CCS Recommends the Following Books:

Why should I separate the accounting for my commercial operations from my government operations?

CCS offers the following from our Chief Financial Problem Solver, Charlie Moschel:

By raising this issue, you have just offered “instant aging” as one of the employee benefits for your Controller and accounting staff! The choice to separate or not is not an easy one. There are many factors that should contribute to your decision.

The first question is whether there is a sufficient benefit to garner by creating this breakdown? The answer revolves around whether your business includes contracts that would benefit from this extra work (e.g. Cost Plus type and Firm Fixed Price), or if your accounting staff spends an inordinate amount of time on governmental reporting/invoicing requirements.

If so, the next consideration would be if your business has been in existence for some time, the separation may require a revamp or expansion of your accounting structure (e.g.-chart of accounts), or expanding your accounting sub-codes (i.e.-those codes that can direct your expenditures to the appropriate sub-account). Although not a problem on the surface, this may create some problems with accurate account analysis in the future.

In conjunction with the account classifications, the establishment of individual burden pools to track those costs chargeable to your commercial and governmental contracts and subsequently allocate costs appropriately would be required.
This prompts the question as to whether your financial system and accounting staff are capable of handling the complexity of an additional level of cost segregation and allocation. Many smaller businesses perform the allocations manually and this may tax your accounting staff.

Additionally, the changes required in timekeeping may be beyond your system’s capabilities (if automated) and, therefore, not allow for tracking these additional levels of cost breakdown.

Finally, your accounting staff may not have the ability to differentiate their work by contract. For example, if all of your invoicing is prepared automatically, how can they allocate their time/costs?

In summary, the actual choice should be a cost/benefit decision based on whether the actual time spent by your accounting staff is significant to warrant the delineation of time and cost allocation.

NOTE: CCS is not authorized to practice law or accounting. This information should not be relied on in any particular facts you may have without checking with a properly licensed professional.