Federal contractors depend on accounting structures that withstand scrutiny under FAR and DFARS requirements. An operation that falls short in these areas can lead to questioned costs, payment delays, or an unfavorable audit assessment. Early indicators often surface long before a formal review, signaling that internal systems, controls, or practices may be drifting away from what the DCAA expects.
Recognizing these signals early creates an opportunity to reinforce processes, refine internal oversight, and strengthen compliance before issues escalate.
In This Article: The following overview highlights common patterns that suggest an accounting environment may no longer align with government contracting standards.
Contract Cost Information That Fails To Hold Up Under Monthly Scrutiny
A dependable accounting structure for government contracts must produce timely, reconcilable cost information at the contract level, and many early issues arise when internal systems struggle to meet this baseline. DFARS 252.242-7006 stresses cost accumulation under general ledger control, reconciliation of cost objectives to the ledger, and monthly determination of costs charged to contracts.
When project managers rely on offline spreadsheets because system reports lag, or when reconciliation requires ad hoc fixes to align numbers, auditors see a heightened risk that billed amounts differ from the actual recorded costs.
Patterns such as undocumented adjustments, unclear audit trails, or delayed transaction posting often signal that the underlying process lacks the structure needed to meet the DCAA’s expectations. Outsourced specialists frequently respond by redesigning cost objectives, strengthening reconciliation routines, and building month-end procedures that map directly to DFARS criteria.
Cost Classification That Blurs The Line Between Direct & Indirect Charges
FAR Part 31 and DFARS 252.242-7006 require consistent treatment of direct and indirect costs, with a clear and logical method for allocating indirect expenses across intermediate and final cost objectives. Inconsistencies commonly appear when labor or other contract-specific expenses are pushed into overhead pools for convenience or when similar costs are treated differently across business units.
Such practices raise questions for auditors, who assess not only the allowability of individual expenses but also the integrity of the indirect rate structure. A pattern of repeated misclassification often shows that the cost element structure is misaligned with regulatory requirements.
Providers experienced in DCAA-focused accounting typically rebuild indirect pools, refine cost element definitions, and train staff on consistent application of cost policies to restore alignment with FAR and DFARS guidance.
Labor Charging & Timekeeping Practices That Cannot Withstand Audit Attention
Labor represents the largest share of cost on many federal contracts, and weaknesses in timekeeping are among the most common issues identified in accounting system audits. DFARS requirements emphasize daily time entry, employee certification, supervisor review, and accurate labor distribution that ties to both payroll and job cost records.
Warning signs often arise during routine operations, such as staff entering time once a week based on memory, supervisors approving batches of timesheets with minimal review, or informal revision procedures that bypass documented controls. Auditors conduct floor checks and interviews to test whether employees understand timekeeping expectations, and inconsistent answers quickly raise concerns.
Outsourced teams reinforce these controls by implementing systems that enforce daily entry, establishing clear revision methods, and performing internal checks that mirror the DCAA’s Real-Time Labor Evaluation approach.
Unallowable Costs That Leak Into Indirect Pools & Billings
FAR 31.201-6 requires that expressly unallowable and associated costs be identified and excluded from claims, billings, and proposals.
Early difficulties often become visible when the chart of accounts does not clearly distinguish unallowable items, leading to miscoded transactions that are found only during a year-end review.
When questioned costs appear repeatedly across audits, or when penalties arise under FAR 42.709, it signals that preventive controls at the transaction level are weak. Issues may also surface in provisional billing rate development if rates are constructed using pools that include unallowable elements or outdated cost structures.
Outsourced specialists address these patterns by redesigning the chart of accounts, refining indirect pools, strengthening coding guidance, and monitoring questioned cost trends to identify gaps in internal processes.
Billing & Funding Management That Operates In a Constant State Of Friction
Cost-type contracting demands billing practices that reconcile cleanly to accounting records and respect contract cost limitations under FAR 52.216-7 and related clauses.
Frequent voucher rejections, demand letters, and delays from DFAS or contracting officers generally indicate that the accounting system is not producing billing-ready data or that internal steps depend heavily on manual workarounds.
Provisional billing rates may remain unchanged for several cycles despite shifts in the business mix or the indirect structure, leading to inaccuracies that ripple through voucher preparation. Another signal is the absence of routine monitoring of contract ceilings and funding levels, resulting in late notices of cost limitations.
Service providers with DCAA-focused expertise often build automated voucher templates, refine funding-tracking processes, and take responsibility for updating billing rates so internal staff no longer struggle with reactive corrections.
Internal Oversight That Does Not Support DFARS Business System Requirements
DFARS 252.242-7006 requires management reviews and internal audits to verify adherence to established accounting policies and procedures.
When these reviews occur rarely or depend on informal checks, auditors question whether the accounting system is operating as described. Delays or deficiencies in incurred cost submissions, along with long-outstanding fiscal years awaiting closeout, often point to broader weaknesses in system operations.
Contractors who treat incurred cost proposals as episodic exercises rather than routine outputs of a controlled system frequently experience audit challenges. Outsourced teams strengthen this oversight by establishing compliance calendars, conducting mock audits tied directly to DFARS criteria, and guiding corrective actions in a structured and measurable way.
Across these areas, early indicators tend to emerge well before a formal audit identifies them. Organizations that recognize and address these signals gain the opportunity to reinforce compliance before risk escalates.
Taking Early Signs Seriously Strengthens Long-Term Contract Readiness
Recognizing indicators of DCAA misalignment early can prevent billing setbacks, audit findings, and operational strain, and organizations that address these issues promptly place themselves in a stronger position for sustained success in the federal market.
Diener & Associates has supported government contractors since 1989, combining the attentiveness of a small firm with the depth needed to manage complex financial structures, and that experience shapes every engagement.
Organizational leaders should schedule an online consultation or contact the team at (703) 386-7864 to speak with the CPAs at Diener & Associates for guidance and accounting support grounded in longstanding service to the contracting community.