Over the last year we've received an increased number of inquiries from government contractors interested in transitioning from Deltek to Quickbooks and concerned with their overall costs as well as the performance of their accounting services providers. Understandably, this led us to take a pause and consider what our government contractor clients' concerns were--and how we were addressing them. There is a massive amount of information and regulations involved in DCAA compliance, and we provide these DCAA accounting services for government clients, but if you're looking to understand your options and help digest an overwhelming amount of information, the following overview is for you.
The History of DCAA Compliant Accounting
The escalation of U.S. involvement in Vietnam after the Gulf of Tonkin incident led to a rapid rise in the number of government contracts awarded for military equipment. In his 1961 farewell address, when he used the term “military–industrial complex,” President Dwight D. Eisenhower offered a warning about the growing fiscal relationship between the defense industry and policy legislators.
The following year, in a study known as Project 60, Secretary of Defense Robert S. McNamara ordered an examination of the contract management and administration processes of all branches of the armed services. As a result of this study, many of the Defense Department’s contract administration responsibilities were shifted to the Defense Logistics Agency. The study also resulted in the creation of the Defense Contract Audit Agency (DCAA) in 1965.
Department of Defense spending continued to grow throughout the following decades. Incidents such as the $436 hammer scandal exacerbated public concerns regarding government waste and overspending. Although the enormously inflated cost of the hammer was later shown to be an accounting error and not an invoiced purchase price, similar stories of Pentagon waste led to another in-depth review of contract administration within the Department of Defense. In 1990, Defense Management Review Decision 916 resulted in the establishment of the Defense Contract Management Command (DCMC) within the Defense Logistics Agency. Cost-type proposals less than $100 million and fixed-type proposals less than $10 million are reviewed by the DCMC.
The DCAA conducts audits of government contracts above DCMC thresholds. These audits are stringent and require meticulous record-keeping. DCAA compliance audits usually involve multiple auditors and hundreds of hours of staff time. The audits are so stringent that software companies ultimately began producing accounting software designed specifically to meet DCAA requirements. The most widely recognized DCAA-compliant software is Deltek.
DCAA Compliant Software
Such software is, of course, both expensive and complex. Even without the need for extensive training, the initial cost of DCAA-compliant software is a barrier to truly competitive participation. Small businesses that are perfectly capable of producing required goods or services in required quantities are often unable to afford the costs associated with accounting software specifically designed to meet DCAA compliance standards. In addition to the initial capital outlay, the implementation and management of Deltek software requires significant IT support. This, too, can present a financial barrier for small businesses.
Upcoming changes in the focus of DCAA audits may further increase the accounting burden. Recent GAO reports have been critical of the DCAA, and the DCAA’s response is likely to be closer examination of records surrounding the criticisms. Specifically, records differentiating business development costs and marketing costs are likely to now be required. While business development costs are allowable expenses, marketing costs are not. Since government agencies solicit bids for goods and services, promotional activities that are not a direct response to a specific federal solicitation are classified as unallowable marketing costs. Overall, this seems simple and reasonable, but down in the weeds of compliance the details become difficult.
If a company sends an employee to government offices to discuss a potential contract, and the employee uses the visit as an opportunity to discuss things that are not specifically part of that potential contract, then a portion of the time and expenses related to that trip are unallowable. As a result of this sharper investigation, DCAA auditors may now require a detailed itinerary, including the names of the government employees visited, to demonstrate that a travel expense is an eligible response to a solicitation and not an ineligible marketing activity.
QuickBooks as a DCAA Compliant Accounting Solution
Quickbooks is an affordable accounting solution, marketed by Intuit, designed to manage payroll, inventory, sales and other small business needs. The name follows the pattern of Quicken, Intuit’s personal finance software. Just as the Quicken software uses terms that are familiar with any individual who has used and balanced a personal checkbook, Quickbooks makes use of terms that are customary and familiar to accountants.
Quickbooks is not specifically designed for DCAA compliance. However, with knowledgeable use, it can be used to document all aspects of DCAA requirements – including requirements associated with upcoming changes to DCAA audits.
Combining Accounting Software with DCAA Experts
The caveat “with knowledgeable use” is key. Accounting professionals responsible for government contractors must intimately understand both DCAA requirements and Quickbooks to ensure proper documentation, and many accounting professionals lack sufficient knowledge of one or the other.
Deltek software represents a significant investment of financial and personnel resources, and businesses already invested in Deltek may question the financial wisdom of transitioning to an accounting package that is not specifically designed for DCAA compliance. Although discontinuation of IT support for Deltek may seem attractive, the risk of potential data loss during the transition is high. Government contracts can be lucrative sources of revenue, and businesses with such contracts often rely heavily upon them. Regardless of the IT savings, the risk of compromising accounting records and failing an audit may seem too great to justify switching from Deltek to a far less expensive accounting package. However, there are opportunities if you are careful.
Outsourced accounting and bookkeeping services from AccountingDepartment.com offer efficient and affordable reasons to make the transition. We are well-versed in all DCAA requirements and can configure Quickbooks to provide compliance documentation for any small business’ first foray into government contracting--and especially for those already immersed in government contracting and reporting. For businesses that have already secured a government contract and are already invested in Deltek accounting software, AccountingDepartment.com can provide a seamless transition to the more affordable Quickbooks platform with a guarantee of data integrity.
Government accounting and bookkeeping services from AccountingDepartment.com ensure that charts of accounts, customer lists, employee lists and vendor lists are correctly placed in corresponding Quickbooks reports. We guarantee the accurate transfer of all open invoice journals, payment journals, credit memos, open bills, balance sheets, sales journals, purchase orders, and sales orders with inventory levels and adjustments to Quickbooks reports. With our guidance, your small business will always be audit-ready and prepared for any DCAA correspondence.
AccountingDepartment.com is entirely based in the United States. Outsourcing accounting to our company carries none of the stigma of outsourcing to a foreign firm. We are the perfect solution for businesses with an annual revenue of $1 million to $50 million and offer better, faster reporting than most accounting alternatives, and our clients’ financial data is kept secure by some of the strongest encryption and protection measures available.