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April 15, 2014

Working Capital: You Have Some Choices

Working capital is liquid cash that is readily available to provide cash flow out to business vendors. Every business needs working capital to meet payroll, payables and incidental emergency expenses. There are times that cash may be in short supply and the problem is usually large invoices that remain outstanding on customer accounts.

Off to the Bank

There was a time when the bank was willing to supplement your cash-on-hand with a loan or overdraft protection. It is much harder to access those funds in today’s economic environment. If a business does make access to those bank funds, it will take weeks to receive the money and may need a co-signor.

All is not lost, however. Other sources of cash are available, but you need to know where to look. Some alternatives include:

• Factoring is a financial transaction involving the sale of company invoices to a third party for cash. A discount is generally applied to the invoices sold. This is somewhat restrictive, expensive and a necessity that cannot be avoided.

• Equity capital involves shareholders or investors who are willing to pay for shares of a company to help generate cash quickly. The definition of share capital is the sum of cash or other assets the company receives from investors for the issue of those shares.

Invoice discounting is a process whereby the seller of the invoices receives funding in the form of 70-80% of the principal total of all invoices sold to a third party. The value of these invoices is a financial asset called accounts receivable and the business selling the invoices is borrowing against its own debtors. Risk is the calculation of whether or not the debtor will pay what is owed.

Long Shots

With social networking being a vibrant means of raising money, crowdfunding is increasingly popular. Depending on the need and size of the company, there are people in cyberspace who would give their eye teeth to own part of a company in the form of shares. The critical factor lies in the depth of understanding that a company has for crowdfunding.

Another source of quick funds is grant funding. The result is not a quick fix and funds are slow in arriving, but if handled correctly and for a purpose that the funding source will approve, these are monies that never need repayment. We help small and medium companies with working capital requirements. Contact us when you need assistance to access these funds.

April 4, 2014

Women Owned Small Business Classification

Small Business

Posted on: 3 Apr 2014

The federal government allots 5 percent of its small business funding to women who need financial assistance in starting a new business. If you want to take advantage of the two available Women-Owned Small Business Programs, we can help you understand the eligibility requirements and the steps you need to follow to compete for these SBA federal contracts in the WOSB (Women Owned Small Business) or EDWOSB (Economically Disadvantaged Women Owned Small Business) programs.

Eligibility for the WOSB SBA Funding

In order for a small business to receive this federal contract funding, 51 percent of the business must be owned by at least one woman.  The business may also be owned by more than one woman and they must be US citizens.  At least one woman must also participate in the running of the business.  To qualify for the EDWOSB, proof of economic disadvantage must be presented.

Steps to Take for Participation in WOSB Program

  • Become familiar with the WOSB program regulations and compliance terms.
  • Register for the program in either the WOSB or EDWOSB status.
  • Set up an account and ask for a User ID for the SBA (Small Business Administration) and log in to their system (GLS).
  • Through the GLS portal, upload all the required documents for the WOSB program
  • Complete a certification form for either WOSB or EDWOSB. Once you sign the form, upload it to the program repository

For more information about the WOSB eligibility requirements, certification and steps to participate in this SBA funding contract, please contact us at Financial Engineering Counselors.  We have the available resources you need to register and become certified for a WOSB SBA loan for your small business.

– Richard Lewis –

June 8, 2010

May 26, 2010

How the Government is Built

How the Government is Built

Do you really know your Federal customer?  We all know the Government has three branches, executive, legislative and judicial executive, but do you really know all the people that are part of the contracting process?

The first thing you should be aware of is that the Federal Acquisition Regulation (FAR) and Prompt Payment Act (PPA) rules apply only to the executive branch. The other branches may use the FAR or its parts at their discretion.

The executive branch consists of the cabinet departments and many independent agencies, such as the General Services Administration (GSA), National Aeronautics & Space Administration (NASA), and Securities & Exchange Commission (SEC).  Cabinet agencies also have many bureaus and sub-agencies.  GSA, the Defense Department (DOD) and other agencies frequently provide contract administrative support to other agencies, boards, and commissions.  GSA may also support the judicial and legislative branches for some services.  In those situations the contracts are covered by executive branch rules.

