How To Be DCAA Compliant

The Defense Contract Audit Agency (DCAA) is an agency within the U.S. Department of Defense. They are responsible for performing audits of contractors who do business with the U.S. When doing contracts with the Department of Defense, contractors are required to be DCAA compliant. This essentially means that your accounting system follows certain guidelines that make it easier for the government to audit you.

Here are a few of the things you would need to consider for DCAA compliance:

Follow Generally Accepted Accounting Principles (GAAP)

GAAP is determined by the Financial Accounting Standards Board (FASB). Much like the Pirate Code, it's more of a set of guidelines. Here are the 10 guidelines:

• Regularity: Always Follow The GAAP Principles. (Oddly similar to the first rule of Fight Club.)
• Consistency: Use the same accounting methods from period to period, unless there is a solid reason to change.
• Sincerity: Accountants should be impartial and accurate in their reporting. No cooking the books.
• Permanent Methods: Use the same standards throughout your reporting.
• Non-Compensation: Report both the positives and negatives without expecting debt compensation.
• Prudence: Just stick to the facts. No speculating.
• Continuity: Assume that the business will continue to operate as you value the company's assets.
• Periodicity: Report transactions during the appropriate periods.
• Materiality: Give full disclosure.
• Good Faith: Be honest.

Maintain accurate and complete financial records

This is already a part of GAAP. Just keep track of everything so an auditor can have the full story of your financial situation. Make sure documents are being kept, whether paper or digital. This will work in your best interest as well as being helpful to the DCAA. If you're asked about something that looks out of place, you will be able to quickly get the supporting data to show you're operating properly.

Use an Acceptable Accounting System

The DCAA considers your accounting system acceptable if it does the following:

• Follows Generally Accepted Accounting Principles, as well as applicable government cost principles.
• Has internal controls that are sufficient to ensure the completeness, accuracy, and reliability of the financial data produced by the system.
• Has sufficient documentation to support the financial transactions recorded in the system.
• Uses a system of cost accounting that meets the requirements of the Federal Acquisition Regulation. (Find more info about FAR at the GSA website).
• Has a system of budgeting and forecasting that is integrated with the overall accounting system.
• Has management reports and other financial information that is timely and useful in controlling and managing the business.

There are a number of accounting systems that are DCAA compliant. A-Systems JobView is one great option.

Provide Adequate Support for Costs Claimed on Invoices

You'll want to hang on to all your receipts, invoices, and any other documentation that shows your expenditures. The documentation should ideally indicate the purpose of each expense. You can keep it in paper form, if that's how you get down. Alternatively, good accounting systems allow you to scan your paperwork and keep a digital copy. This reduces your clutter and lessens the chance of losing your records. This is especially helpful when the documents are backed up in the cloud.

Within 6 months of completing the work, you must submit an incurred cost submission. You can check to see if your tracking is sufficient using an official DCAA tool here: ICS Checklist.

Contract Pricing

You must ensure you've included adequate details on all the costs included in the contract bid. This helps DCAA to make sure you're not inflating your budget.

Time Tracking

You'll need to ensure your time sheets are tracked reliably so the data can be trusted. A time tracker that keeps an audit trail would be helpful. It will also need to specify the task each employee logged hours for, ensuring that the pay rate is appropriate.

Each employee will be required to track their own hours, so a time tracking app with remote access would be ideal. Management will then need to sign off and approve each time sheet at the end of the pay period. The person who approves the time sheets should not be the same person in charge of payroll.

DCAA is very particular about payroll tracking, since this is such a large portion of the contract's expense.

Thorough & Accurate

There is a long list of things the DCAA could look for during an audit. It sounds overwhelming, but most items come down to thoroughness and accuracy. If you're keeping good records, you should be in good shape for most requirements.

Before getting serious about government contracting, you may want to consider consulting with a professional advisor, like Left Brain. Knowing that you're compliant before you start a contract is invaluable.

In government contracting there are many acronyms to keep track of. One of these acronyms that's quite helpful is PTAC. They are there to help you navigate the complexities of local and federal contracting. They can help you find the right resources and answer many questions. They can even help you find potential contracts to bid on.

For 100 extra points, which entity is in charge of making sure our foreign aid is spent appropriately and accurately documented?