Types of Audits

​

​Depending on the federal contract or grant you are awarded, or for which you are submitting a bid, DCAA (Defense Contract Audit Agency) will contact you to perform an audit of your accounting system, timekeeping system, billing system, contract management system, internal controls, and accounting policies and procedures.

Other federal agencies will also conduct audits to include:

​

• NSF (National Science Foundation)

• NIH (National Institute of Health)

• DOE (Department of Energy)

• DOT (Department of Transportation)

• NASA (National Aeronautics and Space Administration)

Here is a list of the most common type of audits:
​

• Preaward Accounting System Surveys

• SBIR/STTR Audits

• Contract or Grant Price Proposals

• Incurred Cost Submissions

• Voucher Audits

• Defective Certified Cost Or Pricing Data Audits

• Equitable Price Adjustments

• Contract Closeouts

​
DCAA involvement is most likely for Cost Reimbursable type contracts (to include T&M) and price proposals for all types of large negotiated contracts to include Cost Reimbursable, T&M and Fixed Price.
​
This puts quite a burden on small and medium-sized government contractors in terms of time and expense and can limit the opportunities for business growth. On the other hand, if you have the capability to handle DCAA audits, it can create more opportunities for growth. DCAA compliance can be a key capability for your company in its growth strategy.
​
GovBooks was created with the intention of reducing the burden of DCAA compliance on small and medium-sized government contractors, with a streamlined approach using inexpensive, off-the-shelf software (QuickBooks Online), connected to GovBooks, for only $100 per month.

 

DCAA Accounting System Requirements

 

During the audit known as the Preaward Accounting System Survey, DCAA examines your accounting system to determine if your system is set up properly to be awarded Cost Reimbursable (to include T&M) type contracts and grants. The survey itself, known as SF 1408, entitled "Preaward Survey of Prospective Contractor Accounting System Checklist", lists all the requirements that must be met to receive the coveted DCAA Certificate of Adequacy.
​​​​​​​​​​
Is QuickBooks Online DCAA Compliant when used with GovBooks?

Yes. If you connect your QuickBooks Online account to GovBooks, and follow the recommended setup steps, you will have an inexpensive and fully-compliant DCAA accounting system.
​
How does GovBooks make QuickBooks Online DCAA Compliant?

GovBooks adds the features that are missing from QuickBooks Online to make it DCAA compliant. Although these add-on features could be handled with spreadsheets, most government contractors will find it difficult and too time consuming to use spreadsheets after they grow to a certain size beyond the initial start up stages.
​
GovBooks does the following:
​

• Computes indirect rates

• Allocates indirect expenses to contracts and projects

• Tracks contract and grant awards, contract and grant funding and contract and grant backlog

• Computes the labor distribution and posts it to QuickBooks Online
   

GovBooks computes indirect rates

To be DCAA compliant, you must demonstrate the ability to compute indirect rates. If you are a Cost Reimbursable contract using provisional indirect rates, you are required by DCAA to compute your indirect rates on a monthly basis so that if your actual indirect rates are less than what you are billing, you are able to reduce your provisional indirect rates on future invoices. This computation can be done each month on a spreadsheet, but it is time consuming and prone to error. GovBooks automates this process.
​

GovBooks allocates indirect expenses to contracts and projects

 

To be DCAA compliant, you need to allocate your indirect expenses to contracts and projects at least monthly. First, the indirect rates must be computed (see above), and then based on the computed rates, you allocate those indirect expenses to determine the total cost on your contracts and projects. This is important so that you do not exceed the amount awarded and funded by the government. This can be done on a spreadsheet, but it is time consuming and prone to error. GovBooks automates this process.

 

GovBooks tracks contract awards, contract funding and contract backlog

 

To be DCAA compliant, you need to track your contract awards, contract funding and contract backlog. This gets complicated and tedious if you have more than a few contracts and task orders. Incremental funding is another challenge which requires modifications to your tracking system whenever new funds are received. Computing contract backlog becomes a major task when handled on a spreadsheet, especially when funded at the CLIN level. GovBooks automates this process.

 

GovBooks computes the labor distribution and posts it to the general ledger

 

To be DCAA compliant, you need to distribute your labor costs to contracts, projects, and other cost objectives such as paid leave, using a DCAA-approved method known as Total Time Accounting or Standard Rates.

 

For salaried employees, Total Time Accounting requires computing an effective hourly rate for each pay period, based on the actual hours work and hours taken as leave. Hours will vary from one pay period to another for employees, because to be DCAA compliant, you are required to record actual hours on your timesheet, even if the hours vary from a standard 40 hour work week.

