For small businesses entering the realm of government contracting, understanding and adhering to the Defense Contract Audit Agency’s (DCAA) compliance requirements is crucial. This introductory guide provides an overview of essential practices and tools, including DCAA compliant accounting software for small businesses, DCAA compliant timekeeping, and more, to help ensure your operations align with DCAA standards.
Understanding DCAA Compliance
DCAA compliance involves adhering to specific regulations and standards set by congress and enforced by the Defense Contract Audit Agency, which audits government contracts to ensure that spending is appropriate, reasonable, and allocates taxpayer money correctly. For small businesses, particularly those new to government contracting, navigating these regulations can be daunting.
DCAA Compliant Accounting Systems for Small Business Government Contractors
Utilizing accounting software that meets DCAA compliance guidelines is fundamental for small businesses in the government contracting space. Key features include segregation of direct and indirect costs, job costing, and the ability to generate timely and accurate reports. Timekeeping compliance is also critical to meeting DCAA standards. Your systems should ensure that all employee hours are accurately recorded and allocated to specific contracts or projects to meet DCAA compliant timekeeping standards. Beyond general compliance, seek software tailored to your unique needs, such as scalability, user-friendliness, and integration capabilities.
DCAA Accounting System Compliance Checklist
DCAA often performs a review of a contractor’s accounting systems before a contract is awarded to determine the adequacy of the system for government contracting. DCAA uses a Preaward Survey of Prospective Contractor Accounting System Standard Form 1408 as the basis for the determination which includes the following:
- Is the accounting system in accord with Generally Accepted Accounting Principles (GAAP) applicable in the circumstances?
- Accounting System Provides for:
- Proper segregation of direct costs from indirect costs.
- Identification and accumulation of direct costs by contract.
- A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives. (A contract is final cost objective.)
- Accumulation of costs under general ledger control.
- A timekeeping system that identifies employees’ labor by intermediate or final cost objectives.
- A labor distribution system that charges direct and indirect labor to the appropriate cost objectives.
- Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account.
- Exclusion from costs charged to government contracts of amounts which are not allowable in terms of FAR 31, Contract Cost Principles and Procedures, or other contract provisions.
- Identification of costs by contract line item and by units (as if each unit or line item were a separate contract) if required by the proposed contract.
- Segregation of preproduction costs from production costs.
- Accounting system provides financial information:
- Required by contract clauses concerning limitation of cost (FAR 52.232-20 and 21) or limitation on payments (FAR 52.216-16).
- Required to support requests for progress payments.
- Is the accounting system designed, and are the records maintained in such a manner that adequate, reliable data are developed for use in pricing follow-on acquisitions?
- Is the accounting system currently in full operation?
Check out the actual SF-1408 Evaluation Checklist.
Selecting the Right Tools: DCAA Compliant Software Features
When choosing software, consider the following features:
- Direct and Indirect Cost Tracking
- Direct Cost Tracking by Contract
- Automated Billing
- Automated Indirect Rate Calculation
- Project Reporting
- Real-Time Data Access
- Integration with Other Systems
The Role of PROCAS in Simplifying Compliance
PROCAS offers a next-generation government contract accounting solution that simplifies the complexities of compliance for small businesses. PROCAS reduces manual effort, allowing businesses to focus on their core operations while ensuring compliance.
Implementing Effective Timekeeping Practices
Effective timekeeping is a non-negotiable aspect of DCAA compliance Here are some basic requirements:
- Time must be recorded daily and accurately against correct charge codes.
- Changes to time entries must be accumulated in an audit trail which must include the reason for the change entered by the employee.
- Time must be submitted and certified by the employee at the end of the timekeeping period
- Time must be approved by the employee’s supervisor
Navigating DCAA compliance need not be overwhelming. With the right tools and practices, small businesses can effectively manage their government contracting responsibilities. Embracing solutions like PROCAS’s government contractor accounting software can help streamline this complex process, ensuring both compliance and business success.
For more detailed guidance and to see how PROCAS can specifically aid in simplifying your compliance efforts, visit our website and book a demo today.
