Cost Accounting Standards Compliance Guide: Reduce Audit Risk and Win More Federal Contracts for Small Businesses — GovScout
Meta description:
A plain guide to Cost Accounting Standards for small federal contractors. It explains thresholds, exceptions, and steps to cut audit risk and win bigger contracts.
TL;DR
• Check if CAS rules apply by looking at contract type, dollar limits, and exemptions such as small business or sealed bidding.
• Build a simple, recorded cost system with clear policies, a chart of accounts, and a structure for indirect rates before you seek CAS contracts.
• Follow FAR Part 30 and CAS Board rules to limit audit issues and protect your fee.
• Use market data (for example, from USAspending.gov) to see if chasing CAS work fits your growth plan.
• Use GovScout to search SAM.gov faster (/search), save & track opportunities (/pipeline), and draft AI proposal outlines (/ai-proposals) that match your cost system.
Why Cost Accounting Standards Matter Now
Cost Accounting Standards are federal rules that set how some contractors measure, assign, and share costs on government contracts. They matter because:
• Many small firms now go after larger cost-reimbursement and IDIQ orders that reach CAS limits.
• Agencies and auditors (DCAA/DCMA) closely view indirect rates and cost splits.
• Not meeting CAS rules can cause audit findings, price changes, holds, and poor past performance records that hurt future wins.
When you know when CAS applies and set up a simple, right-size compliance plan, you let your firm grow into bigger contracts without tough audit issues.
Step-by-Step: Managing Cost Accounting Standards as a Small Business
Step 1: Understand What Cost Accounting Standards Are (and Aren’t)
CAS stands for a set of 19 rules from the Cost Accounting Standards Board. These rules guide how you measure and assign costs on some contracts. In short:
• CAS gives rules for cost consistency.
• FAR Part 31 tells which costs count or do not count on government contracts.
• GAAP is for overall financial reporting and does not control federal cost rules.
Even if you follow GAAP, you might break CAS if you change methods between contracts or over time.
When evaluators look at your work, they see that your costs depend on consistent and recorded practices. They also see that you keep cost methods alike across contracts and periods, so costs do not shift to hide overruns.
Step 2: Decide If CAS Applies to You
First, decide if a contract is:
• CAS-exempt
• Modified CAS-covered
• Full CAS-covered
2.1 Learn Key Limits and Exceptions
Read these sources:
• 41 U.S.C. chapter 15 (CAS statutes)
• 48 CFR Chapter 99 (CAS Board rules)
• FAR Part 30 (CAS administration) and FAR 52.230-x clauses
Do not guess. Check current limits because they change.
Typical exemptions include:
• Sealed bid contracts
• Contracts below the CAS dollar level
• Contracts for small businesses
• Contracts with prices fixed by law or regulation
• Commercial item contracts
• Contracts with foreign governments under some deals
Compliance Watch
Look at all contract clauses. If you see any FAR 52.230-1 through 52.230-6 clauses, then CAS rules hold. If they are absent, you may count as exempt. Confirm details if the contract value nears the limit.
2.2 Quick Check Table for CAS Status
(This table is an example; check current limits in the rules)
| Scenario | CAS Status | Next Step |
|---|---|---|
| Small business on any contract | Often Exempt | Confirm with FAR clauses. Keep consistent work. |
| Commercial item contract | Exempt | Use FAR Part 12 and 31 instead of CAS. |
| Sealed bid, firm-fixed-price below limit | Exempt | Use standard accounting, yet be consistent. |
| Cost-type contract at or above limit | Modified or Full | Plan for CAS rules; set up proper systems. |
| Multiple large negotiated contracts | Full | Use full system and submit CAS Disclosure Statement. |
Evaluator Insight
For small businesses, contracting officers want proof that you know FAR Part 31 and have a clear way to split indirect costs. When contract size grows, they check CAS clauses and your system.
2.3 How to Check CAS for Each Opportunity
- Read Section I of the RFP for any 52.230- clauses.
- Check the contract type shown in Sections B and L (for example, cost-plus-fixed-fee, T&M, FFP).
- Compare the estimated value with the current CAS limits.
- Confirm your small business status: small firms usually do not need CAS but must follow FAR Part 31.
- Record your CAS check in your bid/no-bid file.
Use GovScout to quickly find and sort opportunities. For example:
• Use Search SAM.gov faster to pull cost-type or large negotiated offers.
• Filter by contract type and NAICS to sort out low-risk FFP from those with CAS.
• Mark likely CAS contracts in your Save & track opportunities view with a “CAS Risk” tag.
