A pivotal aspect of becoming a government contractor is having the ability to comply with a bevy of state rules and guidelines. The DCAA is a crucial source of contract guidance and directions for defense contractors.
In accordance with the Cost Accounting Standards (CAS), certain contractors and subcontractors are required to comply with the standards and declare their cost accounting processes consistently in writing. To meet the criteria, your accounting system should be uniform and perform distinct accounting functions such as accounts payable and timekeeping.
Additionally, you also need to accumulate costs by agreement to determine their distribution following the government protocols.
Understanding Cost Accounting Standards For DCAA Compliance
Cost Accounting Standards are a set of rules and standards that ensure consistency and uniformity in the accounting principles for federal contractors. These regulations demand that contractors reveal their practices related to cost accounting, abide by the disclosed procedures, and comply with standards particular to their businesses.
Essentially, contractors must comply with these standards to understand how they charge contracts, what gets charged to which agreements, and the best possible ways to maintain accounting systems. Moreover, CAS instructs them on how the costs should flow from inception to the contract completion and dictates how to account for specific types of expenses.
The DCAA checks for CAS compliance as a means to ensure consistency within organizations that identify as government contractors.
A critical piece of CAS compliance is submitting a Disclosure Statement (Form CASB DS-1) to the Administrative Contracting Officer to document the cost accounting practices. This process requires specificity and can be time-consuming.
Moreover, contractors should be careful when filing the Disclosure Statement as it is reviewed by the DCAA or Defense Contract Audit Agency as a starting point for your business. Any other changes in the future to a company’s accounting practices will need a revised Disclosure Statement.
Your Disclosure Statement should include data on:
- Direct costs
- Direct versus indirect costs
- Capitalization and depreciation practices
- Indirect costs
- Credits and other costs
- Insurance costs and deferred compensation
- Office expenses (corporate)
Delving Into Details – Keep Your Finances Compliant
DCAA compliance is a common term for federal government contracting, although the DCAA doesn’t actively validate particular contractors.
The purpose of DCAA compliance is to ensure the contractor under investigation follows the recommendations and the guidelines established by the DCAA, fully complies with state law, and is prepared adequately for audits in the near future.
DCAA compliance ensures that you have followed the essential documented policies and procedures and substantiates that your company meets DCAA requirements. This makes you trustworthy as a possible contractor for the DoD.
The best approach is to ensure that every report required by the DCAA for auditing is easily accessible.
DCAA Compliance And Adherence To Cost Accounting Standards
Many entrepreneurs in the government contracting sector mistakenly consider their DCAA compliance as a certification. However, it simply indicates that the organization’s documentation and procedures are in order, and they are positioned to pass a DCAA audit.
This audit gauges the contractor’s compliance with the government’s regulations and guidelines, including Federal Acquisition Regulation (FAR), CAS, and others.
DCAA reviews are driven by the directions outlined in the CAS, FAR, and system requirements. These accounting methods direct how the government monitors the funds it pays contractors. Therefore, it is vital for contractors to perform meticulous accounting.
Here are three areas where contractors must be compliant with DCAA standards:
- Cost Accounting Standards: Many DoD contractors (with a few exemptions) must abide by the CAS, meant to ensure consistency in accounting practices and pricing.
- Labor Charging and Timekeeping System Requirements: As a contractor, you must also establish compliant timekeeping processes and leverage automated timekeeping systems to keep track of the time and resources spent.
- Federal Acquisition Regulation: The Federal Acquisition Regulation gives state agencies overarching direction on audits: a set of uniform, consistent procedures and policies within the federal acquisition method.
Work With A CPA Firm To Ensure CAS & DCAA Compliance
The process of complying with the DCAA in the light of the Cost Accounting Standards can be time-consuming, tedious, and nerve-wracking. The regulations and rules change continuously, making the audit process more intricate and resource-intensive than ever.
It is important for contractors to ensure that they have a dedicated and competent team to manage their accounting systems and prepare for DCAA audits. If you are a government contractor struggling with business management and compliance, a certified public accountant can help you deal with the technicalities and legalities.
Working with a CPA firm will help your organization navigate the complexities of the DCAA with optimal business solutions while ensuring it abides by the rules.