In business, few objectives are as important as maintaining a good standing with the client. In Department of Defense contracting, this means ensuring DCAA accounting compliance, a concept that causes apprehension among financial managers for valid reasons.
DCAA accounting compliance involves adhering to strict accounting and financial management standards set by the Defense Contract Audit Agency. Even cautious businesses sometimes find themselves entangled in violation issues; it is best to seek guidance from certified government contracting accountants to ensure compliance.
With this blog, we are identifying some common mistakes in government contract accounting and ways to prevent them.
Lack of a Clear Understanding of the Government’s Requirements
The use of public funds is under intense scrutiny, with many regulatory bodies keeping a watchful eye. The Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS) are two legal frameworks outlining government contract accounting requirements as well as the regulations specific to the Department of Defense that are also binding. The contractor must stay updated and keep pace with changes in these requirements.
Inadequate Cost Accounting System
To regulate the use of public funds, the DCAA expects contractors to maintain a reliable cost accounting system for easy and accurate tracking of expenses. Cost accounting systems must be consistent with generally accepted accounting principles (GAAP) and CAS, which means they must be accurate and consistent in allocating costs to cost objectives.
Non-Compliance With Timekeeping Procedures
Timekeeping is usually a source of ambiguity in government contracts. When non-exempt employees and consultants are involved, timekeeping becomes even more complicated.
In addition, labor contributes to a significant percentage of government contract costs, making timekeeping a highly visible compliance area where indiscretions can be costly. As such, contractors must maintain daily timesheets of all employees involved in reimbursable activities, including those working remotely.
Deficient Documentation and Recordkeeping
The Department of Defense, through the DCAA, expects contractors to maintain proper documentation to support their claims for reimbursement. This includes invoices, receipts, subcontractor agreements, and other relevant records validating expenses incurred on a particular cost objective.
Failure to maintain such records or submission of incomplete or inaccurate documents can lead to unnecessary scrutiny in the form of DCAA audits and penalties. It can also delay payment or disallow costs, therefore affecting profitability.
Lack of Adequate Internal Controls
Internal controls prevent fraud during financial reporting, which supports DCAA accounting compliance. Imperative internal controls include segregating contract costs, classifying accounting duties, reconciliations, and authorization for purchases, and monitoring subcontractor costs.
Government contractors without adequate internal controls risk errors in financial reporting, overcharging the government, or misusing funds. These are all against DCAA accounting compliance standards.
Inadequate Preparation for Surprise Audits
The most dreaded aspect of DCAA accounting compliance is the possibility of rigorous audits with little or no warning. During these impromptu visits, auditors review a contractor’s accounting system and internal controls to assess compliance. If found lacking, contractors can face penalties or even contract termination.
Centering an Accounting System Around a Specific Individual
When contractors scale their operations, their accounting needs become more complex. This necessitates a streamlined accounting process. The natural inclination is to hire a mid or C-level accountant, depending on company size, to design and oversee the operation of these systems.
However, this approach poses the risk of disruption should the accountant’s services become unavailable. A good practice is to outsource government contract accounting services to firms with a team of experts.
Failure to Leverage Available Information and Technologies
Technology has transformed accounting in a significant way. Innovations in this sector have been at pace with government contract accounting needs. This means contractors who fail to embrace new technologies are more likely to encounter hurdles in maintaining DCAA accounting compliance.
However, with various accounting software available in the market, the difference between staying ahead or lagging in DCAA accounting compliance is contingent on choosing the right provider.
Ensure DCAA Compliance By Partnering With Diener & Associates
Accounting for government contracts is a demanding and high-stakes job. When done correctly, it helps contractors win bids, avoid penalties and legal issues, and improve profitability.
The consequences are dire if it proves inadequate, ranging from unsuccessful pre-award survey audits to heavy fines, contract termination, and even suspension or debarment from future government contracts.
As a result, it shouldn’t be left to chance. The certified public accountants at Diener & Associates have experience in crafting personalized solutions for government contracts of all scales.
They are committed to providing exceptional government contract accounting services to ensure DCAA accounting compliance, efficiency in project execution, and profitability. Contact Diener & Associates today to get DCAA-approved government contract accounting services.