It is important for all company personnel involved in managing a government contract to know all the participants in the process.

Process Participants.  There are many participants in the government contracting process, each with a distinct role.  Some participants may hold several roles simultaneously.

Funding Activity.  The entity actually funding the contract. Some contracts have multiple funding entities.  For example, a single contract to provide multiple services to an agency headquarters might involve janitorial, printing & reproduction, library and mailroom operations.  Those four services would have to be separately accounted for by the contractor so those costs can be allocated to the correct agency accounts.

In some Department of Defense (DOD) contracts some or all funding is provided by a foreign government under Foreign Military Sales (FMS).  This will impose additional invoicing requirements on the contractor and additional accounting procedures by DOD.

Requiring Activity. The entity with the actual requirement or need for contract issuing purposes. Generally the funding entity is the requiring entity.

Program Manager. The actual manager, who is generally the requiring activity. This person cannot bind the government to additional work or modify the contract.

Contracting Officer. This individual has many roles over the contract lifecycle and is the only person actually authorized by the government to issue the contract and thus obligate (bind) the government. No one else can commit the government. The contracting officer is issued a warrant. In most agencies, the office that issues the contract is also the contract administrator. This individual may also be involved in debt collection related to the contracts they administer. However, in DOD, many large contracts are administered by the Defense Contract Management Agency (DCMA). Sometimes the contracting officer role is divided into two parts, as shown below.

Procuring Contracting Officer (PCO).  Sometimes called the ordering officer. This individual is responsible for pre-award duties such as solicitation and negotiation, the actual contract award, funds obligation, changes in terms, scope and conditions, and resolving performance problems during the contract. They may terminate the contract.  They also determine the applicability of Cost Accounting Standards (CAS) to a contract. A PCO can be the ordering officer in a task order situation. This person is frequently a source of help in resolving payment problems.

Administering Contracting Officer (ACO). This individual can make administrative changes to the contract. In many cases the PCO is also the ACO. The ACO can help in resolving performance or payment problems and in interpreting the contract. The ACO has many functions, including approval or disapproval of progress payment or performance-based payment requests. (See FAR 32.5.) The ACO also reviews Cost Accounting Standards (CAS) compliance. Delegation of contract administration is more common in DoD than in the civilian agencies. (See FAR 42.307.)

Contracting Officer Representative (COR)/ Contracting Officers Technical Representative (COTR). The individual responsible for contract performance surveillance, and interfacing with the contractor on contract execution and technical issues. They must tell the PCO or ACO about performance problems. In some contracts they can also assess performance penalties, or deductions from payments. Sometimes they are the accepting official. The COR cannot modify a contract, order additional services and supplies, or change its scope. In some contracts the COR may also review the invoice before payment. The COR is never the ordering officer in a task order contract and cannot order additional work on a contract.

Receiving activity. The entity actually getting the supplies or services as designated in the contract. Their receipt date is used to start the Prompt Payment clock. Receipt of services is based on when the service is completed or month end, as appropriate.

Inspector/Acceptor. The individual who actually accepts or rejects goods or services on behalf of the government. This can be the COR as mentioned above. If goods or services do not conform to the contract there is no basis for payment. Inspection and acceptance is separate from physical receipt and can occur on a different date. It is common for the same activity to both receive and inspect goods or services. 

Certifying Officer.  This individual certifies the payment is legal, proper, and correct and is liable for incorrect payments.  Legal means the payment is permitted by law and is consistent with the purpose of the funding appropriation.  Proper means that funds are available, the transaction or contract is properly documented, goods are received and accepted and the payment voucher has been pre-audited.  Correct means the payee, address and amount are correct, and it is not a duplicate payment.

Billing Office.  The place designated in the contract to receive the invoice and is contractually different from the paying and disbursing offices.  Their receipt of the invoice is a key part of determining when the payment clock starts.  The designated billing office can be a contract administrative office, receiving activity, contract auditor or disbursing office.  This office is designated in contract section G.

