An accounting system review directly measures how effectively an organization’s financial practices support government contract requirements, cost integrity, and audit transparency.
Reviews tied to pre-award surveys or post-award system audits assess far more than transactional accuracy, focusing instead on system design, internal controls, and management oversight that demonstrate disciplined cost accounting over time.
| In This Article: Gain a clear view of how accounting system reviews are evaluated, where outsourced accounting fits into audit expectations, and which preparation steps support consistent compliance, defensible cost data, and smoother interactions with auditors and contracting officers. |
What an Accounting System Review is Designed to Evaluate
An accounting system review evaluates how policies, procedures, and internal controls function together to support compliant cost accounting, rather than focusing on accounting software in isolation.
In pre-award situations, contracting officers often rely on the SF-1408 framework to assess whether a prospective contractor can properly segregate costs, accumulate expenses by contract, and support billings.
Post-award reviews under DFARS 252.242-7006 broaden that focus, emphasizing the need for reasonable assurance that cost data are accurate, mischarges are kept to a minimum, and that billing practices comply with the terms of the contract.
DCAA guidance consistently reinforces the idea that an accounting system reflects methods and discipline applied across the organization. Outsourced accounting services can execute defined processes, yet responsibility for system design, documentation, and operational oversight remains with the contractor.
The review activity focuses on how well leadership understands the system, how consistently policies are applied, and how evidence is produced during audit inquiries.
Establishing Clear Ownership and Audit Readiness Across Leadership
Alignment at the leadership level shapes how effectively an organization responds during an accounting system review. Current DCAA materials clarify that auditors may identify deficiencies, though responsibility for developing or correcting the system never transfers outside the contractor.
That principle is particularly relevant for organizations that use outsourced accounting support, where operational tasks may be handled externally while accountability remains internal.
Auditors commonly ask who approves accounting policies, who authorizes system changes, and how exceptions are reviewed. DFARS accounting system criteria explicitly reference management reviews and internal audits as part of an acceptable system.
Contract clauses, such as FAR 52.215-2, further broaden audit rights, allowing the examination of records and the policies behind reported costs.
Preparation benefits from clearly documented ownership, approval workflows, and evidence that management actively validates the work performed by service providers.
Building Review Preparation Around DFARS Criteria as a Practical Framework
Preparation efforts often take shape when DFARS 252.242-7006 serves as the organizing framework, even when an immediate review centers on an SF-1408 pre-award survey.
DFARS criteria align closely with the DCAA’s evaluation of cost-type readiness, covering segregation of direct and indirect costs, accumulation of expenses by contract, consistent allocation methods, and reconciliation of subsidiary ledgers to the general ledger.
Documentation on adjusting entries, timekeeping integration, monthly posting cycles, and the exclusion of unallowable costs further supports the system’s credibility. Organizations that rely on outsourced accounting benefit when providers can demonstrate how workflows support each requirement while clearly identifying where internal management review occurs.
Audit discussions frequently return to evidence of oversight rather than technical capability alone.
Treating Cost Allowability as an Operational Capability Rather Than Judgment
Cost allowability often becomes a source of findings when handled informally. FAR 31.201-2 defines allowability through a combination of reasonableness, allocability, applicable accounting standards, contract terms, and regulatory limitations.
Under FAR 31.201-6, organizations are expected to actively segregate expressly unallowable costs and exclude them from any billing, claim, or proposal activity.
DCAA training materials link those requirements directly to DFARS accounting system criteria, emphasizing written policies and consistent execution. For organizations using outsourced services, challenges typically arise from the chart of accounts design or allocation logic, rather than from regulatory awareness.
Review preparation benefits from clear demonstrations of how unallowable activity is flagged, where it resides in the ledger, who reviews classifications, and how billing exclusion occurs without retroactive correction.
Making Traceability and Reconciliation Routine Throughout the Accounting Cycle
Traceability sits at the center of DCAA evaluation activity, as DFARS criteria require cost accumulation under general ledger control, with reconciliation of job cost records and subsidiary ledgers back to the general ledger. Labor guidance adds expectations around reconciling payroll records, labor distribution reports, and contract cost ledgers.
Outsourced accounting arrangements can simplify or complicate review readiness depending on how reconciliation work is documented. Strong preparation materials show defined reconciliation points, such as payroll to labor distribution, job cost ledgers to general ledger accounts, and booked costs to billed amounts.
Frequency, evidence of approval, and documented resolution of variances often carry more weight than summary assertions that reconciliations occur.
Strengthening Labor Charging and Billing Controls With Audit Reality in Mind
Labor charging continues to receive heightened scrutiny due to its reliance on the use of internal documentation.
Existing DCAA guidance highlights the employee as the central control point, emphasizing timely timesheet completion, supervisory approval, and the separation of responsibilities between timekeeping and payroll processing.
Real-time labor evaluations conducted by the DCAA demonstrate how interviews, record testing, and reconciliation can occur without advance notice.
Billing readiness similarly requires alignment between contract terms, accounting records, and ceiling management. Previously mentioned DFARS criteria require billings that reconcile to cost accounts for current and cumulative amounts, while FAR 52.216-7 contemplates vouchers supported by allowable cost detail.
Preparation materials benefit from clearly showing where contract billing provisions are interpreted, how limits are monitored, and how invoices tie back to underlying cost records rather than manual interpretation.
Together, disciplined labor and billing controls reinforce the overall accounting system narrative presented during review activity, particularly for organizations that rely on external accounting execution paired with internal oversight.
Positioning the Accounting System for Review and Ongoing Confidence
Strong preparation for an accounting system review reflects consistent controls, clear accountability, and financial practices that hold up under scrutiny. Engaging in thoughtful preparation supports smoother reviews and stronger long-term compliance.
Diener & Associates has guided organizations through complex government contracting and accounting challenges since 1989, combining the personal attention of a small firm with the technical depth expected by growing and established businesses.
For organizations seeking experienced insight and practical support, a consultation can be scheduled online or by contacting our professional team of CPAs at (703) 386-7864 to discuss consulting and accounting services aligned with long-term success.