With big changes coming to QuickBooks this summer, its viability for government contracting comes into question. Let’s look at the current environment of government contractors using QuickBooks, what the future holds for the QuickBooks/GovCon relationship, and alternative options available moving forward.
Government Contractors and QuickBooks
Government contractors might find QuickBooks to be a suitable solution, especially when starting out or operating at a small to medium scale. Its widespread use, affordability, and the familiarity many accountants and business owners already have with the software make it an attractive option. QuickBooks Desktop can be customized to meet many of the accounting standards required by the Defense Contract Audit Agency (DCAA), such as segregating direct and indirect costs, detailed job costing, and managing payroll according to government contracting requirements (This is important for later). Furthermore, it has the ability to integrate with third-party applications to enhance its capabilities, allowing for additional compliance features and operational efficiencies. This adaptability makes QuickBooks a practical tool for small to medium sized GovCons or contractors who are just starting out and need accounting functionalities but many not be ready to invest in more specialized, and often more expensive, software systems.
However, the decision to use QuickBooks should be made with careful consideration of the contractor’s specific needs and the requirements of their government contracts. While QuickBooks, particularly with the right configurations and add-ons, can meet many DCAA compliance requirements, there may be instances where its functionalities fall short of more complex or unique contract stipulations. For larger contractors or those with more specialized needs, investing in accounting software specifically designed for government contract management might be more appropriate. Such software (e.g., Deltek Costpoint) offers more advanced features tailored to the unique challenges of government contracting, including more granular cost tracking and reporting capabilities directly in line with DCAA audits. Ultimately, the choice to use QuickBooks should be informed by a thorough assessment of the contractor’s operational scope, compliance requirements, and long-term business objectives.
Intuit Discontinuing the Sale of QuickBooks Desktop in the US
Keeping the above information in mind, an important update in QuickBooks software offerings will prove to destabilize its place as an ERP option for Government Contractors.
Intuit has decided that as of July 31, 2024, it will stop selling new subscriptions to several QuickBooks Desktop products in the United States. This decision impacts new customers looking to subscribe to QuickBooks Desktop Pro Plus, Premier Plus, Mac Plus, and Enhanced Payroll. It's important to note that this change does not affect current subscribers, who can continue to renew and receive support and updates for these products. For new accounting software needs post-July 2024, Intuit recommends considering QuickBooks Online, which offers a cloud-based service with a variety of features suitable for different users. Existing users of QuickBooks Desktop who wish to continue utilizing desktop solutions can look into QuickBooks Enterprise as an option, which will still be available for purchase after the stated date. This shift underscores Intuit’s focus on their online offerings and represents a broader industry move towards cloud-based solutions.
What Does This Means for Government Contractors?
Cutting right to the chase – QuickBooks Online is not a compliant option for government contractors.
For government contractors, meeting the SF1408 standard entails the clear differentiation of direct and indirect costs, which includes precise management of labor expenses. A DCAA auditor will prioritize this labor distribution review during an accounting system evaluation. QuickBooks Desktop facilitates this with "Payroll Items”, allowing the user to create and allocate as many labor cost items as necessary, directing them to specified accounts within the Chart of Accounts. This level of customization is essential for government contract compliance and is a capability not present in QuickBooks Online (QBO). In QBO, while it’s possible to add different hourly pay types, it currently lacks the ability to create diverse salaried pay types. For example, a salaried worker who charges time to both direct work and overhead cannot have their salary automatically divided between the two in QBO, a functionality that is essential for compliance and accurate financial reporting in government contracting.
For government contractors that are currently running QuickBooks Desktop, you can continue to adapt its features to be DCAA compliant, though as stressed before, it is not a tailor-made system for GovCons and may lack in more complex or unique contract stipulation. For contractors looking into purchasing a compliant system after July 31, 2024, keep in mind that QuickBooks Online is NOT a viable option. So, what are some alternative options?
Alternative Options
Deltek Costpoint emerges as the most obvious alternative to QuickBooks for government contractors looking for a comprehensive ERP solution tailored to their specific industry needs. Unlike QuickBooks, which is broadly used across various industries and requires additional customization for DCAA compliance, Costpoint is purpose-built to ensure compliance with government regulations straight out of the box. It facilitates a higher level of control and visibility across projects, with advanced features that manage the entire lifecycle of government contracts from accounting to compliance, resource planning, and project management. This makes Costpoint a particularly attractive option for those who require a more robust system capable of handling the complexities and stringent standards of government contracting without the need for extensive third-party integrations or customizations.
What About Small to Mid-Sized Government Contractors?
Having been in the industry for 30+ years, we have consistently seen small to mid-sized businesses hesitant to adopt a robust system like Costpoint due to budget restrictions, tight timelines, and an overall intimidation of its alleged complexity. After hearing these concerns, we decided to create a Costpoint package that is specifically designed for small to mid-sized GovCons, focused on alleviating previous pain-points that came with adopting a more robust system.
Costpoint Celertiy™ is a pre-populated Costpoint environment designed for speed and flexibility right out of the box. Developed using real-world experience, Costpoint Celerity™ was created by taking substantive concerns and designing a solution to alleviate them:
See our post on QuickBooks vs Costpoint Celerity™ to learn more about Celerity as a powerful and affordable alternative to QuickBooks for small to mid-sized firms.
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