Organizations that enter into contracts with the federal government are required to adhere to complex accounting and booking requirements. The Defense Contract Audit Agency (DCAA) is the federal government entity that works within the Department of Defense to provide audit and financial services to federational entities for acquisitions and contract administration.
The DCAA’s guidelines must be matched with your organization’s accounting practices to meet compliance standards. Outsourcing these accounting procedures can free up your time and resources, allowing you to focus on your main business priorities.
Instead of hiring internal accounting associates, simplify your life by working with Diener & Associates. Our team of experienced public accountants understands the unique set of tax laws and regulations that government contractors must manage, and we can review your company’s accounting records to ensure your organization remains in compliance.
DCAA Audit Support
The DCAA will perform a variety of audits on an organization that contracts with the government. These types of audits include pricing, pre-aware, compensation and benefits, incurred cost, contractor purchase systems reviews (CPSR), labor charging/floor checks, and other audits. These audits could be requested as “special” or “other”.
The main concern in government contracting is cost. The methods used to classify, allocate, report, and segregate funds are different, depending whether it is conducted by a government contractor or a commercial firm. DCAA and other federal government auditors use the Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS) set of rules specifically for government contractors who work for the federal government.
When you work with Diener & Associates, you can rest assured that all necessary rules will be followed in the accounting process. We will act on your behalf as your team of accounting professionals to provide audit support for your organization. We understand the different audits that your organization might be asked to undergo, and we will guide you through the audit process while ensuring compliance.
Standard Form 1408 (SF1408)
The Pre-Award Accounting System Survey (SF1408), otherwise known as the “Standard Form,” is the “pre-award audit” that occurs before a Cost Type contract is awarded. This audit is used to determine whether the design of your organization’s accounting system satisfies their requirements. If the SF1408 is deemed “acceptable,” it means the opinion of the DCAA is that it meets the guidelines for consideration to be contracted with the federal government.
The Standard Form will ask a variety of questions in regard to your accounting system to make their decision. Despite your software capabilities and pro forma company policies and procedures, it’s important to answer these questions, even though it’s not a true audit. Questions may include:
- Does your Accounting System provide for
- Timekeeping system?
- Labor distribution?
- Segregation of unallowable costs?
- Is the accounting system fully-operable?
- Does the account system in accordance with GAAP?
For new government contractors, the process of being awarded a government contract is tricky. Having a partner like Diener & Associates on your side will provide the confidence to navigate each step.
Incurred Cost Submission
Similarly to how every American is required to submit personal income tax returns, federal contractors are all required to file incurred cost submissions every six months after a fiscal year.
Incurred cost submission is referred to by many names and acronyms, like final direct rate proposal, incurred cost proposal, ICS, or ICP. The purpose is the same, regardless of the name used: to present the actual indirect cost to the indirect costs that are provisionally billed to a contractor.
Our team will prepare the six areas that must be included in the incurred cost submission that include:
- Schedule A through E
- Schedule H/H-1/Summary H
- Schedule I
- Schedule K
- Schedule N
- Schedules F, J, L, O, Supplemental Schedules
Accounting System Audit
Government auditors will most likely conduct an accounting system audit to review your cost accounting systems and practices. This has become a primary focus of government audits due to new business system requirements. An unfavorable opinion of the accounting system will affect the chances of being awarded a government contract.
Our accounting professionals thoroughly understand what occurs during an accounting system audit to receive an “adequate” opinion. Diener & Associates can evaluate the strengths and weaknesses of your accounting system to recommend the fixes before an actual accounting system audit occurs. Our thorough review will cover the areas that the DCAA is looking for during an audit.
Business System Audit
The first line of defense against fraud, waste and abuse is considered by the Department of Defense to be the business systems and internal controls that a contractor follows. A review of the business systems requirements must have an outcome of “adequate” for a contract to be awarded. The six systems that are included in the audit are:
- Accounting and Billing
- Contractor Purchasing
- Cost Estimating
- Contractor Property Management
- Material Management and Accounting
- Earned Value Management
Diener & Associates has over 30 years of experience serving government contractors in the D.C. metropolitan area. We can help reduce your financial risk, improve business systems, and improve your chances of success.
