Published 2026 | TIKC NewsWire
Once you are running more than one government contract, a quiet temptation shows up. One job is over budget and another has room, so you book a few hours or some materials to the job that can absorb it. It feels like harmless shuffling, even good management. The government has a name for it, cross-charging, or cost shifting, and it is a form of fraud. When a cost that belongs to one contract gets billed to another, the second contract is paying for work it never received, and that is a false claim.
What cross-charging is
Cross-charging is moving costs, usually labor hours or materials, from the contract where they actually belong to a different contract, because the second one has budget or a more favorable payment structure. It often happens between a fixed-price job that is losing money and a cost-reimbursement job that pays actual costs. The money looks like it balances out in your head, but each contract is supposed to carry only its own true costs. Billing one job for another job’s work is charging the government for something it did not get.
Why it is more dangerous than it feels
Cross-charging feels victimless because you did do the work, just on a different contract. But the government funds each contract separately, and your charges are certified as accurate. Shifting costs is really a form of labor mischarging when it involves hours, and it shows up the moment anyone compares your timekeeping to your billing. It also signals a broken accounting system, which invites deeper scrutiny. What felt like smoothing out your budgets looks, from the outside, like billing two customers for the same crew.
How the government finds it
This is one auditors look for directly. When the Defense Contract Audit Agency runs an incurred cost audit, it compares what your people actually worked on against what each contract was charged. Patterns stand out: a job that always comes in exactly on budget, hours booked to a contract during weeks that employee was somewhere else, materials charged to a job that did not use them. Your own employees often notice first, because they know which project they really worked on. The mismatch between reality and your billing is what gives it away.
What to do now
- Charge costs where they happen. Book every hour and every material to the contract that actually used it.
- Keep honest timekeeping. Record real time daily, to the real job, and never adjust it to fit a budget.
- Do not rescue a job with another’s budget. If a contract is losing money, deal with it directly, not by shifting costs.
- Use a clean accounting system. Make sure your system ties costs to the right contract and can prove it.
- Train your project managers. Make clear that moving costs between jobs is fraud, not budgeting.
Managing several contracts is a sign your business is growing, and that is worth celebrating. Just keep each job honest on its own books. Charge costs where they really happen, keep your timekeeping true, and a growing portfolio builds your reputation instead of your risk. Brick by brick.
FAQ
What is cross-charging?
Moving costs, usually labor or materials, from the contract where they belong to another contract that has budget or pays more favorably. Each contract is supposed to carry only its own true costs.
Why is it fraud if I did the work?
Because the government funds each contract separately and you certify your charges are accurate. Billing one job for another job’s work charges the government for something that contract did not receive.
How does the government catch it?
Auditors compare timekeeping and records against what each contract was billed. Mismatches, like hours booked while an employee was elsewhere, stand out, and employees often report it.
How do I stay safe?
Charge every cost to the contract that used it, keep honest daily timekeeping, never rescue a losing job by shifting costs, and use an accounting system that ties costs to the right contract.
Sources
Federal Acquisition Regulation. (2026). Part 31, Contract Cost Principles and Procedures.
U.S. Department of Justice. (2026). Guidance on cost mischarging and cross-charging in government contracts.
This article is general information, not legal advice.
About the Author
Melanie Patterson
Founder and CEO of Team Integrity Knowledge Center and creator of GovCon iSource. Former nurse turned entrepreneur with over 10 years guiding small, women-owned, and minority-owned businesses to over $10 million in government awards. Build, grow, scale, brick by brick. Contact
