Becoming a government contractor can open up a world of opportunities, but it comes with the responsibility of complying with a series of exacting federal rules and regulations.
Because this work is funded by taxpayer money, the government takes steps to ensure that none of it is wasted.
One large component of compliance is using business systems that comply with the Defense Contract Audit Agency (DCAA), the group responsible for performing contract audits for the Department of Defense and other agencies.
The DCAA’s role has changed in recent years, so it is important to stay on top of the latest regulations to ensure compliance.
What Is DCAA Compliance?
DCAA compliance means following the Defense Contract Audit Agency’s rules transparently so that they can easily see that you are following them. Throughout your contract work, you will be subject to DCAA audits.
Being DCAA compliant entails having documented policies in place at your company that are strictly followed in accordance with the agency’s requirements. Your business systems, including accounting and timekeeping, must also be compliant.
DCAA Regulations That Govern Compliance
DCAA audits are driven by rules outlined in CAS, GAGAS, and FAR as detailed below. Being DCAA-compliant means that a contractor has followed the agency’s recommendations and the relevant rules.
Below are four areas in which contractors must maintain compliance with DCAA standards.
Generally Accepted Government Auditing Standards
The Generally Accepted Government Auditing Standards, or GAGAS, ensure that audit conclusions are supported by evidence.
These standards form the framework for quality audits with objectivity, integrity, and independence and are used by auditors of government entities and those that are granted government awards.
One of the government’s biggest concerns when conducting audits is employee time. The DCAA manual calls timekeeping procedures and labor charge controls “areas of utmost concern”, underscoring the emphasis that will be placed on this aspect of business.
Every employee in your company must track their time meticulously with timesheets that specify which project or job they worked on during each hour that they worked.
DCAA recommends using meetings and signs to remind employees how important it is to avoid time tracking violations.
Cost Accounting Standards
Cost Accounting Standards, or CAS, are used to create consistency between contractors’ cost accounting practices.
These standards dictate how contractors may charge and how accounting systems must be maintained. In addition, they rules for cost flow.
Many Department of Defense contractors are required to comply with CAS, although there are a few exceptions.
Federal Acquisition Regulation
Federal Acquisition Regulation, or FAR, is the primary set of rules used by agencies when they buy goods and services from contractors. It covers many of the contracts that are issued by the U.S. military, civilian federal agencies, and NASA.
What Are the Types Of DCAA Audits?
DCAA performs several types of audits. Officers might request independent financial opinions on certain specific elements of a contract in addition to assessing compliance with specific terms of the contract. Outlined below is a closer look at some of the most common DCAA audits.
A pre-award survey is geared toward gaining an understanding of the accounting system used by the contractor and determining whether it is acceptable for a government contract.
Contractors who undergo this audit must demonstrate their accounting system and implement it before they incur any costs on a contract.
Forward pricing audits are typically completed before a contract is awarded. DCAA evaluates the contractor’s estimate of how much it will cost them to provide the services or goods to the government.
An incurred cost audit determines the accuracy of a particular contractor’s yearly allowable cost representations. In cases where the contract’s price is not fixed, DCAA carries out an incurred cost audit after a contract has been awarded to determine the accuracy of the contractor’s cost representations.
Other DCAA Audits
There are several other types of audits that the DCAA may choose to carry out.
These are typically initiated in cases where there is high risk, such as when contractors have inadequate business systems.
These audits are typically performed after the contract has been awarded and may be requested by DCAA or a contracting officer.
How Can My Organization Ensure Compliance?
DCAA compliance requires meticulous record keeping, time tracking, and checklist monitoring. Many contractors entrust this job to outsourced DCAA accountants who are well-versed in the intricacies of these often-complex regulations.