Being DCAA compliant confirms that the policies and financial management systems of a government contractor strictly follow regulations and guidance found in the Federal Acquisition Regulations and the DCAA Contract Audit Manual (DCAM).
The first step is to have an appropriate accounting system that collects, documents, classifies, explores, reviews, infers and presents accurate financial data on time. It must provide reasonable assurance of the contractor’s system or systems for accounting methods, controls and procedures.
It should also include subsystems related to compensation, billing, direct and indirect costs, labor and general information technology. Audits on your accounting system will monitor your company’s compliance with regulations, management decisions and applicable laws.
There is rapidly increasing competition to gain government contracts. Your company must remain aware of current DCAA compliance regulations to stand out in a highly competitive market. For any responsible government contractor, the question to be asked is, “What are the DCAA accounting system requirements in 2022?
DCAA Accounting System Requirements
Any company or business that seeks to gain success from the government contracting industry must firmly adhere to the highest level of accountability, security and financial management.
Although there is no certification or formal statement of compliance, DCAA completes a strict procedure check to ensure your organization meets government rules while exhibiting strong financial management behavior.
Here is what goes into evaluating accounting system plans and designs in 2022:
Pre-Award Accounting System Audit
The DCAA standard form (SF) 1408 pre-award surveys affect many businesses. Audits evaluate accounting system design and determine acceptability for the prospective contract.
For this, DCAA gains insights into the contractor’s accounting system and keeps track of every transaction. The DCAA must ensure that the contractor’s financial system and procedures meet each requirement of the SF 1408 form.
The SF 1408 concentrates on several areas, some of which include:
- Cost allocations, indirect and unallowable costs
- Billing, payments and vouchers
- Operating accounting procedure
- Labor distribution
- Timekeeping system
- Generally accepted accounting principles
Elements Of The Acceptable Accounting System
An accounting system is not pre-made, downloadable software, and can not be installed from packaged software. It should be panoramic regarding data coming from technology, processes and people. The DCAA audit confirms that the contractor follows all pre-assigned standards. Any government-provided amounts and funds against the contract undergo this process. To declare having an acceptable accounting system, it needs to demonstrate the following:
Separate Direct And Indirect Costs
The accounting system design must segregate direct and indirect costs. It should maintain a policy describing the criteria for charging costs directly to contracts, and indirect costs must be recorded in indirect cost pool accounts. Keep detailed information in segregated accounts for each cost element.
It should also exhibit that personnel responsible for coding costs are fully competent to record financial transactions accordingly. Finally, the contractor’s cost accounting history must clearly demonstrate that it adequately and consistently charges costs as direct and indirect.
Job Costing System
There should be a proper timekeeping system in place that separates time spent on the project. Use a separate ledger for each assigned project number or job. Make sure you update each transaction to include accurate direct costs.
Requirements For Unallowable Accounting
The contractor must certify the accounting system follows FAR specifications, where it separately records unallowable costs.
Follow Generally Accepted Accounting Principles (GAAP)
All accounting and financial systems must match GAAP (generally accepted accounting principles). This ensures visibility of accrual-based transactions instead of cash ones.
Establish Indirect Cost Pools
Indirect cost accounting practices must be part of the contractor’s accounting system. The contractor must also consistently follow a well-defined policy and report any discrepancies if necessary.
Reliable Historical Accounting Data
The contractor’s accounting system historical data must demonstrate that they meet all the standards and regulations of DCAA. This assures the DCAA that the firm’s accounting system is acceptable and meets all criteria.
Record And Accumulate Costs Monthly
The accounting system must be maintained monthly with valid accounts of direct and indirect costs.
Use Contract Line Items To Measure Costs
This focuses on associating direct costs with line items. The system also assigns indirect costs to applicable contract line elements.
Capture Pre-Contract Costs Separately
This point emphasizes that the financial and accounting system must be capable of defining costs incurred before the effective date of the contract to be segregated from other contract costs. The system must be appropriately recorded, controlled and maintained.
DCAA Accounting System Audit Is An Opportunity To Secure Government Contracts
The DCAA accounting system audit is an authoritative process and should be considered an essential step in government contracting. The primary purpose is to pass the audit and meet government criteria.
Following DCAA accounting metrics is one of the easiest ways to create efficiency in your financial systems and keep them updated and accurate. Upon passing a DCAA accounting system audit, any company gains a valuable edge in securing a government contract.
Going through such an intensive, comprehensive procedure on your own may appear quite time-consuming, complicated and overwhelming. Certified public accountants (CPAs) can simplify the process, making it precise and prompt.
Diener & Associates offer premium consulting and advisory services that help businesses improve their overall business and accounting system compliance. They can also perform audits to closely monitor all aspects of accounting principles and compliance and reduce any underlying risk strategically along the way.