By law, businesses with Department of Defense (DoD) contracts must follow stringent government regulations and requirements. To ensure compliance, these government contractors are subject to regular audits conducted by the Defense Contract Audit Agency (DCAA). Part of being prepared for the specific requirements enforced by DCAA audits is utilizing DCAA-compliant accounting software. QuickBooks Online is a popular accounting software that can be used for government contracts and DCAA compliance. Scroll down to learn how to set up QuickBooks Online for DCAA compliance.
How to Set Up QuickBooks Online for DCAA Compliance
Timekeeping
Timekeeping is an important part of DCAA compliance, and QuickBooks Online offers a time-tracking feature that can be customized to meet DCAA requirements. To set up timekeeping in QuickBooks Online for DCAA compliance, you’ll need to create a time-tracking item that meets the following requirements:
- Tracks time in 15-minute increments
- Allows for daily time entry
- Includes the employee’s name, the date, the job, and the number of hours worked
- Can be exported to a format that the DCAA accepts, such as a CSV or Excel file
Once you’ve set up the time-tracking item, make sure to train employees on how to use it properly and consistently.
Utilize Job Costing
Job costing is a feature in QuickBooks Online that allows you to track expenses and revenue for each job or contract. Make sure to include all relevant information, such as the contract number, start and end dates, and the type of work being performed. You should also assign employees and expenses to the job so that you can accurately track costs.
Track Indirect Costs
Government contracts will generally specify a certain amount of money both for direct costs (such as labor and materials) and for indirect costs. Indirect costs are expenses that are critical for the project but not easily identifiable with a specific objective. Examples of indirect costs may include accounting salaries, rent, depreciation, and utilities. Indirect costs are usually covered in a contract using an indirect cost rate; all contractors with indirect cost rates in their contract are required to maintain accurate, detailed records to support the indirect cost rate calculation.
Use QuickBooks Online to maintain thorough, detailed records of all direct and indirect costs. These must be submitted to the government on a regular basis to ensure that the reimbursement requested is fair, accurate, and reasonable.
Generate Invoices
Invoicing for government contracts must meet specific DCAA requirements. To set up invoicing in QuickBooks Online for DCAA compliance, you’ll need to create an invoice template that includes the following information:
- The contract number
- The period of performance
- The amount invoiced
- The type of work performed
- The labor categories and rates
- The direct costs and indirect costs
- The total amount due
You should also include a detailed backup that shows how the invoiced amount was calculated.
Maintain Documentation
Maintaining accurate and complete documentation is critical for DCAA compliance. To set up documentation in QuickBooks Online, you should do the following:
- Save all invoices, receipts, time sheets, and other financial records in a secure location
- Make sure that all records are properly labeled and organized
- Use QuickBooks Online to generate reports that show all financial transactions related to government contracts
Audit Support
Prepare for DCAA audits by maintaining accurate records and having a system in place for responding to audit requests. This should include all of the following:
- Making sure that all financial records are up-to-date and accurate
- Being prepared to provide documentation for all transactions related to government contracts
- Having a plan for responding to audit requests in a timely and organized manner
Knowing how to set up QuickBooks Online for DCAA compliance is just the first step in making sure you are prepared for DCAA audits. It’s also recommended that you consult with a professional familiar with DCAA compliance to ensure your QuickBooks Online setup meets all applicable requirements.
If you need a back-end office solution to support your government contracts, Gov-Con can help. As a QuickBooks Online Solutions Provider, Gov-Con offers an unbeatable accounting software solution package specifically designed for government contract bookkeeping to help you remain DCAA compliant. Plus, we offer four different levels of full or partial accounting services and support to meet your accounting and DCAA compliance needs. Working with GovCon, you can trust that your financials are in the hands of DCAA compliance experts. With our 20+ years of experience, rest easy knowing that your financials will be ready for audit at any time. Contact us today for a free consultation to determine which package is the best fit for you.