my last blog, I wrote about the challenges large commercial enterprises with substantial government contracting divisions face when preparing their incurred cost submissions. I discussed that not only is the process challenging and time consuming, but that there’s no business value in the process. Your accounting teams devote a lot of time and energy preparing for the submissions, however it’s energy that is not helping your company grow, make money, or win contracts. Surely you want your teams working on more fruitful activities.
The other challenge we identified is that there is trouble abounding if the company uses one ERP system to manage multiple business lines and that ERP system does not support incurred cost submission schedule creation. We have even seen very large companies reduced to doing their incurred cost submissions manually because the vanilla ERP system they are forced to use does not have project accounting for government contract capability.
Since PVBS has introduced Microsoft Dynamics AX for Government Contractors, we’ve been introduced to several large companies that have multiple ERP systems supporting business lines across the enterprise. We’ve also been introduced to a number of companies that are trying to force one ERP system on multiple business lines, such as the government contracting division. The problem comes clear when this system wasn’t built to support the unique needs of the government contracting division. This causes a big problem when it comes time for the government contracting division to prepare the incurred cost submissions. It’s at this point when the companies see the value in having one ERP system to support the entire enterprise if that ERP system can also effectively support the government contracting business.
Incurred cost submissions are a standard part of the government contracting process, however it shouldn’t be as difficult a process at large enterprises as it often becomes. We’ve seen too many enterprises struggle with legacy ERP systems that are not set up to help them prepare for the submissions.
Often the problems start with the process. There are some common problems that we see time and time again. Larger companies with substantial government contracting practices typically have a well-structured contracts department that manages the contracts but typically do not have access to the ERP system. What they often do is make a copy of the contract and then send it to Accounting. If a modern ERP system that was designed to meet both departments’ needs is not in place, there will be disconnects as to what gets entered in the system. Both groups are open to do their own interpretation of the contract once it’s active.
The information I’m talking about could include:
- • Contract funding and modifications
- • Period of performance
- • Schedule of negotiated rates
- • Contract type
With a modern ERP system in place, both groups should work together to enter contract information right away into the ERP system. Now that the correct information is entered, anyone can generate on-demand contract briefs. This is a required form for the incurred cost submission.
Also, the key here is that the compliance information is recorded at the point of entry into the ERP system. Since this is in place, when it comes time to produce reports, the process is so much easier.
Incurred cost submission is a very laborious process that can take months and requires a lot of coordination, but there are ways you can simplify it. One mandatory approach is to have an ERP system that is properly set up to account for different types of government contracts with proper accounting for posting through invoicing of contract costs. Data must come out of the ERP system in the right schedule format set up for the calculations you need to do. However, if the data is not in the system properly, doing Schedule H (“Schedule of Direct Costs by Contract/Subcontract“) will be a bear and Schedule I (“Schedule of Cumulative Direct and Indirect Costs Claimed by Contract/Subcontract”) will be even more difficult.
Another benefit of utilizing an ERP system that is optimized for government contract project management is that all of the data necessary to produce the incurred cost submissions will have been gathered and stored in the system over time. A modern ERP system is designed to capture information such as actual costs by contract line item (CLIN), indirect costs by pools, and cumulative amount invoiced. All of this data will be needed to produce the incurred cost submission which means that accounting staff will not need to hunt down additional information when they are ready to produce the schedules to send to the government. It’s now just a matter of hitting a key to run reports – not expending wasted energy creating reports!
Also, this process cannot begin in May if the incurred cost submission is due by the end of June. For example, if the data were entered incorrectly in the system and processed incorrectly you would need to go back and make adjusted entries, get them corrected in the system, and rerun the reports again. Or if you do the adjustments offline in Excel, and then submit incurred cost submissions at some point you will need to go back and do those adjustments in the ERP which is quite often the problem.
In my next blog, I’ll discuss how Microsoft Dynamics AX for Government Contractors is set up to solve these problems.