DCAA compliance is an essential requirement for government contractors. However, DCAA compliance can be difficult for those new to government contracting, particularly the accounting techniques.
Appropriate accounting is often challenging for any organization, but it can be even trickier when your company is required to follow the DCAA standards.
Being DCAA-compliant denotes that the company has procedures and systems that follow the DCAA audit. The DCAA does not award any formal statement certifying a company as DCAA-compliant. However, it employs audits to gauge if the business meets:
- Federal Acquisition Regulation (FAR)
- Cost Accounting Standards (CAS)
- Applicable related government rules
Ensuring DCAA Compliance Throughout Your Organization
Your company must also verify that its financial management complies with the DCAA standards concerning financial data accountability and security. Additionally, it is beneficial if you transparently document the ways you are using the contract amount, as well as the outcomes achieved.
A good DCAA compliance indicator is an accounting system that employs Generally Accepted Accounting Principles (GAAP), stating how contractors should account for, record and measure financial transactions.
Here are some ways to ensure that your organization meets the standards and requirements of DCAA compliance:
Monitor Costs By Task, Project, Contract And Objective
With a proper job costing method integrated seamlessly with your company’s accounting system, you will be able to accumulate expenses by cost element (direct materials, labor, consultants and others) and byt project.
Assign a project or job number for each direct cost transaction and maintain a job cost breakdown per project. You should be able to provide a comprehensive report that demonstrates direct expenses by contract, cost element and/or job.
Often, it’s important that your accounting system possesses the ability to track costs at the same level at which a contract is funded. This gives you and your customer the information necessary to track invoiced versus funded amounts.
Separate Direct And Indirect Costs
Defining direct and indirect costs can be cumbersome, but tracking costs is an essential aspect of the accounting system. Independent contractors must separate direct and indirect costs on every contract and log and monitor all types of costs in detail and separate accounts.
At its core, costs that are attributed directly to one project (materials purchased for that project, working hours directly on that project alone and more) are direct costs, and indirect costs are those incurred to operate your business (vehicle maintenance, rent on your building, administrative staff hours, etc.) or costs which are in support of contracts but are not directly traceable to one contract.
Maintain Your Timekeeping Structure
Just as important as comprehensive cost tracking is precise timekeeping. It does not matter if your timesheets are digital or manual, but it is essential to accurately document project numbers and days. Also, your timekeeping system should meet DCAA-specific elements for time trackers, including:
- Security for control and identity of timesheets
- Recording total work hours and work done each day for all employees
- Requiring appropriate timesheet approval
- Requiring employee signatures on timesheets
These are just some of the DCAA-compliant timekeeping requirements; there are also other measures to follow for DCAA compliance.
Accumulate And Record Costs Monthly
As standard practice, most companies record costs as they are incurred; this is even more important for government contractors to follow. Failure to accrue costs in your account book at least once a month as a minimum can cause you to be removed and excluded from a contractual agreement with the government.
You should be able to report on projects once a month to demonstrate total costs incurred for both direct and indirect costs. QuickBooks standard reports do not meet this specification unless you make considerable amendments to the system.
Unallowable Cost’ Accounting
Government contractors must understand which accounting requirements are impermissible in FAR 31.201-6. Contractors are not reimbursed for certain expenses by the federal government; these unallowable costs may include alcohol, company parties, entertainment and travel expenses.
Keep separate unallowable cost accounts in your accounting system and note distinct unallowable cost classifications.
Provide Historical Accounting Data
To provide accurate and detailed historical accounting data, abide by all the standards mentioned above and other remaining DCAA compliance requirements.
Presuming all DCAA standards are tracked and followed, you must meet the dependability of historical cost data-related requirements for subsequent procurements.
Track Costs By Contract Line Item (CLIN)
A contract line item (CLIN) is an individual segment or task within a contract. The CLINs separate the contract by the commodities procured: labor hours of services, funding for travel, quantity of products per product, etc.
Contract Line Item Numbers (CLIN) should comply with the following four characteristics:
- Separate delivery schedule, a period of performance or a completion date
- Not more than one scope or work/description of services
- Single unit price/extended amount
- Single accounting classification citation
This technique also indicates incurring direct costs to a contract line item and distributing indirect costs to that contract line item.
Work With A Certified Public Accountant
Ensuring DCAA compliance accounting is a complex endeavor. Contractors must maintain even more comprehensive records than the standard business accounting methods. Since there are regular audits, government contractors must always have a thorough history of all amounts and financial activities related to the contract.
The primary aspects of government contract accounting are detail and transparency. All the accounting-related data, from payables to time-tracking, should have drill-down and audit trail functionalities.
If you are concerned about meeting the requirements for DCAA compliance for your company’s accounting methods, a certified public accountant can help. They can help you navigate the complexities and have the expertise of government contracting to assist your business with meeting stringent compliance criteria.