DCAA Compliance for Small Businesses

Many small businesses come to us with the question of “what do I need to do to have an accounting system that is DCAA compliant”? That is a good question, and somewhat complicated for a small business. See Figure 1 for a quick summary of what is required. In today’s rapid paced electronic world, many people are looking for a panacea software that answers all their needs. Just purchase this software and that is all you need to do. Life should be this simple, right? Well, not exactly. Just like the old computer programming adage, “garbage in, garbage out”, the software is only as good as the knowledge of the operator and the integrity and structure of the information going into the software.


DCAA Compliant Accounting System Requirements

Figure 1 DCAA Requirements for Compliant Accounting System


There are accounting software packages out there that are designed to meet DCAA and FAR requirements “out of the box” such as Deltek’s CostPoint®, JAMIS® Prime ERP, Unanet, Microsoft Dynamics from PVBS systems to name a few. These programs still need skilled and knowledgeable people to operate the systems. In addition, the DCAA is looking for procedures around the system to guarantee that the system is operated properly and consistently. These systems are normally geared for larger contractors and usually fairly costly. This is not a good solution for a small government contractor as it will not only cost a lot in investing in the software but will require a significant investment in the set-up and installation of the system, not to mention hiring knowledgeable personnel to operate the system going forward (or investing in significant training of existing staff).


So, what is the best solution for a small business? And by small business I mean a government contractor of less than 50 employees with only a few government contracts that does not have plans to rapidly grow beyond this size. There are many small government contractors around the country using a QuickBooks® based systems. But QuickBooks® is not designed to meet FAR and DCAA requirements out of the box, so how will that work? It is basically a two-step process where first you must set-up QuickBooks® to meet as many FAR and DCAA requirements as possible. Second you will need to create a system of “satellite” components to support QuickBooks® and complete all of the other FAR and DCAA requirements (see Figure 2). You also need to include in this set-up ways to facilitate QuickBooks® information synchronization with the satellite systems. Normally I recommend QuickBooks® Desktop version for a DCAA compliant system due to the robustness compared to QuickBooks® Online. Simply put, to make a QuickBooks® Online program part of a DCAA compliant system will require more satellites. This can add to complexity, chance for errors and synchronization.


DCAA Accounting System Structure


Figure 2 QuickBooks® Based DCAA Compliant Accounting System

You will notice that the items in Figure 1 are directly out of the government’s standard form SF1408 which is the basic guideline that the DCAA uses to evaluate systems.Since these items only describe the overall concept, it is important to realize where the requirements and complete descriptions of these systems might be found.Of course, the requirements all start in the Federal Acquisition Regulations (FAR).But there are many references and inferences to these requirements that lead to other requirements such as the DCAA Contract Audit Manual (CAM) or the Code of Federal Regulations (CFR) to name a couple.It becomes what we refer to many times as a “rat maze” trying to make sure you know first where to find the requirements and then to interpret them properly.Normally many years of experience in navigating this “rat maze” is required to have a system that is compliant and audit-able.For this reason, it makes sense for many businesses to outsource this function to a knowledgeable firm such as ReliAscent.


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