DCAA Compliant Accounting Systems
Does The DCAA Approve My Accounting System?Small Businesses competing for cost type, and many T&M contracts from the Department of Defense, NASA, the Department of Homeland Security (and other agencies), must have an accounting system that is compliant with the Federal Acquisition Regulation (FAR), and the Defense Contract Audit Agency (DCAA). The DCAA is the Federal Government’s auditor, tasked with reviewing a contractor’s compliance with FAR regulations and other requirements (in addition to audits and compliance checks, they provide general guidance to contractors to help them better understand how to work with the government).
When it comes to setting up and maintaining a compliant accounting system, perhaps one of the most important concepts to understand is that term "DCAA approved accounting system" is a bit of a misnomer. There is, in fact, no such thing as a "DCAA approved" system, nor does DCAA certify your system. There are simply systems that are compliant with FAR & DCAA requirements, and compliant accounting software that is designed to pass the accounting system audit.
At ReliAscent, our experts not only setup and maintain your accounting system (by providing monthly bookkeeping & accounting services); they help position your business for success and profitability through contract management, proposal support, indirect rates management, strategic financial planning, and business management consultation.
To learn more about the components of a compliant system, download our popular white paper: "A Quick Guide to the DCAA Compliant Accounting System - Understanding the SF1408," now. This popular white paper provides you with an easy to understand summary of each of the DCAA's requirements for your system.
At ReliAscent®, we handle the setup process (installation, migration or conversion), for you. While our experts can help contractors and grantees set up their own compliant accounting system, which solution you ultimately choose may be based upon your own personal preferences, your level of government contract accounting experience, and what types of contracts or grants you have. In general, clients have 3 options:
ReliAscent's Cloud-Hosted, DCAA Compliant QuickBooks® System
Our most popular option is to set up a new system on—or migrate your existing accounting system over to— ReliAscent's Compliant QuickBooks® Enterprise System (hosted on Amazon's GovCloud™). Once the setup is complete, clients can choose to outsource their monthly accounting to ReliAscent, or perform the bookkeeping in-house, and leave monthly closes, ICE Submissions, and DCAA Audit support to our experts (only recommended for companies with previous DCAA accounting experience). To learn more about our outsourced government contract accounting services, visit our DCAA Accounting & Bookkeeping Services page.
Setting Up a Compliant System on your own Servers
If your business has an existing accounting system and you would like to keep it hosted locally, ReliAscent can properly format the general ledger and set up the appropriate supporting systems to meet DCAA and FAR requirements (ReliAscent® recommends small businesses use the desktop version of QuickBooks®, as it is the most user-friendly and affordable system, and does not lack many critical components required for compliance, like the Online version). This option is generally only recommended for larger companies with previous government contract accounting and FAR / DCAA compliance experience.
Accounting Systems for SBIR/STTR Ph I Awardees
If a small business only has a Ph I SBIR, or a contract or grant through an Agency like the NSF, NIH, or DoE (that does not require a fully DCAA compliant system), ReliAscent offers our Ph I Foundation Packages, complete with an accounting manual, timekeeping procedure, and a QuickBooks® General Ledger & Chart of Accounts (Compliant with awarding agency requirements), so the business has a system which is compliant with various agency and FAR requirements, and creates the "foundation" for the required system needed in a Ph II, or when a fully DCAA compliant system is required for any other reason. This system can then be more smoothly migrated to our cloud-based system when it is needed.
Bringing Your System into Compliance
Bringing your accounting system into compliance requires adding a number of components to the general ledger and system as a whole. These components can be found in the Federal Government's Standard Form 1408 (mentioned above), and they comprise the "pillars" or "foundations" of the system. Think of this as a planetary system, in which your QuickBooks® general ledger (the planet), is properly formatted, and then "satellite" systems—from your compliant timekeeping system, to job cost reporting, invoicing methods, rates calculations, policies and procedures, and even how you run payroll—all are interconnected.
Though some systems and software may be more expensive than others, it is important to understand that the cost of setting up and operating a compliant accounting system is recoverable from the government as part of the contractors indirect billing rates.
Just as there are different types and sizes of contractors, each small business has their own unique circumstances. As a result, the process of setting up your accounting system will either involve a conversion of your existing accounting system, or an installation of a new, (typically QuickBooks-based) DCAA compliant accounting system (either on your own servers/cloud, or on ReliAscent's cloud-hosted QuickBooks Enterprise system).
Installation / Conversion Costs and Lead Time
- 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...
- Formatting 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, GHG/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."
Step 2: Maintaining DCAA Compliance (Monthly Accounting)
The ReliAscent® difference is that once the accounting system is brought into compliance, we offer different levels of compliant accounting services to Federal Contractors and Grantees--each tailored to your business and compliance needs--in addition to our government contract management and proposal support services. We have over 200 years of collective experience in Federal Government accounting and provide a "solution", not just a software package that can easily lead the user astray.
We've had many clients come to us after purchasing another system or software, and then not getting the support to operate it properly and maintain compliance. While this approach may work for the rare case in which a company already has an accountant on staff with extensive experience with the DCAA, FAR, and government contract accounting, for most small businesses, this approach often leads to failed audits and headaches down the road. What sets us apart is that we don't simply hand you software and leave you to fend for yourself (and offer overpriced "training" when you can't run the software properly).You do what you do best and we do what we do best and the company benefits as a result.
The specific level and type of services is often dictated by your contracting agency, contract requirements, and budget. To learn more about our government contract accounting services, visit our Accounting Services page.