Government contractors face a daunting task: meeting the stringent standards of the Defense Contract Audit Agency (DCAA). These audits, essential for contract renewals, demand a thorough understanding and application of complex regulatory requirements.
Many contractors, regardless of their experience, find themselves struggling to optimize this labor-intensive administrative process. For this reason, many government contractors partner with an experienced CPA firm.
By outsourcing the accounting workflow to DCAA compliance experts, businesses are able to safeguard contracts and avoid costly penalties. A CPA firm with industry-specific knowledge ensures accounting practices not only meet but exceed DCAA standards, help contractors to deliver exceptional services to the government.
How Does the DCAA Determine Compliance?
DCAA auditors conduct on-site assessments of specific workflows and extensive documentation reviews to determine compliance status. Although the focus may change depending on the circumstances, the overall goal of an audit is to establish that government funds are used and documented responsibly and efficiently.
To achieve this, auditors compare a contractor’s accounting workflow with the guidelines established by several key pieces of regulation, which include:
- Federal Acquisitions Regulations (FAR)
- Truth in Negotiations Act (TINA)
- Cost Accounting Standards (CAS)
- Generally Accepted Accounting Principles (GAAP)
These documents form the foundation of standards by which contractors are reviewed, including an examination of MMAS (Material Management and Accounting Systems), EVM (Earned Value Management), CPR (Contract Performance Reports), and more.
The auditor compares documented cost objectives to per-contract costs using order quantities and cost reports, examines cost separation practices, reviews departmental approval of work hours, and more.
Penalties for DCAA Non-Compliance
Contractors who fail to maintain an accounting workflow that meets DCAA standards are subject to numerous penalties, including investigatory action and criminal liability. Managers who sign cost certificates that misuse or misallocate government funds can face jail time as a result of a DCAA auditor’s report.
However, the more pressing penalty for many contractors is the possibility of contract loss. Government contracts can become void if the contractor fails to meet the relevant CAS, FAR, GAAP, or other financial standards. If the auditor discovers a conflict of interest, they may have grounds to terminate the contract or debar the contractor from future bids.
Advantages of Outsourced Accounting Services
To avoid contract loss, top-performing businesses turn to outsourced accounting firms specializing in government contracts. Their services provide numerous advantages for new and experienced contractors to maneuver complex regulations required for DCAA compliance.
- Precise Comprehension: The legal standards relevant to DCAA compliance are intricate. An experienced firm will have the most current knowledge of applicable standards.
- Cost Reduction: In-house government accounting specialists can be expensive to attract and retain. Contractors often see cost savings by outsourcing their contract accounting needs.
- Lower Risks: The risks of non-compliance, including contract termination, can be mitigated by using an experienced outsourced accounting team equipped with the latest risk management practices and systems.
- Higher Scalability: Contractors often find scaling their operations difficult while maintaining DCAA accounting compliance. By outsourcing accounting, these businesses gain access to the updated cost allocation and reporting workflows needed to simultaneously achieve scalability and compliance.
- Better Insights: An outsourced accounting firm can offer financial insights into a contractor’s practices without bias. They can offer strategies for accounting compliance that in-house teams may not be equipped to propose.
- More Adaptability: The DCAA’s compliance standards are complex and dynamic, meaning teams must be current with regulatory changes at all times. Outsourced accounting services stay updated with the latest regulations ensuring that contractors adapt to changes and maintain compliance.
- Advanced Methods: Outsourced accounting firms are equipped with the latest software and tools, allowing them to make a meaningful impact on the productivity, security, and trustworthiness of a contractor’s accounting practices.
Safeguard Your Contracts with DCAA Compliance Experts
With ever-changing DCAA regulations, maintaining compliance can be a daunting task for government contractors. In-house accounting compliance efforts can be costly and difficult to scale; however, outsourcing your accounting workflow to experts offers enhanced risk mitigation, financial stability, and growth potential.
At Diener & Associates, our team of seasoned CPAs specializes in guiding government contractors through the complexities of federal compliance. We offer:
Comprehensive reviews of government contract accounting, timekeeping, and legal processes- Mock internal audits to identify and address compliance gaps
- Expert guidance on relevant federal standards, including GAAP
- Tailored solutions for both new and experienced contractors
Don’t let DCAA compliance issues jeopardize your contracts. Schedule a consultation today with Diener & Associates and discover how our expert CPAs can fortify your compliance strategy, ensuring success in your next government audit.