DCAA Audit Support
Govcon Accountants supports government contractors in passing their DCAA audits. As a government contractor, you may be subject to several different types of DCAA audits, to include the Pre-Award Accounting Systems Audit. Regardless of the type of DCAA audit, we are ready to assist you.
Pre-Award Accounting System Audit
For cost reimbursable-type contracts, your contracting officer may request an audit of your accounting system to determine if it is adequate enough to manage government contracts. Often an award will be held up until successful completion of the pre-award system audit. Failure will most likely result in loss of the contract.
You must pass the audit with a grade of 100%. Listed below are the major elements of the audit from DCAA's SF 1408. Ask yourself if you are confident you will pass each and every item:
Is the accounting system in accordance with generally acceptable accounting principles.
This means keeping your books on an accrual basis. Most small government contractors are keeping their books on a cash basis.
Proper segregation of direct cost from indirect costs.
Many small government contractors are not certain as to the differnence between the two types of costs and have difficulty segregating the two types in their accounting system.
Identification and accumulation of direct costs by contract.
In many cases, small government contractors do not completely code all of their direct costs to separate jobs. This will result in audit failure.
A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives.
Indirect costs must be allocated to contracts in a manner that is reasonable, fair and logical. This means the development of indirect cost pools and associated allocation bases and the computation of indirect rates.
Accumulation of costs under general ledger control.
Your cost accounting needs to be reconciled within your accounting system, and reconciled to your general ledger. The use of spread sheets and other databases outside your general ledger will require additional testing and documentation.
A timekeeping system that identifies employees' labor by intermediate or final cost objective.
Specific requirements for what information must be recorded and how often, and an approval and change audit trail will be tested during the audit.
A labor distribution system that charges direct and indirect labor to appropriate cost objectives.
Once time is collected, costs must be properly allocated to each hour and the labor costs distributed to contracts, indirect labor and paid leave.
Interim (at least monthly) determination of cost charged to a contract through routine posting of books of account.
You must close your books on a monthly basis. Most small government contractors close their books only at year's end. Each month all contracts must be fully costed.
Exclusion from costs charged to government contracts of amounts which are not allowable in terms of FAR 31, Contract Cost Principles and Procedures, or other contract provisions.
Too many small government contractors confuse this requirement with the IRS code, and they keep their books on a tax basis. A whole different and addtitional set of regulations apply to government contractors, and if not followed, can result in penalties, loss of contracts, debarment and even a stay in federal prison.
Identification of costs by contract line item and by units (as if each unit or line item were a separate contract) if required by the proposed contract.
Government contracts are typically structured with contract line items (CLINs). You'll need to invoice the government and record your invoices by CLIN and track your costs by CLIN in your accounting system.
Required contract clauses concerning limitation of costs or limitation on payments.
You'll need to demonstrate how you track your contract cost budgets and contract funding in your accounting system and what controls you have in place to prevent billing in excess of your contract limitations.