Paying Office.  This can be separate or the same activity as the billing office and is an important distinction in understanding how the payment clock starts.  They can only authorize payment after acceptance, the only exception being “Fast Pay”.  This office is also different than the disbursing office, discussed below, that physically makes the payment, particularly in the civilian agencies. Treasury disburses for the civilian agencies. The paying office can offset debt owed to the agency, including duplicate or overpayments. This office does not have a role in most tax or debt offsets from other agencies and does not resolve contract performance or pricing problems. They generally cannot help with purchase card issues, as they are not a cardholder. This office is designated in contract section G.

Defense Contract Audit Agency (DCAA).  (www.dcaa.mil)  Responsible for various audit functions over a contract’s lifecycle, from negotiation and administration to final settlement. Depending on contract provisions, DCAA gives provisional approval of invoices. They also do work for many civilian agencies on cost reimbursable contracts. DCAA may withhold part or all of a payment on cost reimbursable contracts if there is an accounting issue or a performance problem. They approve a company’s accounting system for compliance with Government Cost Accounting Standards (CAS) on allowable cost. Many times this is done as a “pre-award” survey. They also do post award audits, contractor internal control system audits, publish cost accounting standards, audit guidance and contract closeout audits on large contracts.  DCAA audits may also include price checks, subcontracts, time sheets, and your financial statements.

For Defense Finance and Accounting Service (DFAS) disbursed contracts, DCAA can authorize direct submission of invoices to the paying office if your company has an acceptable accounting system. They can also revoke direct submission if warranted.

A useful DCAA publication is “Information for Contractors,” available online at www.dcaa.mil.This covers many important topics, including pre-award surveys for prospective contractors, proposal audits, incurred cost audits, invoicing forms and related instructions, and a discussion of contract types.

Agencies other than DCAA may also perform audits, such as GSA Industrial Funding Fees.

Defense Contract Management Agency (DCMA). This agency administers many large contracts for DOD and civilian agencies. When DCMA is responsible for source acceptance as designated in the contract, you cannot invoice the government unless goods are accepted at your site.

Disbursing Office. The office that actually disburses (makes) the payment and is designated in the contract. This office also would take offsets (collect) for back taxes or other debts to the Government before making the payment.

There are several major disbursing activities:

  • Treasury Financial Management Service (FMS) disburses payment for the civilian agencies. FMS only disburses the payment. Any questions on invoices or performance problems must be referred back to the purchasing agency. FMS also performs debt and tax offset, not the agency.

 

  • Defense Finance & Accounting Service (DFAS) disburses payments for most DOD activities.  Within DOD, DFAS is frequently, but not always, the billing, payment and disbursing office. Sometimes DFAS will also be the disbursing office for a civilian agency.  DFAS also performs debt and tax offset for FMS.

 

  • Army Corp of Engineers disburses payments for the civil works project contracts they administer.

 

  • United States Postal Service (USPS), Tennessee Valley Authority (TVA) and the classified agencies, such as the Central Intelligence Agency (CIA), disburse payments themselves and do their own accounting.

 

  • State Department (DOS) disburses payments for various overseas activities for itself and other agencies.

 

Board of Contract Appeals.  There are two boards of contract appeals to resolve complex contract issues above the contracting officer level.  These boards are the Armed Services Board of Contract Appeals (ASBCA) and the Civilian Board of Contract Appeals (CBCA).  The CBCA was created from prior organization at the General Services Administration and the departments of Agriculture, Energy, Housing, Interior, Labor, Transportation and Veterans Affairs.


William Blumberg is a consultant specializing in Federal contractor payment problems and related contract administration issues.  Bill started Federal Contract Solutions after he retired from the U.S. Government, with over 30 years of working in DOD financial operations and contractor pay policy, including 18 years on the Contract Finance Committee.  He finished his Federal career at the Defense Finance & Accounting Service (DFAS), where he was the Ombudsman for contractor pay problems, helping to resolve contract/payment issues.  This article is an excerpt from his upcoming book on improving your collections process from the Federal Government.  Bill can be reached at williamblumberg@comcast.net and/or 703-400-8947

April 16, 2010

Timeliness & Leaving Money on the Table

Filed under: Uncategorized — admin @ 8:29 PM

As the DFAS prompt payment person it was hard for me to understand how people managed their receivables, especially given the number of greatly over-aged items I saw.

