Preparing for a DCAA audit can be quite rigorous – especially for first-time applicants. New government contractors who take the time in advance to understand what the DCAA looks for in their audit process are better equipped to handle the challenges involved.
Complying with federal regulations is a critical factor in becoming a successful government contractor. This can open up opportunities that allow you to:
- Grow your revenue, income, and business
- Obtain dependable income and consistent work
- Secure contracts for other companies, especially startups
- Get paid promptly by the U.S. government under the Prompt Payment Act
- Forecast company revenue over the contract term
Each year, the U.S. government spends over $650 billion on products and services, making it the single largest consumer in the world. Ensuring your business’s DCAA compliance is critical to staking your claim in that profit.
What Does DCAA Compliance Mean?
The Defense Contract Audit Agency, or DCAA, does not directly deem contractors as compliant or decide which companies receive defense contracts. However, it recommends companies to the government for their selection process.
Contractors providing goods and services to the U.S. government must follow strict procurement procedures and guidelines. As a DCAA-compliant contractor, you follow DCAA guidance in preparation for surprise audits so they can easily check compliance.
Your business systems (i.e. accounting and timekeeping) must meet DCAA criteria. Accounting systems should follow accounting costs, billing costs, direct and indirect costs, and labor costs individually. Timekeeping systems must also possess the capability to store records, which may be needed during audits.
Types Of DCAA Audits
The DCAA evaluates whether or not contractors are following regulations based on their contract type by using the following audit types:
- Forward pricing
- Pre-award surveys
- Special audits
- Incurred costs
- Other audits
DCAA Compliance Regulations
DCAA audits follow Cost Accounting Standards (CAS), Federal Acquisition Regulation (FAR), and Timekeeping & Labor Charging System Requirements. Contractors must be able to show thorough, detailed accounting processes as this is how the appropriate use of government funds is tracked.
Let’s discuss the three DCAA frameworks:
Cost Accounting Standards (CAS)
CAS guides most DoD (Department of Defense) contractors on accounting specific costs. Contractors must adhere to CAS to promote pricing consistency and accounting best practices. It determines how contractors may charge, and how to maintain proper accounting systems and rules for cost flow.
Federal Acquisition Regulation (FAR)
Federal Acquisition Regulation applies to federal employees and agencies buying goods and services from contractors, but not to federal contractors directly. It codifies and publishes uniform acquisition procedures and policies for executive agencies. It includes contracts issued by NASA, the U.S. military, and civilian federal agencies.
Timekeeping & Labor Charging System Requirements
Contractors should use an automated timekeeping system to establish a DCAA-compliant timekeeping process. Each employee must use their timesheet to meticulously track their time by stating projects or jobs worked on during each hour of their work shift or on a daily basis, at a minimum.
The DCAA also advocates the use of signs and/or meetings reminding employees about time tracking.
Importance of Compliance and Noncompliance Consequences
The DCAA is scrupulous about inspecting awarded contracts, so your job isn’t done after you’ve landed a government contract. As of December 27, 2021, the DCAA:
- Audited contracts for more than 4,000 DoD contractors
- Delivered 2,713 audit reports
- Scrutinized $335.6 billion in contract costs
- Found $3.7 billion in net savings
The contractor must always be responsible for complying with all applicable government rules and regulations. There are many ways to expose non-compliance: using the Freedom of Information Act (FOIA), audits, investigations, informers, or other means that easily expose non-compliance. This non-compliance (including illegal and unethical conduct) may result in:
- criminal/civil penalties
- contractor listings in the Excluded Parties List System (EPLS)
- terminated/voided contracts, and
Let A CPA Firm Help You Become DCAA Compliant
Government contracting businesses need to be ready for the DCAA’s compliance, accounting, and contract management demands. A strong first step is to assess your systems and processes to ensure that you can fulfill government contracts.
A certified public accounting (CPA) firm can help you maintain up-to-date policies and procedures, update your accounting system, and empower employees to record their time and tasks for each workday. The right certified public accountant will correctly advise you on proper accounting practices and systems, and conduct mock DCAA audits to help you confirm your DCAA compliance. These mock DCAA audits cover floor checks, accounting systems reviews, and a range of other processes that the DCAA is likely to audit.
Ensuring continued DCAA compliance requires time and effort. However, it is worth the trouble because setting up these systems and practices isn’t just good for winning contracts; it ultimately increases the competitiveness of your company and enhances your bottom line.
If you are a government contractor in need of support to ensure your business is DCAA compliant, reach out to an experienced CPA firm today.