Installing a DCAA Compliant Accounting System 

Setting Up Your DCAA Accounting System 

To meet DCAA and FAR requirements, a company must have a compliant accounting system.  To accomplish this, there must be many pieces to the system (all of which form the "pillars" of the compliant system as a whole).  Think of this as a planet (the general ledger system), with many orbiting satellites (see Figure 1).  All of these satellites must work in unison to be compliant. 

Some systems, like JAMIS or PVBS, are designed to meet all these requirements within one software package (but they are generally meant for much larger companies and are cost prohibitive for most small businesses).  QuickBooks®, on the other hand (as well as many other accounting software programs), is much more affordable and familiar to most small businesses. Unfortunately, it is not designed to meet all of these requirements (it is really only the general ledger system).  As a result, other systems must be set up and integrate not only with the general ledger system, but often with each other. 

DCAA Compliant QuickBooks System

Figure 1:  Accounting System Structure for DCAA compliant System

 

QuickBooks and DCAA Compliance

While ReliAscent's experts can install an out-of-the-box DCAA compliant accounting system (like PVBS, JAMIS, Procas, or ERP-Gov), most small business contractors cannot afford these expensive systems. For more "budget-conscious" businesses, we can make your QuickBooks® DCAA compliant, and then operate your system for you (outsource your compliant accounting); usually at a far more affordable rate than hiring a full time accountant or accounting staff. 

To learn more about what software might be best for your company, visit the ReliAscent Software page. Which option makes more sense for your small business, depends on factors like your number of contracts, employees, sales, and your budget.

For most small businesses, in order to have a fully DCAA compliant accounting system, ReliAscent recommends using the PC-based QuickBooks® desktop version as the core of the accounting system (QuickBooks® Online and QuickBooks® for MAC lack some key features for a compliant system).  To be compliant, it is critical that your QuickBooks®,or other "non-compliant" accounting software, be modified to enter direct and indirect costs, as well as a number of other features (see below). 

 

Setting Up A DCAA Compliant QuickBooks Accounting System:

Depending on your circumstances, the process of setting up your accounting system will either involve a conversion of your existing QuickBooks accounting system, or an installation of a new, compliant system (generally only used for start-ups and relatively young businesses).
 
The steps involved for each of the different scenarios, as well as the costs and expected turnaround time, can vary slightly depending on a number of factors:
  • Are you backdating to January 1st of the current year, going back even further, or starting on a specific date?
  • What is the current condition of your accounting system? Are there unresolved issues?
  • What gaps exist in your accounting system, and how long will it take to address each?

Once our experts have a better sense of your "road map to DCAA compliance," we can provide your small business with a quote and expected lead time for bringing your system into compliance, or installing your new system. As we've discussed, the steps involved can differ depending on your specific circumstances, but the following is a rough order of tasks in order to get a system up and running:

  • Install a general ledger program (ReliAscent normally recommends a desktop version of QuickBooks®), or bring your current general ledger system into compliance by...
  • Format(ing) a company template within the general ledger program to:
    • Structure a Chart of Accounts (or restructure your COA)
    • Segregate the direct and indirect expenses
    • Isolate unallowable expenses
    • Set up a job cost environment where the direct expenses may be charged to a single final cost objective
    • Set up the labor distribution system
    • Insure GAAP compliant accounting
  • Establish a DCAA compliant timekeeping system (either manual or automated) - we recommend SpringAhead, ClockWise or TSheets
  • Establish a payroll system compliant with government requirements
  • Establish a method to perform:
    • Indirect Rate calculations on a regular basis (typically, the government likes these monthly)
    • Provide for Subsidiary Job Cost Reports in a fashion that the government likes to see
  • Establish your policies and procedures
  • Training your employees (timekeeping software, daily JE's, etc.) 

For more information on the individual requirements/components of a DCAA compliant accounting system, download our popular white paper: "A Quick Guide to the DCAA Compliant Accounting System - Understanding the SF 1408."

 

To Learn More About the Various Scenarios and Steps Involved in Converting or Installing a DCAA Compliant Accounting System, Visit our DCAA Compliant Accounting Systems and Software Page Now

Remember: bringing your system into compliance is just the first step; if you do not properly maintain your system, you will fail DCAA audits.  This will can cuase you to suffer financial penalties, delayed payments, and the potential loss of opportunities to bid on future government contracts ("black listing" or disqualification).  
 
Once your system is brought into compliance, you will need to determine who handles daily journal entries, monthly closes, DCAA ICE submissions, calculation of indirect rates, and other critical functions of the system.