When I crossed over to the contractor and consultant side there is another aspect of managing receivables that really began to stand out, which is contract closeout.  I think that most people understand the importance of compressing billing cycles.  However, in complex Government contracts that need formal closeout, many people are slow on the draw.  Let me give an example and this really is a true story:

Bob and John were business partners.  Their company had a multi-year cost re-imburseable contract to provide professional services to the Army.  The contract ended on 9/30/2002 and had significant unbilled costs due in the form of rate adjustments.  During contract performance John was stealing from Bill, ultimately draining the company dry.  Bill in turn put the company into a Chapter 7 bankruptcy (liquidation) in February 2004.

John did not even start working with DCAA on contract closeout and final rate adjustments until April 2004.

However, once the company was in bankruptcy many of the accounting records needed for final closeout and to support upward rate adjustments were lost.  Thus there was no real basis to establish final rates and capture significant unbilled costs mentioned above.

Because of this delay John failed to steal as much money as possible and a significant potential asset escaped the attention of the bankruptcy trustee.  So the real winner was the Government, as it never paid the true cost of the contract.  To me it is apparent that John failed to realize how much more he could have stolen if only he had started closeout in October 2002 when the work was completed instead of waiting 18 months.

I, aka Dr DFAS, would like to hear more examples of timeliness really making a difference and generally share your payment horror stories and questions.

Summary provide by William (Bill) L. Blumberg, a former DFAS employee who worked on tax reporting compliance, contract/payment discrepancies and resolution (Prompt Payment), purchase cards and many other regulatory issues.  While at DFAS served on the Federal Contractor Tax Compliance Taskforce and the Contract Finance Committee, which is responsible for many payment issues in the Federal Acquisition Regulation.  Bill consults with businesses having payment problems and how to work with the regulatory structure.  He has also written a book on contracting and collection problems in Federal Government contracts, “Blumberg’s Laws, Getting Paid By Uncle Sam” available on-line at www.blumbergslaws.com.  He can be reached directly at william.blumberg@hotmail.com.

January 27, 2010

The White House Is Serious About Withholding Taxes

Filed under: Uncategorized — admin @ 12:22 AM

The White House

Office of the Press Secretary

For Immediate Release                                                            January 20, 2010

Memorandum for the Heads of Executive Departments and Agencies

The Federal Government pays more than half a trillion dollars a year to contractors and has an important obligation to protect American taxpayer money and the integrity of the Federal acquisition process.  Yet reports by the Government Accountability Office (GAO) state that Federal contracts are awarded to tens of thousands of companies with serious tax delinquencies.  The total amount in unpaid taxes owed by these contracting companies is estimated to be more than $5 billion.

Too often, Federal contracting officials do not have the most basic information they need to make informed judgments about whether a company trying to win a Federal contract is delinquent in paying its taxes.  We need to give our contracting officials the tools they need to protect taxpayer dollars.

Accordingly, I hereby direct the Commissioner of Internal Revenue (Commissioner) to conduct a review of certifications of non-delinquency in taxes that companies bidding for Federal contracts are required to submit pursuant to a 2008 amendment to the Federal Acquisition Regulation.  I further direct that the Commissioner report to me within 90 days on the overall accuracy of contractors’ certifications.

I also direct the Director of the Office of Management and Budget, working with the Secretary of the Treasury and other agency heads, to evaluate practices of contracting officers and debarring officials in response to contractors’ certifications of serious tax delinquencies and to provide me, within 90 days, recommendations on process improvements to ensure these contractors are not awarded new contracts, including a plan to make contractor certifications available in a Government-wide database, as is already being done with other information on contractors.

