DCAA Compliance – What it means to you. Part I

December 23rd, 2011

Part 1 of a two-part series on DCAA compliance.

If you’re a small business owner with a strong desire to work as a government contractor, there are a few accounting requirements you should to be aware of before you begin. Understanding and abiding by these principles and others may reduce the amount of tension you feel when asked to participate in a Defense Contract Audit Agency (DCAA) audit.

Adhering to these Top 10 DCAA Audit Triggers and the many other specific DCAA accounting requirements may be time consuming in the beginning, but will save you a tremendous amount of effort—not to mention headaches—in the end.

Working with a knowledgeable accounting team, up front, that understands the regulations, can save you a lot of time later when a DCAA audit approaches. You will want to have all your ducks in a row before the audit.

Below are a few accounting details to contemplate as you consider becoming a government contractor.

What you should look for and pay attention to:

  • A knowledgeable accounting staff: Take into consideration the degree of knowledge you and/or your staff must have in relation to DCAA regulations. It takes experience, attention to detail, and a strong strategic focus to adhere to these regulations. Working with an accounting firm with experience in this area is paramount.
  • Cost Account Standards (CAS): In general, DCAA does not approve of job cost accounting software packages, but rather puts good faith in the contractor job cost accounting practices found in the Federal CAS method. In fact there are many chapters written about what needs to go into this cost-accounting method, some of which include:
    • Long-range planning for indirect rates
    • General ledger postings
    • Overhead and General and Administrative (G&A) structure
    • Accounting for government contracts on a separate spreadsheet from commercial work
    • Unallowable costs that cannot be charged to government contracts
  • Timekeeping System and Labor Distribution Requirements: If your software is set up correctly, your DCAA audit will go much smoother than if it’s not. If you choose not to use DCAA-compliant software, a detailed review of your current system will take place, resulting in more time, effort, and resources on your part.
  • Un-allowable Costs: Certain costs are not allowed in the pricing structure, cost reimbursements, or settlements under a government contract. To allow for these types of costs, separate accounts need to be established and they must not be priced into the contract during the request for proposal (RFP) process.
  • Expense Reports, Purchase Orders, and more: Detailed time records are required. The same goes for expense reports, purchase orders, and much more.
  • Check your math: When government proposals are written, a great deal of effort goes into the proposal review. In fact, immense scrutiny is paid toward direct and indirect rates against long-range plans, labor category pricing, hiring agreements, vendor quotes, and more. Accuracy is key.
  • Billing: Another area of interest is in the area of costs, plus time and materials billing. Time and materials billing must have all the supporting detail—at the transaction level—or it will not be paid. Working with an accounting firm or staff with this level of detail in mind is crucial.
  • Managing Data Volume: If you’re working on a government contract that lasts several months or even years, data volume can be overwhelming for one staff person to oversee. Working with an accounting team helps to alleviate the burden of managing the large amounts of data needed to effectively oversee the categorization, transaction detail, and regulations needed.

For more information on how to begin working as a government-contracted vendor and the accounting principles needed to be successful, consider downloading this free book “Small Business Federal Government Contracting.”

When you have questions about the accounting-related practices, contact us. We’d be happy to walk you through the nuances needed to be DCAA compliant.

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