Step 3: Build a Right-Sized Cost Accounting System
Even if CAS rules do not hold, you should work in a CAS-friendly way so you can expand without reworking everything.
3.1 Set Up a Clear Chart of Accounts and Cost Pools
You need to list:
• Direct labor (tied to each contract or task)
• Direct materials
• Other direct costs (ODCs)
• Indirect pools like:
– Fringe (benefits, payroll taxes)
– Overhead (support for projects or operations)
– General & Administrative (G&A)
Action steps:
• Separate direct and indirect accounts in your system.
• Match each account to a pool: Fringe, Overhead, G&A, or Direct.
• Create job codes that match contract line items or orders.
3.2 Record Your Allocation Method
CAS focuses on being steady. Even if you are exempt, you show that you:
• Use one consistent basis to split indirect costs (for instance, by total direct labor dollars or hours).
• Apply the method each time, not only when it suits you.
Put your method in a short memo titled Cost Accounting Policies & Procedures. Include:
• How you mark direct and indirect costs
• The structure of your indirect rates
• How you handle shared costs (like IT or HR)
• How often you check your rates (for instance, each year)
Keep this memo with your proposal details so you can point to it in your pricing sections.
Step 4: Follow FAR Part 31 (Even When CAS Does Not Hold)
For many small firms, FAR Part 31 is the rule to heed more than CAS.
Key areas are:
• Unallowable costs: Costs like advertising, alcohol, lobbying, and some interest or legal fees. See FAR 31.205 for details.
• Timekeeping: Labor is the largest cost and timesheets are closely reviewed.
• Allocability and reasonableness: Costs must clearly relate to the contract and be reasonable.
Action steps:
- Create a flag for “unallowable” costs in your chart of accounts.
- Train staff to fill in time each day with proper approvals.
- Write down rules for:
– Travel and per diem
– Work on business development, proposals, or projects
– Allocating costs for a home office versus a project site
This basic work meets many CAS expectations on being steady, even if full CAS does not apply.
Step 5: Prepare for Growth into CAS-Covered Work
If your plan is to move into larger cost-type work or multiple negotiated awards that may bring modified or full CAS, get your system ready early.
5.1 Learn the CAS Disclosure Statement Trigger
Some contractors must send a CAS Disclosure Statement (Form CASB DS-1) when they pass certain contract limits. This rule is in 48 CFR 9903.202-1. Even if you use FFP now, know when this rule might start. Keep your policies and rate setup steady so that the disclosure is easier later.
5.2 Build a “CAS-Ready” Plan
Before you chase CAS contracts:
- Check your system against DCAA/DCMA guidelines. Use resources like the DCAA Contract Audit Manual and checklists.
- If your system falls short, upgrade by adding:
– Job-cost accounting software
– A timekeeping system that shows an audit trail
– A recorded indirect rate model and a yearly true-up process - Decide when to ask for help from a CPA or GovCon consultant for a system review, or from an APEX Accelerator for free advice.
Step 6: Use Market Data to See If CAS Work Is a Good Fit
Before you invest in full CAS readiness, check that your target agencies truly buy contracts that use these rules.
Data sources:
• USAspending.gov – Filter by NAICS, agency, award type, and amount to see how many cost-type and large contracts appear in your niche.
• SAM.gov – Search for RFPs and note any mention of CAS clauses.
• Agency forecast pages – Many list upcoming contract types and values.
Data Snapshot – Look for:
• USAspending data for your NAICS to count cost-reimbursement or T&M contracts above CAS limits.
• SAM.gov keyword searches, such as “cost-plus” or “CPFF,” to review clauses.
• On agency forecast pages (for example, DoD, VA, HHS), review forecast lists and sample offers.
If most contracts in your space are FFP with values below CAS limits, a heavy investment in CAS readiness might not pay off yet.
Mini Case Example: A Small SDVOSB Growing into Cost-Type Work
• Company: A 25-person SDVOSB IT firm with mostly FFP task orders for VA and DHA.
• Goal: To start bidding on a few cost-type task orders on a new DHA IDIQ.
How they act:
-
They scan opportunities using GovScout
– They use Search SAM.gov faster for DHA IT RFPs.
– They sort cost-reimbursement and T&M offers.
– They find two task orders that include FAR 52.230-2 clauses. -
They check CAS rules
– They confirm that as a small business, they count as exempt from CAS.
– Still, FAR Part 31 and audit checks must be met.
– They mark these items in their Save & track opportunities board as “High Cost Accounting Scrutiny.” -
They ready their system before bidding
– They update the chart of accounts to separate direct from indirect costs and unallowable items.
