DCAA is short for Defense Contract Audit Agency. If your business seeks or has obtained government contracting work, your organization must establish DCAA compliance. The entirety of your business processes as well as your systems must be fully compliant with DCAA requirements.
Why the DCAA is so Important
DCAA is the federal government agency tasked with auditing DoD contracts. DoD is an acronym that stands for the Department of Defense. Additional governmental agencies can bring in DCAA for services pertaining to accounting and finances. Some such agencies rely on the DCAA to facilitate audits. Keep in mind, DoD contracts have the potential to be worth hundreds of millions of dollars or even billions of dollars. The financial magnitude of these contracts justifies DCAA audits. After all, the money from these contracts is paid for by the hardworking, taxpaying citizens of the United States of America. In the end, DCAA compliance and audits prove mutually beneficial for taxpayers as well as the government.
Delving Into the Details of DCAA Compliance
DCAA compliance is a term commonly used within federal government contracting spheres yet DCAA does not actively certify specific contractors as fully compliant and others as non-compliant. DCAA compliance essentially means the company in question adheres to the recommendations as well as the guidance set forth by the DCAA, ensuring full compliance with federal law and adequate preparations for audits down the line. The nuances of such audits are determined by the rules set forth within CAS, GAGAS, and FAR. These acronyms are explained below.
Comprehensive DCAA compliance makes it clear the business has all the necessary documented procedures and policies in place, ensuring those procedures are fully adhered to and proves the business meets the nuanced requirements of the DCAA. Such compliance also means the company systems are fully compliant with the requirements set forth by the DCAA. As an example, a company’s accounting system must be capable of tracking costs separate from one another in the form of indirect costs and direct costs, billing costs, labor costs, and accounting costs. Companies that recognize the importance of DCAA compliance fully integrate it with the company’s system for timekeeping. The best approach to compliance ensures every single report the DCAA could want to see in the event of an audit is easily accessible.
DCAA audits are centered on ensuring the taxpayers are getting their money’s worth when government contracts are awarded to private companies. However, the classification of costs is different between government contractors and commercial firms. How costs are classified, reported, allocated, and separated differs between these two groups. A DCAA audit typically analyzes items ranging from direct costs to allowable costs, costs that are not allowed, indirect cost pools, and direct cost pools. Additional points of scrutiny are detailed in the aforementioned FAR.
There are several different types of DCAA audits ranging from incurred cost to pre-award, forward pricing, contractor purchase systems review, compensation and benefits, special audits, and even labor floor/charging audits. In some instances, contracting officers might mandate that an unbiased financial opinion be provided to shed light on certain details of contracts. These requests are usually categorized as either “other” or “special” audits.
A Brief Look at CAS and FAR in the Context of DCAA Compliance
CAS and FAR was mentioned above yet some readers might not be aware of what these letters mean. In short, FAR and CAS are rule sets applicable to government contractors that work for the United States federal government. The federal government as well as the DCAA rely on CAS and FAR for their rules. FAR is an acronym that stands for Federal Acquisition Regulation, meaning it is the guide for government procurement. FAR is best defined as the main set of rules relied upon by agencies when buying both goods and services.
CAS is short for Cost Accounting Standards. Dating back to 1968, CAS was developed to maintain consistency within the cost accounting practices of organizations that qualify as government contractors. CAS details how charges to contracts can be made, exactly what is charged to specific contracts, how accounting systems are maintained, and also how costs flow from the point of origin and beyond. CAS also guides contractors regarding accounting for specific costs.
Businesses Need a DCAA Compliant Accounting System
Businesses that have the potential to be subjected to a DCAA audit are encouraged to choose an accounting system that is fully compliant with the DCAA requirements. Such systems provide accurate information, accurately process flows and also generate reports that make it easier to respond to such audits in a comprehensive and timely manner. This means any old accounting system will not suffice in the context of DCAA compliance. Solutions specifically designed for government contracting businesses set the stage for successful audits that culminate in the company passing through the scrutiny without penalty. Keep in mind, there are idiosyncratic requirements within this industry so the accounting software you choose should make it easier to remain up to date with these specific requirements.