All government contractors must adhere to strict standards set forth by the Defense Contract Audit Agency (DCAA). The DCAA regularly performs audits to ensure that government contractors comply with these standards. In order to pass these audits, it is critical that government contractors use accounting systems that can be set up with DCAA compliance in mind. What should DCAA-compliant accounting systems include? We’ll cover some of the basics below.
What Defines a DCAA-Compliant Accounting System?
Before examining what should be included in DCAA-compliant accounting systems, it’s important to note that the government does not officially recommend or endorse any specific accounting systems. However, even though the DCAA does not certify formally or approve any particular software programs, there are still several requirements that a federal contractor’s accounting system must be capable of meeting.
DCAA Compliant Accounting System Requirements
A government contractor’s cost accounting system must be capable of meeting the following conditions to be compliant with DCAA regulations:
- Maintaining Generally Accepted Accounting Principles (GAAP)
- Segregating direct costs from indirect costs
- Segregating pre-award costs from contract costs
- Charging direct and indirect labor costs to the appropriate cost objectives
- Providing detailed job costing that tracks expenses and revenue at a project or job level
- Reconciling indirect and direct costs in the general ledger every month
- Meeting stringent timekeeping requirements, including daily timekeeping, timesheet approval, clear policies for overtime authorization, segregation of labor by contract or task order, and more
- Producing monthly determinations and cost recording
- Using a pool in the chart of accounts to identify, exclude, and track unallowable costs
- Identifying all costs by contract line item (CLIN)
- Providing a thorough audit trail, including accounting records and financial statements
Accounting Systems and SF 1408
A DCAA-compliant accounting system is not just a requirement for the contract term. Before the government awards you a contract, you may need to prove that you can meet the DCAA’s accounting standards. The government determines this by requiring certain contractors to complete Standard Form 1408 (SF 1408), Pre-award Survey of Prospective Contractor (Accounting System).
SF 1408 guides procedures for assessing a potential contractor’s accounting systems to determine if they meet the contract’s requirements. If you are required to complete SF 1408, the government agency that needs it will solicit it from you.
However, even if you do not need to submit the SF 1408, it can be a helpful resource as you determine what will be required to bring your current accounting system into compliance.
How to Make QuickBooks DCAA Compliant
As noted above, the government does not require the use of any specific accounting program, nor does it officially recommend or certify any particular software system. However, accounting systems and software programs are not created equal. Some do not have the capability of meeting the DCAA’s many requirements, while others — like QuickBooks — do.
While QuickBooks is not the only accounting system that can be used to achieve DCAA compliance, with the right setup and training, it can be a powerful tool to help ensure your accounting and timekeeping procedures meet all of the DCAA’s requirements.
QuickBooks Online, the most popular cloud-based accounting software for small to mid-sized government contractors, is DCAA compliant with GovCon Connect. We provide all-in-one software packages, along with a host of full-service options and training opportunities. If you need help converting QuickBooks Desktop to QuickBooks Online, we can help.
Whatever accounting support you need to win and fulfill government contracts, GovCon can help. As a QuickBooks Solutions Provider, we offer unbeatable accounting software packages specifically designed for government contract bookkeeping to help you remain DCAA compliant. And with GovCon Connect, we provide all-in-one software packages, training opportunities, and four different levels of full or partial accounting services, depending on your needs.
Working with GovCon means that you’re working with DCAA compliance experts. With our 20+ years of experience, you can rest easy knowing that your financials will be ready for audit anytime. Contact us today.