Securing a government contract can be a great way for a small business to expand its market reach. However, one major challenge small businesses face is understanding how to maintain compliance with the Defense Contract Audit Agency (DCAA). Below, we’ll explore what DCAA compliance for small businesses entails and provide some practical tips for small business owners who are considering contracting with the federal government.
How Small Businesses Can Comply with DCAA Regulations
The DCAA is responsible for auditing and ensuring that all government contractors, including small businesses, adhere to specific accounting practices. DCAA regulations are meant to protect both the government’s interests and taxpayer’s funds by ensuring that government contractors are utilizing reliable and accurate financial and accounting systems to provide high-quality goods and services at a fair price.
Requirements
Like all government contractors, small businesses must adhere to several key requirements in order to achieve and maintain DCAA compliance. The DCAA will conduct audits before and during the term of the contract to ensure that small businesses are following these regulations. Some of the requirements you’ll need to be prepared to meet are noted below.
DCAA Preaward Survey
The DCAA Preaward Survey process is the first step in winning and successfully executing a government contract. This survey is used by the government to determine if a potential contractor is capable of meeting the requirements of a government contract. The Preaward Survey will check if a business has a DCAA-compliant accounting system in place that can accomplish the following:
- Capture and accumulate costs
- Segregate between direct and indirect costs (and provide documentation explaining how labor is coded into each category)
- Segregate expressly unallowable costs
- Demonstrate a consistent, logical method for cost allocation
- Follow practices that are in line with standards created by the Cost Accounting Standards Board (when applicable) or Generally Accepted Accounting Principles (GAAP)
The Preaward Survey will also ask questions to help the government determine if your business is able to meet the basic requirements of the contract in question. You should be prepared to provide the following information:
- A detailed description of the items or services being offered
- Detailed pricing
- Detailed delivery and acceptance terms
- Detailed payment terms
Accurate Timekeeping
Another major aspect of DCAA compliance for small businesses is accurate timekeeping. Some of the requirements for DCAA-compliant timekeeping systems include the following:
- Timekeeping systems capable of accurately tracking and allocating labor costs and producing labor distribution reports
- Timekeeping procedures that include a written record of procedures and rules used to record time worked, including policies that cover timesheet approval, overtime authorization, and how employees should report absences and holidays
- Systems capable of producing a thorough audit trail
Price Proposal Documentation
When bidding on a government contract, you’ll be required to submit a contract proposal. A complete contract proposal will need to include detailed information including the following:
- Analysis of labor and overhead rates used in crafting the proposal
- Historical data related to those expenses
- The process used to project future expenses
Because the DCAA may choose to audit a pricing proposal, it’s important to make sure that your proposal meets the requirements set forth in the Contract Pricing Proposal Checklist.
How Is DCAA Compliance Enforced?
The DCAA conducts regular audits to ensure that contractors are maintaining compliance. Audits you may be subject to at different points during the contract term include (but are not limited to) forward pricing audits, incurred cost submission audits, performance audits, timekeeping audits, and more.
Tips for Achieving DCAA Compliance
DCAA rules and regulations are stringent and complex, and DCAA audit preparation can be difficult to navigate. The following tips may help:
- Getting Educated: Understanding the DCAA regulations is the first step toward compliance. Take the time to familiarize yourself and your team with the requirements and guidelines outlined by the DCAA. DCAA compliance training can help businesses and organizations gain a comprehensive understanding of how to maintain compliance with all required DCAA regulations and standards. Critically, compliance training can help businesses stay ahead of DCAA audits and ensure that they avoid common mistakes that might put their contract at risk.
- Leveraging Technology Solutions: Utilizing technology solutions, such as DCAA-compliant accounting software, can streamline your processes and help you maintain accurate records. Having the right accounting technology in place makes it easy to ensure you have the tools and systems in place to simplify and securely store the timekeeping and accounting data you’ll need in place to pass DCAA audits.
- Seeking Audit Support: Training or support specifically focused on DCAA audit preparation is another step your small business can take to maintain DCAA compliance.
Whether your small business needs DCAA-compliant software, an accounting system overhaul, or training, GovCon can help. For over 20 years, GovCon has helped hundreds of clients navigate the complex world of DCAA compliance, streamline their operations, pass audits, and win contracts. We use our wealth of real-world experience to simplify your process, reduce the cost of compliance, and improve accuracy. We offer a range of DCAA compliance training programs, and our government contracting software is built specifically to manage DCAA accounting and compliance, leaving no expense unaccounted for. We’d love to show you how GovCon can simplify DCAA compliance for your small business. Contact us any time.