The United States Federal Government constantly pushes for better policies to benefit the people. The Defense Contract Audit Agency, or DCAA, is a part of this drive, auditing government contractors to ensure they can be trusted and are suitable for the job.
Government contractors must pass a challenging DCAA audit to qualify for government contracts. Being a DCAA-approved contractor has many benefits, as it opens the gate for government contracts.
Let’s explore DCAA in further detail and understand the required compliance.
What Is The DCAA And What Does Compliance Entail?
The Defense Contract Audit Agency is a federal government organization responsible for conducting audits and providing financial advice to the Department of Defense and other federal departments.
The primary role of DCAA is to overview the contract acquisition and perform audits to ensure that the budget is allocated to a contractor that will give maximum benefit to American taxpayers and the armed forces.
The DCAA is the largest government auditing agency in the United States. When a government contractor allows the DCAA to audit, they give the agency access to their accounting system to thoroughly examine it and ensure that they are following all required accounting standards and guidelines.
In particular, contractors should expect a detailed audit of the cost accounting system. The DCAA does not officially declare any contractor as DCAA approved or certified. Instead they are determined to be compliant, meaning that the contractor has passed the audit and fulfilled the DCAA guidelines and regulations.
DCAA Compliance Challenges for First-Time Government Contractors
As a new contractor, you should be aware of the DCAA audits. The DCAA can conduct an audit before or even in the middle of the contract. They aim to make sure the contractor works according to the guidelines.
If your business can pass the DCAA audits, it is eligible for government contracts. Contractors will be subject to the following types of audits:
1. Forward Pricing Audits
The most common challenge contractors face is the forward pricing audit. This audit analyzes the cost and prices given by the contractor. The DCAA examines the pricing and benefits prior to the contract.
2. Incurred Cost Audits
Incurred cost audits apply when there are no fixed costs, and the prices vary throughout the contract. With such complexities, DCAA takes specific measures to assess the accuracy of the proposed cost.
3. Special Audit
Special audits are those which can be done before, during or after the contract. In this type of audit, the DCAA can review specific elements of the audit.
4. SF-1408 Form
SF 1408 is a DCAA pre-award survey form that the DCAA requires from government contractors. The purpose of the form is to assess the accounting system of the contractor to determine if the accounting system is DCAA compliant or not. The SF 1408 includes the following elements:
- Labor distribution
- GAAP (generally accepted accounting principles)
- All indirect cost, cost allocation and unallowable cost
5. Frequent Change in Government Request
One of the most common challenges in DCAA compliance is being up to date with the constantly changing government requests. The auditing and accounting requirements for government contractors are far more stringent than for any other sector.
At any time, the government may change the requirements and regulations for the DCAA audits and compliance rules. The regulation and accounting requirements are set forth by the Financial Accounting Standard Board (FASB). The DCAA instructs the contractors to work according to the FSBA standards, Cost Accounting Standards (CAS) and Federal Acquisition Regulations (FAR).
The ideal solution for government contractors, both established and new, is to constantly monitor these regulations for changes to be adequately prepared for any audit.
6. The Need For Excessive Documentation
With constant changes in government requests and policies, contractors have to maintain detailed documentation for every aspect of the accounting system and compliance with updating regulations. Company documentation is essential for the contractors as the DCAA examines every element of regulations and loopholes you may have overlooked.
New government contractors find it extremely difficult to stay current with the continuously changing policies and regulations. If you are working to become a DCAA-compliant contractor, be prepared to successfully manage consistent standards and policy changes.
Become DCAA Compliant With Guidance From Diener & Associates
Many new government contractors struggle to maintain the constant change of compliance requirements and policies. Engaging the services of professionals who have years of experience navigating DCAA audits and government accounting policies will greatly enhance your preparedness and help you achieve compliance. Contact us today and schedule a consultation with our experts.