 

For the Standard Rates method of labor distribution, a payroll variance will accrue, and needs to be posted to an overhead account. The labor distribution calculation can be done on a spreadsheet, but it is time consuming and prone to error and I would not attempt it using a spreadsheet except for the smallest companies.

 

Although QuickBooks Online Plus and Advanced versions have a labor distribution function, it is not DCAA compliant because it does not post labor costs to the various labor accounts required to compute indirect rates, such as Direct Labor, Overhead Labor, G&A Labor and Paid Leave. GovBooks has a labor distribution module that is fully DCAA compliant, calculates the labor costs, posts it to QuickBooks Online and automates this process.

 

Who needs DCAA and FAR compliance?

Compliance with DCAA and FAR regulations is critical for companies that want to do business with the government. It not only ensures that contractors are following proper procedures and guidelines, but it also helps to promote transparency and accountability in government contracting.

Government contractors and subcontractors often find themselves navigating the complex landscape of DCAA and FAR compliance. Understanding and adhering to these regulations are crucial for businesses seeking to secure and maintain government contracts.

If you work with a government contractor or subcontractor, you have likely heard of DCAA and FAR compliance. But what exactly do these terms mean, and why is it important for your business to comply with them?

DCAA

The Defense Contract Audit Agency (DCAA) is responsible for auditing and evaluating government contracts to ensure compliance with the Federal Acquisition Regulation (FAR) and other government regulations. Contractors need to adhere to certain accounting principles, maintain accurate records, and follow proper billing procedures to be DCAA compliant.

FAR

The Federal Acquisition Regulation (FAR) is a set of rules and guidelines that govern the acquisition process for federal government contracts. Contractors must comply with the FAR to be eligible for government contracts. This includes following procurement procedures, contract administration guidelines, and cost accounting standards. These regulations are designed to ensure that the government is getting the best value for its money and that contractors are following ethical and legal practices.

The FAR covers a wide range of topics, including procurement procedures, contract administration, and cost accounting standards. It is essential for government contractors to comply with the FAR to maintain their eligibility for government contracts.

 

Who Needs to Comply with the FAR

​

Government Contractors

Any business that has been awarded a government contract, including prime contractors and subcontractors, must comply with FAR regulations. Prime contractors are those who have a direct contract with the government, while subcontractors are those who are hired by prime contractors to perform a specific task or provide a specific service.

Small Businesses

Small businesses that are awarded government contracts are also required to comply with FAR regulations. The government sets aside a certain percentage of contracts specifically for small businesses, and they must comply with the same regulations as larger contractors.

Businesses with Cost-Reimbursable Contracts

Contractors with cost-reimbursable contracts, where they are reimbursed for the costs incurred during the contract performance, are subject to more stringent regulations, including DCAA and FAR compliance. If a business has a cost-reimbursable contract with the government, it must comply with DCAA and FAR regulations to ensure that your costs are properly accounted for and that you are not overcharging the government.

Benefits of DCAA Compliance

Eligibility for Government Contracts

Compliance with DCAA and FAR regulations allows businesses to be eligible for government contracts. Non-compliance can result in ineligibility to bid on or be awarded government contracts.

Avoid Penalties and Legal Issues

Non-compliance can lead to penalties, fines, and even contract termination by the DCAA. It can also result in legal action from the government, causing financial and reputational damage to the business.

Improved Financial Management

Compliance with DCAA and FAR regulations requires businesses to have proper financial management systems in place. This can lead to improved financial practices, better budgeting, and more accurate tracking of costs.

Increased Credibility and Trust

Compliance with DCAA and FAR regulations enhances a business's credibility and trust with the government. It demonstrates ethical and responsible practices and can lead to more opportunities for future contracts.

How to Ensure DCAA Compliance

Understand the Regulations

Contractors must familiarize themselves with the DCAA and FAR regulations and seek guidance from experts if needed.
Implement Proper Accounting Systems. Contractors should have proper accounting systems in place to accurately track costs, maintain documentation, and follow the guidelines set forth by the regulations. GovBooks, our online software that connects with QuickBooks Online, helps government contractors pass DCAA audits.

Conduct Internal Audits

Regular internal audits can help identify any potential compliance issues and allow businesses to address them proactively.

Professional Assistance

Complying with DCAA and FAR regulations can be complex, and professional assistance from consulting firms specializing in compliance can be beneficial, especially for businesses new to government contracting. In conclusion, compliance with DCAA and FAR regulations is crucial for businesses that work with the government. It ensures eligibility for government contracts, helps avoid penalties and legal issues, improves financial management practices, and increases credibility and trust. To ensure compliance, businesses must understand the regulations, implement proper systems, conduct internal audits, and seek professional assistance when needed.