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How To Ensure Your Accounting Systems Are DCAA Compliant

December 27, 2021, by Michael Diener

man working on a complex accounting systemIt is crucial to ensure that your accounting systems are DCAA compliant to avoid the loss of government-issued contracts after a DCAA pre-award survey. This review discusses the importance of a DCAA-compliant accounting system and how you can help ensure that you follow all the necessary standards and guidelines.

What Is DCAA Compliance?

The Defense Contract Audit Agency (DCAA) is a government agency that is responsible for auditing government contractors to verify that they are following the guidelines presented in the Federal Acquisition Regulation (FAR) and other relevant standards. A contractor who is DCAA compliant is in good standing with the DCAA and subsequent government agencies, and they have or are able to pass a DCAA audit.

What Is A DCAA Pre-Award Survey?

A DCAA pre-award survey is conducted to verify that the contractor is using appropriate accounting systems. A pre-award survey is typically required before beginning on a cost-reimbursable contract with a government agency. If the contractor’s accounting system is deemed “acceptable” by the DCAA, then the contractor can begin performing work for the cost-reimbursable contract they have been awarded.

What Happens During A DCAA Accounting Systems Audit?

There are various reasons why a DCAA audit may be conducted. In general, it is used to verify that the contractor is appropriately documenting their costs, ensuring that the government agency appropriately compensates them without paying for unallowable costs. The DCAA provides contractors with a guide to help them keep their accounting systems compliant (DCAA Form 1408).

Tips To Ensure That Your Accounting Systems Are DCAA Compliant

The best way to ensure that your contracting business is compliant with FAR guidelines is to consult with a certified public accountant about your specific accounting system needs. However, there are more general tips that can help you adequately prepare in case you are audited by the DCAA via a pre-award survey or another form of DCAA accounting systems audit.

The DCAA provides a checklist, (DCAA Form 1408), to help contractors conduct their own audit and ensure that their accounting systems follow the necessary standards established by FAR. In addition to following the checklist provided by the DCAA, the following are important tips to help ensure that your accounting systems are compliant with DCAA standards.

Choose A Reliable Accounting Software

person working on accounting softwareThe DCAA does not recommend any accounting software brands and there are no official DCAA-compliant accounting software systems. However, there are software systems that are better optimized for DCAA compliance than others.

By choosing reliable accounting software, it makes your job of documenting transactions, segregating costs, and following timekeeping guidelines much easier. Most commercial accounting software packages that are designed to track job costs (i.e., Quickbooks) work well, but taking the time to find the one that is best for your specific needs is important.

Properly Record And Segregate Direct Costs And Indirect Costs

One of the most important accounting tasks to follow is to properly segregate direct costs and indirect costs. In simplest terms, direct costs are the costs that are directly associated with your goods or services. This may include the cost of raw materials, labor, and manufacturing. Indirect costs are not directly related to your goods or services, such as insurance and quality control costs.

Ensure That You Have A Reliable Timekeeping System

Timekeeping is one of the most integral components of a DCAA accounting systems audit (pre-award survey). Timekeeping refers to the documentation of employee work hours. It is essential to accurately and precisely document your timekeeping within your accounting systems in an organized manner that is easy for the DCAA auditor to assess.

Correctly Identify And Exclude Unallowable Expenses

FAR Part 31 is included to help contractors understand which costs are reimbursable and which are considered unallowable. It is important to understand the cost principles and procedures established in FAR Part 31 so that you can properly identify and exclude any costs that are considered unallowable. It is important to segregate these unallowable expenses from the reimbursable costs.

Charge Labor To The Appropriate Cost Objectives

man on calculator with invoice in computer and sheetThe DCAA requires contractors to properly allocate labor to the appropriate cost objective. This helps the DCAA auditor assess the costs appropriately and ensure that the contractor is adequately compensated and reimbursed. A failure to properly allocate labor costs could lead to issues with a DCAA audit.

Stay Consistent And Organized With Your Accounting System

Your accounting software is only a small factor in determining if your accounting system is DCAA compliant. Ultimately, it is up to your contracting business to ensure that all costs and labor are properly documented consistently and in an organized manner. The best way to accomplish this is by having a system in place to ensure that your accounting needs are met or by working with a certified public accountant.

About Diener & Associates CPAs LLC

Diener & Associates CPAs LLC has been a leading provider of professional CPA services in the DC metropolitan area since 1989. We offer a range of consulting/advisory, outsourced accounting, and tax services to assist businesses with their most challenging processes. Regardless of your industry of operation, Diener & Associates CPAs LLC can maximize your organization’s efficiency, scalability, and profitability.

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