Using QuickBooks® for Government Accounting

The number one software for accounting for small business is usually considered to be the QuickBooks® program.  This program is very flexible and very complete for setting up and operating a small business.  When the small business decides that they want to participate in government contracting or they secure a government grant, the QuickBooks® software is not designed to meet the requirements set forth by the CFR, FAR and DCAA.  This does not mean that the program cannot be made compliant however.  Since QuickBooks® is not designed to meet government requirements, many people panic.  By setting up the QuickBooks file in a specific manner and then using some secondary programs to supplement the system, the program can be made to comply with government requirements and pass government audits, such as those conducted by the Defense Contract Audit Agency (DCAA). 

So what is required to make a company's QuickBooks® system compliant?  I generally look at 4 main areas (from a 30,000 foot level) to achieve compliance:

• The General Ledger system must be set-up in a job costing fashion as described by the Federal Acquisition Regulations or the FAR (we call it job costing on steroids)
• There needs to be a compliant timekeeping system that feeds the timekeeping information into the General Ledger system
• There needs to be a system for compiling a subsidiary job cost report for each job as well as calculating actual indirect rates
• There needs to be a complete system of policies & procedures to define the system

Missing any of these areas will be cause for the system to be found inadequate in an audit.  There are also many details within each of these four areas that need to be addressed.  We have talked about some of the details required in timekeeping systems in our previous blogs.  The General Ledger system should be set up to meet the following details:

• It must meet GAAP requirements
• It must segregate properly direct and indirect costs
• Direct costs must be accumulated by contract
• Indirect costs must be accumulated by logical groupings to provide a consistent method of allocation to intermediate & final cost objectives
• All costs should be accumulated under general ledger control
• There should be a labor  distribution system to allocate direct & indirect labor to appropriate cost objectives
• There should be an Interim determination of costs (at least monthly)
• There should be a system for the exclusion of unallowable costs
• Costs should be allocate costs by contract line item
• Segregation of preproduction costs from production costs
• Provides financial information to support requests for progress payments

This may seem simple at first glance but it can be very tedious to set up a QuickBooks® system to meet all these requirements.  And then to set up a timekeeping system and an external system to do subsidiary job cost reports and calculate indirect rates is also a complex manner.  This is why a small business should hire a consultant that is expert in this field to set up this system (all four top level parts).  ReliAscent has been doing this with QuickBooks® systems for over 20 years and are the premier experts with QuickBooks® type systems in the country today.  If you would like to talk to us about that, we are always available.