DCAA Government System Approval:

It is important to understand that you do not need to have your accounting system accepted by the government if you are only performing non-negotiated or commercial fixed-price contracts. However, once you decide to perform flexibly priced contracts (e.g., cost reimbursement or time and material/labor hour contracts), then your accounting system must first be reviewed and DCAA approved (FAR 16.104 (h) and 16.301.3(a)). DCAA has established guidance concerning what minimal requirements must be met and they have a “report-card” check sheet of the requirements used to do this evaluation called Standard Form 1408 “Pre-award Survey of Prospective Contractor Accounting System.”

Keep in mind that it is not just your accounting software that is evaluated. The entire accounting system must be deemed acceptable. This means you need to ensure that your system operation is properly documented; internal controls are implemented and operating; and that your management conducts reviews to ensure compliance with your company policy and procedures.

Checklist of Attributes of an Adequate DCAA Approved Accounting System:

  • Well documented, supported by business-level policies and procedures
  • Allows for proper segregation of duties (e.g., depositing cash and reconciling bank statements)
  • Posts contract costs regularly (at least monthly) to books of account
  • Robust reporting that supports the contractor’s business and contract needs
  • Scalable – supports organizational changes due to a native growth by acquisition
  • Flexible in addressing multicurrency and international tax reporting
  • Easy to use and efficient regarding entry and processing of data
  • Appropriate levels of controls to aid in the detection and prevention of errors and violations
  • Maintains audit trail of changes and adjustments
  • Ability to easily drill down from the general ledger to the subsidiary ledger transaction detail
  • Reports to display aging of payables
  • Reports to display values and aging of billed and unbilled receivables (Work-in-Process)
  • Accounts in accordance with Generally Accepted Accounting Procedures (e.g., accrual basis of accounting)
  • Able to identify contract/project work in process (unbilled receivables)

Checklist of Additional Government Contractor Specific Accounting Attributes:

  • Chart of Accounts identifies and segregates unallowable costs
  • Accumulates direct and indirect costs at required level (e.g., job/task/subtask/work breakdown structure, cost pool where appropriate)
  • Automatically calculates the actual pool rates for comparison to the provisional rates
  • Automatically allocates the indirect costs associated with each cost pool to subsidiary pools, and direct and IR&D/B&P projects
  • Accumulates costs in a manner consistent with the estimation process
  • Accumulates and allocates similar costs in a consistent manner
  • Reports profitability at project/ task/subtask/work breakdown structure level
  • Flexibly accommodates total time accounting and meets the labor recording and timekeeping requirements (e.g., recording time on a daily basis, audit trail of changes, etc.)
  • Appropriately accounts for intercompany transfers
  • Allows for diverse invoicing options (e.g., firm fixed price, time and materials, cost type, standard form 1034/1035 “Public Vouchers,” Standard Form 1443 “Progress Payments”)

Useful Government Contractor Accounting Reports:

  • Project budget versus actual
  • Project revenue/costs at actual versus provisional indirect rate
  • Project reporting by Work Breakdown Structure/Contract Line Item Number/Task Level
  • Budget versus actual by cost pool/service center
  • Late timesheet listing
  • Contract header data report (effective date, initial award, option year information, amount, modification history, program manager)
  • Actual versus provisional indirect cost rates
  • All of the various schedules required for the annual Incurred Cost Electronic (ICE) submission
  • Pro forma incurred cost submission
  • Government property report
  • Earned Value reports

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