Having an effective Material Management and Accounting System (MMAS) is instrumental in your ability to create accurate bills of material that are based on the right requirements and ensure the right quantity of materials.
As your accounting and government regulation compliance experts, Diener & Associates will ensure that your system meets the necessary systems criteria. Our expertise will consistently help you deliver results in reliable planning, controlling and accounting for materials with a compliant system.
Labor Floor Check
A DCAA floor check is intended to validate that labor costs are accurately and timely identified in the accounting system as either direct or indirect. It is the contractor’s responsibility to ensure that the timekeeping system is reliable and mitigates the risk of fraud and waste.
Our team can review these elements to analyze whether there are risk factors present. We can also provide recommendations that will help to ensure that you meet DCAA expectations in the event of an unannounced floor check.
Provisional Billing Rates
Provisional billing rates are used in interim payments to reimburse contractors for indirect costs incurred in cost-type contracts. They enable you to bill an estimated share of indirect costs, in addition to direct costs. The goal is for these provisional billing rates to be as close as possible to your final indirect cost rates.
Keeping track and budgeting adequately for these indirect costs are important activities that our professionals can monitor regularly for you. We will help avoid situations in which you are under-billing or over-billing the government.
Progress Payment Cost
This is a form of government contract financing that’s used for fixed-price contracts. These progress payments provide contractors with this contract type with interim financing for a certain percentage of allowable costs incurred for un-invoiced and undelivered items. Submitted with the Standard Form (SF) 1443, our team is available to help contractors with this contract type.
Percentage Of Completion
During a DCAA pre-award audit, you will need to be prepared to talk about controls on contract management and percentage of completion tracking. For example, how cumulative bills are monitored against contract values to make sure that the government’s not over-billed or the contract is not overrun.
Auditors might ask additional follow-up questions or make requests for data. The accounting team at Diener & Associates will make sure that the accounting system and design that is used contains the appropriate controls from the beginning.
If you are in the running for a government contract, the government will ask for a pre-award survey. This survey determines whether your organization is capable of performing the duties within the contract. We’ll verify that your accounting system is DCAA-satisfactory so you can move on to the next step of winning the contract.
Pre Award Accounting System Adequacy Checklist
Contractors new to government contracting and who have cost reimbursement contracts or are receiving progress payments must document how their accounting system meets the criteria of the SF1408. Using our experienced government contract team will ensure that all the boxes get checked.
Post Award Accounting Audit
A post-award accounting audit is challenging to prepare for, even using the DCAA’s audit program. At this critical stage of the process, it’s imperative that your accounting system is found to be adequate. Simplify this step by letting our team of experts work with you.
Contractors must fill out the 42-page, Cost Accounting Standards Board Disclosure Statement. Save yourself time, money and worry over whether it’s filled out correctly the first time by working with Diener & Associates.
Price Proposal Audit
Preparing an adequate price proposal will ensure that it’s not returned or that you do not need to submit additional supporting documents. We can review your proposal to identify whether there are areas that need additional supporting data or there’s missing information.
Forward Pricing Rates Audit
In a forward pricing rate agreement, the contractor and government agency agree upon certain indirect rates for a certain period of time. This is another area that the government may audit. The team at Diener & Associates will help you manage and address these types of audit requests.
Estimating System Audit
All contractors for the Department of Defense must have an acceptable estimating system. Ensure that you meet the requirements of disclosing, maintaining and supporting review of your estimating system by letting us review what you have in place.
Speak With An Experienced Outsourced Accounting Firm
The extensive knowledge of tax laws and accounting is not an area in which most government contractors have a background. Dedicating the resources to develop and implement the right accounting strategies on your own or in-house isn’t usually a good use of resources or time. Remove the worries about compliance by allowing Diener & Associates to work on your behalf to get your organization the best results. Call us today at (703) 386-7864 or schedule a consultation online.