DCAA refers to the Defense Contract Audit Agency, which offers audit and financial advisory services to various federal entities, including the DOD (Department of Defense). Becoming a government contractor involves complying with many federal rules and regulations and requires having business and financial systems that comply with the DCAA. When first attempting to secure government contracts, contractors are most often concerned if the DCAA will approve their financial and accounting system.
Contractor accounting and timekeeping systems should comply with Federal Acquisition Regulation (FAR) guidelines and DCAA requirements. Although there are no official government-approved accounting systems, there are comprehensive guidelines for achieving compliance. The DCAA accounting principles are designed to help you audit the financial and accounting systems of a business at specific times or events.
Here is a closer look at what is involved in compliance:
What Is DCAA And Why You Should Ensure Compliance
DCAA auditors report to the Under Secretary of Defense/Chief Financial Officer. DCAA is solely responsible for examining accounting systems and offering related financial advisory services to contractors.
The FAR guidelines determine the processes and requirements surrounding the purchasing of goods and services. DCAA provides compliance regulations on record keeping and provides guidance on contractor costs for particular products and services. In addition to audits and compliance checks, the DCAA also offers general guidance to contractors to help them better understand and improve their operations with the government.
It is in the best interest of the government on practical, political and ethical levels to ensure that all funds are appropriately spent. One of the best ways to ensure this is through audits which determine whether contract expenses are allocable, reasonable or allowable. The scope of the DCAA’s influence is significant because it offers definitive recommendations to contracting officers that affect the negotiations of almost 7,500 contractors annually.
Preparing For A DCAA Audit
Being ready for the DCAA audit by knowing in advance what to expect, will not only allow your business to be prepared, but also avoid some common challenges. Contracting with the federal government requires that you have audits conducted on your accounting systems by the DCAA.
The DCAA audits cover a multitude of regulations that contractors must adhere to including the Generally Accepted Accounting Principles (GAAP), the Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS).
As reported by the Government Accountability Office, DCAA contract audit services play a key role in ensuring that contractors are operating in accordance with the applicable regulations.
DCAA compliance means that a contractor’s accounting policies and financial management systems are established, operating and adhering to FAR regulations and the DCAA Contract Audit Manual (DCAM).
What Can The DCAA Do For Your Business?
Government contracts represent significant amounts of federal funds. The Defense Contract Audit Agency operates within the United States Department of Defense to safeguard taxpayer money to ensure that it is spent responsibly.
With this mission, the DCAA is responsible for checking and inspecting contracts provided by the contractors. It works with various federal agencies to ensure that the funding of each contract is sensibly disbursed for the benefit of the government. It makes every effort to ensure it is able to get the most value for every dollar spent on defense contracts by allocating taxpayer dollars appropriately. They manage and inspect contract costs, pricing proposals, incurred cost proposals and full system audits.
However, the DCAA has no direct role in choosing which enterprises receive defense contracts. It only considerably influences recommendations during their preliminary stages of negotiating and securing contracts.
More specifically, the DCAA makes recommendations to government authorities who will finalize and approve contractors for government-funded projects. Moreover, they will also negotiate the price for the products and services the contractor offers.
The authority of these recommendations are significant because they not only influence current awards, they also determine future awards. Non-compliance can lead to a smaller window for contracts, and in the worst case scenario, can prevent contractors from gaining any future awards.
Significance Of DCAA
Additional government entities periodically request that the DCAA perform accounting and financial auditing services for their agencies. These agencies rely heavily on the DCAA for the facilitation of examination and assessment of accounting systems.
DOD contracts have the potential to be worth hundreds of millions of dollars. It is essential that the awarded funds are appropriately spent and accounted for.
Because the awards are funded through taxes paid by the citizens of the United States, DCAA compliance benefits not only the government, but also the taxpayers.
