Government Approved Accounting Systems

When your organization is considered for a government contract, it is issued a series of pre award surveys such as Standard Form (SF) 1408. SF 1408 is an assessment that evaluates the design of your accounting system to determine if it is acceptable for a prospective contract.

Updated on: 03/24/2025

There is no single accounting system that is officially approved by the federal government. Instead, contractors must demonstrate that their system meets the requirements outlined in SF 1408. The DCAA conducts audits to evaluate compliance, while the final determination of system adequacy is made by the Defense Contract Management Agency (DCMA) and the contracting officer. For government contractors, preparation is an important step in demonstrating that your accounting system satisfies the criteria listed on the SF 1408.

Our certified public accountants (CPAs) assist in the selection of a DCAA compliant accounting system for your organization, as well as verify the required standards are met for any systems built in-house. You can find the SF 1408 checklist for a government approved accounting system by following the link using the button below.

Download The SF 1408 Checklist

What Are Government Approved Accounting Systems?

Government contractors must apply Generally Accepted Accounting Principles (GAAP), Federal Acquisition Regulations (FAR), and Cost Accounting Standards (CAS), as well as other government standards. The Defense Contract Audit Agency (DCAA) conducts audits to assess whether a contractor’s accounting system complies with federal regulations, including FAR, DFARS, and Cost Accounting Standards (CAS). DCAA does not mandate the use of specific accounting software, but any system used must meet the criteria outlined in SF 1408 to be considered adequate for government contracts.

To be a successful government contractor and continue acquiring contracts, businesses must be able to complete a DCAA audit. Government approved accounting systems allow you to track your financial records, bookkeeping, timekeeping, and other essential accounting needs while remaining in compliance with the DCAA.

What Are The Requirements For DCAA Compliant Accounting?

There are several requirements that your organization will need to meet to remain DCAA compliant with your accounting system. Some key requirements include:

• Implementation of generally accepted accounting principles (GAAP)
• Proper cost and transaction accumulation and documentation
• Exclusion and tracking of unallowable costs
• Compliant timekeeping functionality
• Separation of pre-contract and contract costs
• Maintain a written accounting policies and procedures manual
• Establish a cost allocation method that clearly separates direct and indirect costs
• Support cost tracking for provisional billing, incurred cost submissions, and cost reimbursement contracts (if applicable)

Having a DCAA compliant accounting system and precisely following GAAP is the best way to confirm compliance with all contract requirements. Entrusting in professional CPAs who have extensive experience with DCAA and Department of Defense (DOD) compliance makes accomplishing compliance easier for your organization.

The Risks Of Not Using A Government Approved Accounting System

Noncompliant accounting systems may not only jeopardize future contract opportunities but can also trigger audits that result in penalties under the False Claims Act (FCA), potential legal action, or financial penalties for misallocated costs. Failure to properly account for direct and indirect costs could be interpreted as fraudulent misrepresentation. A non-approved system could also lead to mistakes when compensating employees, employee disputes, tax complications, improper billing, and more. In addition, not working with suitable accounting software prevents your company from focusing its time on bigger picture concerns. It is essential to trust an outsourced accounting firm with the essential financial recording and bookkeeping tasks for you while verifying system compliance with the DCAA.

How Diener & Associates Can Help You With Your Accounting

When working with Diener & Associates, your organization can be assured it is utilizing government approved accounting systems and procedures. Our outsourced CPAs understand the policies of the DOD and all associated government agencies to ensure you follow all guidelines that are relevant to your organization. We can verify your accounting systems track all key information, including all financial components of government-issued contracts, employee hours, timekeeping, and more.

Optimize Your Accounting Systems By Consulting With Our CPA Team

Are you ready to improve your accounting systems and prepare them for a DCAA audit? If so, then feel free to call us at 703.386.7864 or schedule a consultation online today to speak with one of our professional outsourced accountants at Diener & Associates. Our team will assist with the selection and implementation of an accounting system to ensure DCAA compliance and improve overall business processes.