Government contracting places exceptional demands on accounting systems, documentation, and internal controls.
Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) clauses establish detailed expectations for how contractors manage and report financial data. While no rule explicitly mandates using a Certified Public Accountant, the quality and structure of an organization’s accounting framework determine whether it can meet audit and compliance standards.
A CPA experienced in government contracting provides the insight and precision needed to interpret those rules and align accounting practices with them. For many contractors, that expertise becomes the difference between a system that meets Defense Contract Audit Agency (DCAA) adequacy reviews and one that falls short of these standards.
When organizations understand the value of professional accounting support and its impact on contract qualification, they can better strengthen operations and reduce compliance risks.
What Drives The Need For Professional Accounting In Government Contracting?
Federal regulations, such as FAR Part 31 and the DFARS Accounting System Administration clause, define an adequate accounting system for government contractors.
Those rules do not mention CPA licensure, yet they demand a system capable of separating direct and indirect costs, maintaining reliable timekeeping, and producing billings that reconcile with the general ledger.
Contractors must maintain internal controls strong enough for audit verification, apply cost principles accurately, and keep records consistent with contract requirements. Meeting those standards requires more than standard bookkeeping practices, as each regulation expects financial precision and audit-readiness throughout every transaction cycle.
The Defense Contract Audit Agency does not approve accounting software or firms, and contractors cannot request audits for system approval.
Instead, the DCAA evaluates whether an organization’s accounting framework supports the specific type of contract it pursues. That evaluation is based entirely on documented procedures, system reliability, and compliance with cost principles under FAR Part 31.
Contractors seeking cost-reimbursement, incentive, time-and-materials, or labor-hour awards must meet those expectations before award or risk delays in contracting decisions.
Preparing For Pre-Award Reviews That Test System Adequacy
Many solicitations prompt the government to conduct the Pre-Award Survey of Prospective Contractor Accounting System, Standard Form 1408. It acts as the government’s diagnostic test of an organization’s ability to manage contract costs properly.
Each section of the form addresses a functional area such as labor charging, indirect rate application, and general ledger reconciliation. Contractors that pass this review demonstrate that their systems can support the proposed contract type and produce reports required for billing and oversight.
A CPA with government contracting experience helps align an organization’s chart of accounts, indirect rate structure, and timekeeping processes with the SF 1408 framework. Proper documentation of accounting policies written to mirror the survey’s language allows contracting officers to quickly determine responsibility without requesting further clarification.
The result is a smoother award process and reduced risk of questions that delay project initiation. Internal readiness reviews modeled after SF 1408 frequently uncover weaknesses early enough to address them before government evaluation begins.
Recognizing When Contract Type & Financing Demand An Adequate Accounting System
The Department of Defense instructs contracting officers to include the Accounting System Administration clause for cost-reimbursement, incentive, and labor-hour contracts, as well as fixed-price awards with progress payments.
Contractors planning to compete in those areas must maintain systems that satisfy the criteria outlined in the clause. This requirement extends to accurate accumulation of costs by contract, consistent indirect rate application, and timely billing processes supported by reconciled data.
Progress payments under FAR are tied to an official determination that the contractor’s system is adequate.
When auditors or contracting officers identify deficiencies, those payments can be suspended until corrections are made. Conducting an internal review under CPA supervision can uncover process gaps before they affect cash flow or performance ratings.
Experienced accounting professionals use audit checklists and DCAA guidance to assess control strength and verify compliance with each clause requirement.
Managing Post-Award Responsibilities & Incurred Cost Submissions
After a contract is awarded, compliance expectations continue through the annual incurred cost submission required under FAR 52.216-7.
The Defense Contract Audit Agency provides an ICE model and adequacy checklist that outline the format, schedules, and data cross-checks necessary for acceptance. Preparing that submission accurately requires reconciling subsidiary ledgers to the general ledger, documenting unallowable expenses, and maintaining detailed indirect rate computations.
A CPA specializing in government contracting applies experience with the ICE model to design indirect rate pools, establish consistent allocation bases, and organize schedules in a manner that passes DCAA adequacy screening.
The correct structure of these reports satisfies regulatory requirements, supports faster audit closure, and reduces back-and-forth with auditors. A consistent and documented process allows management to focus on project execution rather than administrative corrections.
Addressing Cost Accounting Standards & Business Systems Oversight
Large negotiated awards may subject contractors to the Cost Accounting Standards, which require written disclosures and consistent cost accounting practices.
Although the standards do not mandate CPA involvement, aligning internal policies with CAS demands technical knowledge of accounting theory and government compliance. A CPA helps synchronize cost accumulation, estimating procedures, and financial reporting so that disclosed practices remain consistent across all submissions and proposals.
Under DFARS 252.242-7005, deficiencies in accounting or other business systems can result in payment withholds of up to 10% until weaknesses are resolved. CPA-led readiness assessments simulate the reviews performed by auditors and identify documentation gaps before they lead to financial consequences.
Corrective action plans written in the language of the clause can expedite government acceptance and limit disruption to ongoing projects.
Strengthening Compliance & Building Financial Clarity
An adequate accounting system represents far more than a regulatory requirement; it signals reliability, transparency, and readiness for the demands of government contracting.
Diener & Associates applies decades of experience in GovCon accounting to help organizations design systems that align with FAR and DFARS expectations while remaining practical for daily operations. With the responsiveness of a small firm and the technical precision of seasoned professionals, our team provides guidance that supports compliance and growth.
Schedule a consultation online or reach out to (703) 386-7864 to connect with our professional CPAs at Diener & Associates for consulting and accounting services that strengthen financial systems and promote long-term success.