The Details Of DCAA Compliance
DCAA Compliance is a term commonly used in the federal government contracting sphere, yet the DCAA does not certify contractors as fully compliant. As highlighted above, DCAA compliance essentially means that the contractor or enterprise adheres to the recommendations set by the federal authority.
Comprehensive DCAA compliance makes it clear that the contractor has all necessary document policies, systems and procedures successfully in operation. The purpose of confirming compliance is to establish that the business meets the requirements of DCAA making it fiscally safe to award a contract to the business.
For instance, the accounting system of the contractor must be capable of tracking costs using the proper separation of direct and indirect costs, as well as segregating costs by element, such as labor, travel and other direct costs.
Many enterprises have recognized the significance of DCAA compliance, and fully integrate it within their overall systems for efficient timekeeping. Following every step of DCAA compliance ensures that every report requested by the DCAA audit is easily accessible.
DCAA Compliant Timekeeping
Businesses that possess the ability to record and track the actual working time of their employees accurately and consistently have a better chance of achieving DCAA compliance. The timekeeping policies and rules of the DCAA are one of the most significant aspects of acquiring a government contract.
When working with DOD, DHS, NASA or any other federal authorities, it is important to avoid any regulation errors in timekeeping and related procedures. Improper timekeeping procedures will directly affect employees’ compensation.
In order to achieve proper and accurate timekeeping procedures, businesses must incorporate a timekeeping system that identifies the workforce by intermediate and final cost objectives. One should also have a basic labor distribution system that charges indirect and direct costs. Lastly, it must account for employee time on a daily basis against the work performed.
When businesses fail to comply with the established DCAA regulations and policies, their ability to acquire future government contracts is negatively impacted.
DCAA ICE Model
The Defense Contract Audit Agency implements and promotes the ICE model (Incurred Cost Electronically) which offers contractors a standard model for recording all costs incurred relating to government contracts.
The ICE model is an incurred cost proposal (ICP) method that is recommended by the DCAA. Due to its complex nature, many government contractors and inexperienced accountants find it challenging and confusing.
The ICE model is an electronic version of the Model Incurred Cost Proposal while offering contractors a user-friendly and standardized platform for preparing accurate proposals for all costs incurred and securing DCAA compliance.
Businesses implementing the ICP policies to prepare and submit their cost proposals through the ICE model have a greater chance of securing government contracts. The ICP is considered complicated and may be difficult for a layman to record all transactions. Professional help is typically preferred by many contractors for preparing accurate cost proposal submissions.
Following ICE models in preparing accounting systems and submitting proposals helps your business pass almost every audit that is administered by the DCAA or other government agencies. When reports are improperly prepared or submitted through the wrong channels this results in not being DCAA compliant. Further, insufficient or inaccurate incurred cost proposals, lead to further examination by the DCAA. This not only subjects the contractor to greater scrutinization, but also leads to greater costs incurred in the effort to answer any questions posed by the DCAA.
Risks Of Not Remaining DCAA Complaint
If your business fails to submit incurred costs or inaccurate records it is in violation of DCAA regulations and policies. If the business fails to obtain or maintain compliance their contract may be suspended, or it may be partially or fully taken away. This failure can also prevent the contractor from being awarded future contracts.
Speak With Our Accounting Experts About DCAA Compliance
If your business is unsure of current or future DCAA compliance, or having difficulties preparing for the DCAA accounting, proposal and contract management audit requirements, it is strongly recommended to contact professional assistance before risking a failed audit.
We have successfully managed hundreds of DCAA audits and government contract accounting for businesses located within the Northern Virginia region, as well as nationally. Our accounting professionals and auditors use their expert knowledge to establish accurate and reliable accounting models compliant with DCAA and other federal authorities.
We provide guidance to businesses to achieve DCAA compliance. We have experience working with established government contract holders and those businesses already on, or preparing for, their first contract. Our real-world experience enables us to simplify your compliance procedures, reducing costs and improving accuracy by helping our clients establish accounting systems that adhere to all regulations required by the DCAA.