– They add a cloud timekeeping system with supervisor checks and logs.
– They write a 5-page memo on Cost Accounting Policies that covers:
• Definitions of direct/indirect costs
• Pools for Fringe, Overhead, and G&A with allocation methods
• Timekeeping and labor rules -
They prepare proposals with AI help
– They use AI proposal outlines to generate a pricing narrative that covers:
• Their estimate method
• An explanation of indirect rates linked to their cost pools
• A note that they follow FAR Part 31 rules
– They check that no clause forces a CAS Disclosure Statement, as they are exempt. -
Outcome
– A DCAA review before the award finds no major issues.
– The firm wins one cost-type task order. This past work helps them win larger contracts later, all while avoiding full CAS coverage too early.
Common Pitfalls and How to Avoid Them
-
Assuming CAS rules do not count because you are a small business.
• Truth: You may be exempt from CAS but must meet FAR Part 31 and audit checks.
• Fix: Build a CAS-friendly system now so growth is smoother later. -
Changing methods for every contract.
• Truth: Shifting allocation methods can lead to audit findings under CAS and FAR.
• Fix: Use one standard method to split indirect costs. Record it well. -
Ignoring unallowable costs.
• Truth: Mixing unallowable costs with allowed ones may cause cost questions and hurt profit.
• Fix: Mark unallowable items in your accounts and train your staff. -
Overlooking timekeeping needs.
• Truth: Poor timesheets are a top cause of DCAA findings, even on small contracts.
• Fix: Ensure daily entries, clear approvals, staff training, and written time rules. -
Chasing contracts with heavy CAS work without firm data.
• Truth: Building a full CAS system takes time and cost.
• Fix: Check USAspending.gov and SAM.gov to see if your market truly needs CAS work.
Compliance Watch
Common audit issues include:
• Missing written accounting policies
• Shifting methods for indirect costs
• Charging unallowable costs directly
• Weak timekeeping that cannot be audited
• Proposals that do not match real accounting practices
Quick FAQ: Cost Accounting Standards for Small Federal Contractors
-
Do Cost Accounting Standards apply to small businesses?
Small businesses are often exempt under 48 CFR 9903.201-1. They must still follow FAR Part 31 and keep a solid accounting system. Check each contract to confirm. -
What is the difference between full and modified CAS coverage?
Modified coverage sets rules for some contracts. Full coverage applies most CAS rules and usually starts when you have large or several CAS contracts. Check 48 CFR 9903.201-2 and 9903.201-4 for details. -
How do I know if a contract is CAS-covered?
Look for FAR 52.230-1 through 52.230-6 clauses. Then compare the contract type and size to current CAS limits. Record your check in a bid file. -
If I am CAS-exempt, do I need an elaborate accounting system?
While you do not have to build a full CAS system, you need a sound job-cost system that meets FAR Part 31, shows steady indirect rates, and keeps good time records. -
Who can help assess my CAS and accounting readiness?
Ask your local APEX Accelerator, a CPA with GovCon experience, or a GovCon consultant. Public guidance from DCAA and tools like GovScout can also help.
Next Steps Checklist
- Map your current opportunities: Use GovScout to pick out targets that may involve cost-type or CAS work.
- Check your CAS exposure: For each major contract, look at FAR 52.230 clauses, type, and value.
- Strengthen your basics:
– Clean your chart of accounts by separating direct and indirect costs.
– Define indirect pools and how you split them.
– Make sure you track time and unallowable costs clearly. - Record your practices: Write a short Cost Accounting Policies memo.
- Choose your growth path: Check USAspending.gov and SAM.gov to see if deep CAS readiness fits your niche.
- Use GovScout operationally:
– Use Search SAM.gov faster to find the right opportunities.
– Save & track opportunities with CAS or cost risk labels.
– Create AI proposal outlines that match your accounting methods.
Call to Action
Use GovScout to add order to your bid process. Scan SAM.gov for CAS-related opportunities, keep them in an organized pipeline, and get AI-assisted outlines that match your cost system and cut audit risk.
Author Bio
Written by GovScout (Cartisien Interactive), the team that has built over 100 gov/enterprise projects; CAGE 5GG89. Editorial note: Checked for accuracy using primary sources.
About GovScout
GovScout helps SMBs and consultants win more public-sector work: search SAM.gov fast, save & track opportunities, and draft AI-assisted proposal outlines grounded in the RFP.
Contact: hello@govscout.io
Editorial Standards
We cite primary sources (SAM.gov, USAspending, FAR, SBA, GSA). Posts are reviewed for compliance accuracy. We don’t fabricate figures. If a rule changes, we update.
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