The Defense Contract Audit Agency (DCAA) conducts thorough audits of government contractor accounting processes to confirm their compliance status. Maintaining compliance allows startups to optimize operations, avoid penalties, and improve client relationships.
As businesses scale and industry regulations change, achieving regulatory compliance can become a labor-intensive administrative workflow that detracts from overall performance and negatively impacts a business’s bottom line.
By outsourcing accounting processes, startups can meet DCAA audit requirements and avoid penalties while scaling their operations. Outsourced accounting workflows help businesses meet the DCAA’s regulatory requirements, including the penalties they can avoid by leaving complex administrative accounting duties to a team of experienced professionals.
What are the DCAA Audit Requirements?
The DCAA assesses compliance using several federal accounting regulations, including:
- Cost Accounting Standards (CAS)
- Federal Acquisitions Regulations (FAR)
- Generally Accepted Accounting Principles (GAAP)
- Truth in Negotiations Act (TINA)
These regulations are outlined in complex documents that detail the specifics of contractor accounting, including how contracts can be charged, how costs are allocated, how assets are valued, how labor hours are recorded, and the penalties resulting from non-compliance.
Passing any DCAA audit requires relevant documentation at each stage of the process. Organized financial records, timekeeping records, and labor hours are one aspect of DCAA accounting compliance.
Auditors will also examine material management and accounting systems (MMAS), earned value management (EVM) workflows, and contract performance reports (CPR). The timing of cost objectives and material requirements per contract will be compared to contract dates and order quantities to verify your business’s accounting compliance.
The regulations stated above cite other requirements, such as separating allowable and unallowable costs as well as direct and indirect costs. The DCAA requires that contractors make these distinctions to more accurately match cost objectives to per-contract expenditures.
Notably, while these regulations offer specific guidelines, situations can arise when they conflict with each other. The Cost Accounting Standards (CAS) take priority over the Far Acquisitions Regulations (FAR) in issues of resource allocability.
However, each standard has its own priority in different regulatory issues, which is why a firm experienced in helping businesses manage their accounting practices is key to achieving and maintaining compliance in today’s complex regulatory environment.
What are the Penalties for Failing DCAA Compliance?
The DCAA reviews business processes to ensure that government money is spent responsibly and legally, making the consequences of noncompliance serious issues. The potential penalties can be broadly separated into these categories:
- Investigatory Action: In some cases, the results of the DCAA audit may prompt investigations into the business’s financial activities, potentially resulting in whistleblower action.
- Criminal Liability: Violating workers’ rights, misattributing costs, or willfully withholding documentation can potentially lead to criminal liabilities for the contractor. The resulting damages may need to be repaid. Additionally, criminal penalties up to and including significant jail time may be levied against the manager who signed the cost certificate in question.
- Terminated Contract: The current contract may become void if the DCAA audit reveals accounting practices that violate the CAS, FAR, or other relevant legal standards. Contract termination often results from the discovery of a conflict of interest or competitive advantage related to the current contract.
- Contract Debarment: Debarment can result when a DCAA audit reveals evidence of antitrust violations, fraud, or other legal infractions. Debarment from the contracting agency results in debarment from all government agencies, which means that future contract bids or proposals will likely not be considered.
A firm experienced in assisting startups in maintaining DCAA compliance can avoid these penalties by accepting responsibility for their complex accounting practices. Rather than devote valuable resources to training accounting staff and reviewing the complex regulations, businesses can redirect their resources to more pressing issues while professionals guarantee accounting compliance with state-of-the-art accounting software, data protection methods, document retrieval systems, and real-time transaction processing.
Contact Diener & Associates for Expert Assistance With DCAA Audit Preparation
Diener & Associates is a team of experienced CPAs focused on helping government contractors overcome common challenges with federal compliance, including avoiding the costly penalties of non-compliance.
We review contractors’ accounting, timekeeping, and legal processes, conduct mock internal audits to detect compliance gaps, and assist supervisors in their understanding of relevant federal standards, such as the GAAP.
Schedule a consultation today to learn how the expert CPAs at Diener & Associates can help you overcome common compliance challenges, even in your first government audit.