DCAA Compliance: "Pay me now or Pay me later"

The phrase “pay now or pay later” has become known as the American way over the past several decades.  Too often we make the decision to pay later which we all know from a personal perspective, always costs us more in the long term.  So why do we make that mistake?  It’s pretty simple really and as I’ve noticed in my 30+ years in the finance industry “CASH IS KING.”


As small business owner’s we are always struggling with cash issues.  So when you start your endeavor with Government contracting, why would you want to spend thousands of dollars on a Defense Contracting Audit Agency (DCAA) compliant accounting system?  So here’s where the phrase “pay now or pay later” comes into play.


You have two choices!  You can pay for a compliant system before you start contracting with the Government which, may be costly up front but will be more cost effective in the long term.  Or, you can continue to use the system you currently have BUT when the time comes for your Contracting Officer to request DCAA to evaluate your system, guess what? Most likely you will not pass a pre-award survey.  Then you scramble, searching the internet for a firm that has the experience to help you.  And so the extra dollars start to add up.


Not only has the award of your contract been delayed but you now have to pay for a compliant system and pay for someone’s time to correct the mound of information you have been gathering to this point. The Government has very specific requirements on collecting and segregating costs and it isn’t the standard convention you find in the commercial arena. You must now track costs by jobs and develop indirect rates. There are unallowable and allowable costs and there are allocable and un-allocable costs. Do you know how to determine what’s unallowable and which pool it applies to?  Do you know how it should be treated as far as determining your indirect rates? There are a ton of requirements to be aware of.


Now you’ve paid for a compliant system, someone to correct all of the prior history and you’re ready to host a DCAA auditor again.  Not only is it more cost effective to start with a compliant system but look at the stress you’ll never have to experience……..no failed audit, no delayed contract and no extra dollars to fix what should never have occurred. When it comes to a compliant accounting system; you will have peace of mind if you pay now.  If anyone has experienced this, we’d love to hear from you.  Happy contracting!!!!


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