Government contractors are responsible for maintaining DCAA-compliant accounting, recordkeeping, timekeeping, and labor practices. The Defense Contract Audit Agency conducts audits on these systems to make sure government money is being used efficiently and legally.
DCAA audits require nuanced attention to record-keeping and an updated understanding of federal regulatory requirements. The auditor will request numerous documents in the process of their audit, including complete accounting records.
By outsourcing accounting duties to an experienced third party, government contractors can guarantee DCAA compliance without additional administrative labor.
What is DCAA Compliance?
DCAA compliance factors heavily into the decision to maintain a business’s federal contract while non-compliance can result in issues, including contract termination, debarment, and even litigation in some cases.
To determine compliance, the DCAA auditor will compare the business’s documentation and on-site practices to regulatory standards established by several key pieces of legislation, including:
- Federal Acquisitions Regulations (FAR)
- Truth in Negotiations Act (TINA)
- Cost Accounting Standards (CAS)
- Generally Accepted Accounting Principles (GAAP)
The DCAA’s exact procedures, along with preparatory materials for contractors, can be found in its online manual.
What is DCAA-Compliant Accounting?
The DCAA uses the FAR to determine how businesses should conduct their financial duties and whether they are a trustworthy federal investment. DCAA-compliant accounting differs from commercial accounting in several key ways.
Namely, while commercial businesses can combine direct and indirect costs on their general ledgers, contractors must segregate them. This helps DCAA auditors follow the paper trail back to their resource purchases, operational costs, labor costs, and more to compare the itemized expenses for each contract to the business’s reported cost objectives.
Additionally, the DCAA lists allowable and unallowable costs that businesses must distinguish on their ledgers. Accurate cost reporting is key to creating DCAA-compliant accounting procedures.
The Difficulties of Achieving DCAA Compliance
The primary difficulty in achieving DCAA compliance is in understanding the complex and changing standards for regulatory compliance. Other challenges include retrieving all requested documentation (especially for manual filing systems), meeting all auditor requests in a timely manner, and educating team leaders and employees on DCAA-compliant time-tracking, accounting, and filing processes.
One of the most difficult aspects of achieving DCAA compliance is maintaining it. While passing the first audit is an achievement for first-time contractors, the DCAA inspects businesses for the duration of their government contracts. This implies a significant need for resources that are devoted to understanding and complying with complex regulations across a business’s entire workflow.
The Benefits of Outsourcing Accounting
By outsourcing these complex accounting duties, contractors can pass DCAA compliance standards using a CPA firm experienced in federal regulations and accounting compliance.
Better Resource Allocation
An experienced firm will have resources dedicated to maintaining their clients’ compliance status. Unlike in-house accounting teams, which are often stretched thin with numerous responsibilities, outsourced accounting teams can devote their full attention to your compliance status. This also leaves the contractor’s administrators free to manage daily tasks with less pressure.
Lower Risk
Opting for these services allows contractors to mitigate the risks of non-compliance by preparing for audits more comprehensively. A firm experienced in contractor accounting can consistently help businesses implement audit-friendly paper trails, compliant workflows, and better employee training programs.
Reduced Costs
Outsourced accounting services may be an upfront expense, but they are a cost-saving measure compared to recruiting and managing an in-house accounting team. Contractors save money by hiring and training accountants while gaining the benefits of employing a dedicated team.
More Scalability
Contractors with inefficient compliance workflows will have difficulties scaling their operations to meet new business goals. Increasing the operation without diverting more resources to accounting can cause businesses to become non-compliant due to a complex paper trail, a lack of compliant training resources, and more.
With a dedicated outsourced accounting team, contractors can scale their operations to their long-term objectives and let the professionals maintain flexible and compliant accounting practices.
Professional Help
Experienced accounting firms offer a deep understanding of DCAA compliance that contractors can use to establish and update their internal systems even as regulations change. Instead of guessing and risking non-compliance, contractors can ask their dedicated outsourced accounting team what costs are allowable and how to maintain compliance in their procedures as they prepare for their next audit.
Achieve and Maintain DCAA Compliance with Expert Accounting Services
Diener & Associates is a team of experienced CPAs focused on helping government contractors overcome common challenges with federal compliance. Our team of CPAs reviews contractors’ accounting, timekeeping, and legal processes, conducting mock internal audits to detect compliance gaps, and assisting supervisors in their understanding of relevant federal standards, such as the GAAP.
Schedule a consultation today to learn how the expert CPAs at Diener & Associates can help you overcome common compliance challenges, even in your first government audit.