One of the most common questions small businesses ask when entering into the government contracting world is: “Is QuickBooks DCAA compliant?”
The short answer is no. While it does meet/perform several of the items on standard form (SF) 1408, QuickBooks on its own is not a fully DCAA compliant accounting system. Rather, it must be setup to be compliant and supported by other software & systems, and specific policies & procedures (what we call the “satellite system” surrounding your QuickBooks general ledger).
So, how do you make QuickBooks DCAA compliant? Let's start with what it does and does not offer.
The SF1408 is the evaluation checklist used by DCAA to audit approved accounting systems. From the checklist, QuickBooks allows for the following (with proper customization):
Again, using the government’s SF1408 as our guide, there are a number of ways in which QuickBooks (Desktop and Online) is not compliant, and will require supporting systems to be setup and properly maintained by an expert DCAA consultant or government contract accounting firm.
QuickBooks is a great option for small businesses. It is an inexpensive and user-friendly system compared to more complex and expensive government contract accounting systems like Deltek or Jamis. Those ERP systems can be customized to be fully compliant without additional add-ons, but can be overwhelming and cost prohibitive to startup businesses. Further, as most small businesses using these systems quickly realize (and is a common complaint we hear from contractors), it can also be difficult to find accounting staff that have the required experience with these systems to keep them functioning properly and in compliance.
At ReliAscent (like most government contract accounting firms), we utilize QuickBooks Desktop (Enterprise) for all our client’s accounting needs. It is simple and flexible, but robust enough to be scalable as your business grows (the same cannot be said for QuickBooks Online, which requires a larger system of supporting software and processes to be made DCAA compliant, and is not scalable as the business grows).
In addition to QuickBooks Desktop, ReliAscent uses our proprietary software coupled with one of many approved timekeeping systems to provide a fully compliant government job cost accounting system.
Our proprietary software provides a logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives by calculating indirect rates and providing job cost reports. It also tracks any limitation of costs or payments.
Clients have many options for DCAA compliant timekeeping systems, and can choose from many systems when we first setup their system, from a manual timekeeping system (Excel-based), to Hour Timesheet, QuickBooks Time and SpringAhead.
Finally, we round out the compliant accounting system with a proper set of policies and procedures that outline how our compliant accounting system operates.
Setting up a DCAA compliant QuickBooks accounting system is really just the start; it only gets contractors through the door, so to speak. And this is the part that many startups overlook and tend to oversimplify. Many contractors contact ReliAscent asking us to simply “set them up with a compliant accounting system that they can operate by themselves.”
This question comes up every week, and unfortunately, the answer is not what many companies want to hear (at first).
The reality is that just about any government contract accounting firm in our industry should be able to setup a compliant accounting system and provide contractors with a basic set of policies and procedures so that they can pass a PreAward Audit. And many new contractors are looking for that quick and easy solution to their compliance problem—something that can be setup and turned over to the small business owner, or maybe their bookkeeper or office manager—so they can continue performing the accounting as they had done previously, or in other businesses.
However, if the system is not maintained in compliance by an accountant with extensive experience with the Federal Acquisition Regulations (FAR) and DCAA, it’s simply “garbage in, garbage out,” as the saying goes. It is only a matter of time before the system will fall out of compliance, and the contractor will fail a DCAA audit (which is why there is a distinct lack of government contract accounting firms that only setup accounting systems, without also providing ongoing support or complete outsourced accounting services).
At ReliAscent, once your system is setup, our outsourced accounting teams, consisting of a dedicated Bookkeeper, a Senior Accountant, optional Controller, and the Account Executive (your outsourced CFO and Contracts Manager all-in-one), maintain DCAA compliance in the QuickBooks system moving forward. While most clients simply outsource this entire function to our accounting teams, larger clients (with an existing accounting staff), may opt to have their staff trained to handle the data entry into the system, and can also assume other tasks such as payroll or invoicing the government through WAWF, while our accounting teams handle the month-end close and complex financial reporting required by the government.
You can be confident in ReliAscent’s abilities to assist you in an accounting system audit. We have successfully passed countless audits with our tried-and-true QuickBooks-based compliance package. If you would like to learn more about how ReliAscent's experts can install a DCAA compliant QuickBooks accounting system (or convert your existing QuickBooks system to meet DCAA requirements), contact us today!
Image credit: https://quickbooks.intuit.com/