Embracing DCAA Compliance

As a federal contractor, you are responsible for reporting back to the government on the accounting of funds provided to your company for goods and services to be delivered to various government agencies.

This article is designed to share with you, as we call them, the keys to surviving a DCAA Audit. It is by no means intended to be your sole source for knowledge, as you understand every federal contractor is required to know the FAR details. Rather, this article provides guidance on key topics that are both popular on our website and that are often at the top of many of our client's minds.

We offer this article to provide guidance to both the seasoned federal contractor and to the business that may be pursuing or just landed its first federal contract. We offer it in conjunction with our professional services in order to help shed light on some key points related to DCAA Compliance.

Audits are simply a fact of life in the world of government contracts, and rightly so. Picturing a successful DCAA audit from the very beginning of a project will go a long way toward the outcome you desire, especially when it is designed into your business. The contractor is expected to follow federal requirements and the government is accountable to the public to ensure federal funds are properly utilized in contracts. DCAA audits are conducted to determine what costs are allowable, allocable and reasonable in the context of the expenditures under review. Federal Contractors who accept and embrace compliance and best accounting practices in all aspects of their business are always better positioned in the competitive environment of federal government contracting.

Think about it. The contractor is focused on building products or providing services for their government customer, while at the same time being required to conform to specific accounting requirements. Given that this is the reality of government contracts, why not embrace 'compliance' as an integral principle at all stages of a contract, and throughout the organization? Designing compliance into the process or project ensures minimum disruptions and costs when an audit is performed and contributes to better profit margins for the contractor.

The contractor must follow the Federal Acquisition Regulation (FAR) for allowability and must, in some circumstances, conform to the Cost Accounting Standards (CAS) when it comes to allocability of costs. When the executive team commits to a compliant accounting system from the top down, the contractor's business is better prepared for (even if they don't welcome) the inevitable audit. We are often asked how best to prepare for a DCAA audit and, more to the point, how to be proactive in ensuring DCAA Compliance. Here are some important areas of focus to embrace:

• Automating systems, processes and business practices for smoother operations and fewer audit findings.
• Lowering the cost of compliance by designing efficient processes.
• Providing training to all employees on policies and procedures.
• Ensuring an adequate accounting system under DFARS 252.242-7006.
• Segregating costs that are unallowable under FAR Part 31 and excluding these charges under government contracts.

We recommend that you focus on enjoying a successful DCAA audit from the very start! It's a mindset! Put an ongoing strategic plan in place to ensure compliance and "no significant findings" by DCAA. Understand the record keeping requirements of FAR 4.7 and insist that the DCAA hold entrance and exit conferences and be able to demonstrate to the government the compliance plan you have put in place.