It is imperative that government contractors follow the accounting software requirements provided by the DCAA. This review discusses how you can remain in compliance and what type of accounting software is required by the DCAA.
An Overview Of The DCAA And Accounting Software Requirements
The Defense Contract Audit Agency (DCAA) conducts what is known as an accounting system audit (also called an accounting system survey). There are two main types of accounting system audits — pre-award and post-award surveys; a pre-award survey is conducted before or upon hiring of a contractor, and a post-award survey takes place after the work is finished.
The DCAA uses the standards that are established in the Federal Acquisition Regulation (FAR). The accounting system audit checks for a range of criteria that must be met, including but not limited to:
- Job cost
- Unallowable costs
- Indirect costs
- Cost segregation
- Labor distribution
Your DCAA accounting system audit may look different based upon the government agency (or agencies) that you work with and the type of contracts that you have or will be working on with government agencies.
What Are The DCAA Accounting Software Requirements?
The DCAA does not audit every contractor, but it is important to always remain in compliance and ready for an audit. The DCAA does not have any specific requirements for your accounting software, and you can use whichever software works best for your company. However, it is important to ensure that the accounting software you choose allows you to record all of your financial information, keep track of your employee’s hours, and segregate costs as necessary.
Does The DCAA Endorse Any Accounting Software?
The DCAA does not endorse any specific accounting software. Although there are no DCAA-approved accounting software systems, there are accounting software packages that make it easier to remain DCAA compliant.
For the most part, any reputable commercial accounting package is capable of tracking job costs (i.e. Quickbooks). The specific software that works best for you to help you remain DCAA compliant is dependent upon the specific type of contracts you complete for government agencies and your personal preference. Of course, it is encouraged and helpful to consult with a CPA professional before choosing an accounting software system.
What All Should Be Included In Accounting Software To Meet DCAA Requirements?
It is important to understand that your accounting system encompasses more than your accounting software. The software is the tool that you use to record your costs, timekeeping, and more, but it is up to your contracting business to follow the necessary procedures as established by the DCAA and FAR.
The specifics of what you should include in your accounting software are dependent upon the type of work you do, the number of employees you rely upon, and the types of contracts you procure with government agencies. However, in general, your accounting software should offer you the ability to properly document transactions, follow timekeeping requirements, and follow cost segregation policies.
The Ability To Properly Document Transactions
Your accounting software is simply the place you store your business transactions. This includes all of your incurred costs, whether they are direct or indirect. By ensuring the accounting software you choose allows you to easily document your contract transactions, you can ensure you are fully paid and reimbursed by the government agency that hired you.
The Ability To Follow Timekeeping Requirements
Timekeeping involves the documentation of labor hours. A failure to properly document your employees’ hours in your accounting software could lead to a failed DCAA audit and a more challenging time procuring contracts with government agencies in the future.
When choosing accounting software for your business, be sure to consider how easy it is to record and organize timekeeping information in a manner that is consistent and follows FAR timekeeping requirements.
The Ability To Follow Cost Segregation Policies
Cost segregation involves separating your costs based upon how they are viewed by the DCAA. There are two types of costs that are important to understand: direct and indirect. Direct costs are costs directly associated with the goods or services you are providing for the contract. For example, labor costs for a construction project are direct costs. Indirect costs are not directly associated with your services, such as insurance coverage.
Costs are also broken down into reimbursable and unallowable costs as well (FAR part 31). It is important to understand cost segregation policies and choose an accounting software system that allows you to properly segregate your costs according to DCAA requirements.
The Importance Of DCAA Compliant Accounting Software
The pre-award accounting system survey checklist provided by the DCAA (SF 1408) was updated in 2013 and now requires a summary of how your accounting systems and software meet DCAA requirements. This means it is more important than ever to ensure you follow DCAA compliance as it relates to cost accounting standards.