5 Fundamentals for Understanding DCAA Accounting System Compliance

By Robert Smith, CEO of ICAT Systems

For well over a decade, I have coached growing businesses through the configuration of their QuickBooks® accounting system for DCAA compliance in a hands-on workshop setting. Some attendees have years of experience, while others are just finding their way.

Over 3 days, we hunker down and work through policy & procedure statements, organizing the cost pool structure into the chart of accounts, timekeeping, configuring the labor distribution process, indirect rate calculation and indirect cost allocation, job cost reporting, and the nuances of federal contract cost accounting so they can leave with a fully compliant accounting system, prepared and confident to pass their DCAA accounting system review.

After working with hundreds of companies of all sizes, I have identified the following points that help Contractors understand accounting system compliance:

1. Context matters.

Quite a few Contractors starting out do not realize how Government oversight over accounting systems impacts their company. The Contractor will have more contract opportunities, but there will be more obligations for the Contractor to submit reports and be transparent.

2. Accounting System compliance is more than just software.

When establishing and maintaining a compliant accounting system, Contractors need to have all elements of their accounting system in order. This includes written policy and procedure statements, a compliant timekeeping system, labor distribution, indirect cost allocation, job costing reporting, billing, and budgeting.

3. Contract type affects how costs are billed, but the cost accounting is unaffected by contract type.

The cost accounting procedures are the same regardless of contract type, but the billing procedures and Government oversight over contract costs depends heavily on contract type.

4. Audits instill (often unnecessary) fear.

Many businesses new to cost-plus type contracts are simply unfamiliar with what to expect from an accounting system audit. Knowing what is involved is the first step to preparing for an audit.

5. There are important implications through the life of the contract.

A compliant accounting system is just the first step when pursuing cost-reimbursement type contracts. A Contractor must rely upon the accounting system for pricing, provisional indirect rate development, and incurred cost reporting.