Executive departments and agencies shall carry out the provisions of this memorandum to the extent permitted by law.  This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

The Director of the Office of Management and Budget is hereby authorized and directed to publish this memorandum in the Federal Register.

January 13, 2010

3% Withholding on All Payments By Government

Filed under: Uncategorized — admin @ 8:34 AM

(Please leave Comment at the tab at the bottom!)

Are you aware of upcoming implementation that will have an adverse effect on ALL firms doing business with the government; Federal, state, and municipalities?

When you read about a new tax law, the news always covers rate cuts or increases and “loopholes”.  You rarely, if ever read about the other provisions that offset the cuts.  The three percent withholding on Government contract payments is one of those stealth provisions.

Turn off your logic circuits, as it does not seem if any consideration was given to the implementation costs to governments or businesses.  The effect on cash flow, the background on this suggests that contractors would simply absorb this and not raise prices.

Are you even aware of the 3% withholding provisions?  This is in Section 511 of the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2006, and has recently been rescheduled for implementation on January 1, 1012.

Many thought the 3% was dead, but it reappeared about 48 hours before TIPRA was passed.  This was a favorite idea of the Joint Committee on Taxation staff.  It has been suggested that Senator Charles Grassley (R), Iowa, and his staff are particularly fond of this idea.  There is no evidence that anyone thought about the cost.

Hijacking the procurement process to solve a revenue problem is simply a poor idea.  IRS has published the draft rule to implement the 3% withholding.  Somehow IRS determined that something affecting roughly 600,000 Federal contractors, plus untold state and local suppliers, does not create a significant regulatory burden.  Based on my 20 years in Uncle’s regulatory process, I do not understand this fascinating conclusion or what rules they were following (yes there are rules for writing rules).

To the best of my knowledge there has not been any indication of where this administration stands on the 3% withholding.  I have also found that many knowledgeable contracting officers may not correctly understand that the 3% applies to the gross payment on all contracts, regardless of type.

Key Points of the Draft Final Rule:

  • Impacts only payments over $10,000
  • No flow down to subcontractors
  • Withholding must be taken at time of sale for credit card payments
  • Pass-through entities (S Corps, Partnerships): withholds taken unless 80% owned by government entity
  • Impacts only new contracts, but this needs further clarification
  • Credit can be taken against estimated income tax withholdings
  • No credit against employment taxes (Medicare, Social Security etc.)
  • Government entities are liable for sending money to the U.S. Treasury even if money not withheld from companies

The 3% Withholding Process:

  • The whole process is strongly parallel to withholding on individual salaries and wages.
  • The Government withholds when the payment is made.  The related money and taxpayer identification is transmitted to IRS, as is done with individual taxes.
  • At year end the vendor is provided a 1099-MISC, as is done with a W-2 for an individual.
  • The withheld amount is credited against the taxpayer’s estimated income tax.  It is not applied against employment taxes.

The best way to understand this is to look at the 2nd page of a 1040.  Your withholding as reported on a W-2 is a credit against your actual tax liability.  If the withholding is short additional taxes are paid.

Company Implementation:

  • What all contractors must do is develop new internal procedures to track withholding and merge & reconcile it with their tax return preparation process.  Your tax compliance people must be involved.
  • These are new procedures, as tax withholding on commercial sales is unprecedented.

Conclusion:  write your state Congressional delegation to push them hard for repeal or be prepared to have 3% withheld from your contract payments.

Summary provide by William (Bill) L. Blumberg, a former DFAS employee who worked on tax reporting compliance, contract/payment discrepancies and resolution (Prompt Payment), purchase cards and many other regulatory issues.  While at DFAS served on the Federal Contractor Tax Compliance Taskforce and the Contract Finance Committee, which is responsible for many payment issues in the Federal Acquisition Regulation (FAR).  Bill consults with businesses having payment problems and has also written a book on contracting and collection problems in Federal Government contracts, “Blumberg’s Laws, Getting Paid By Uncle Sam” available on-line at www.blumbergslaws.com.  He can be reached directly at william.blumberg@hotmail.com.