Pass, Fail, or Adapt? Responding to Changing DCAA Audit Rules

back to Download Center

In the past year the DCAA has changed the “grading scale” when it comes to the auditing of accounting systems. The evaluation now operates on a pass or fail basis, with no exceptions. To make matters even worse for government contractors, auditors no longer provide suggestions for improvement and payments to the contractor may be suspended until the problems are corrected.

What does this mean for government contractors, particularly those less familiar with DCAA auditing standards?  In these economic times, a suspension of payment could prove to be disastrous, especially for the small business owner, who cannot afford to survive even a short suspension. A follow-up review could take weeks or months and an audit determining your accounting system inadequate could prevent or hinder future contract awards.

So, what is a government contractor to do to avoid a failing review or bounce back from one? One possible solution could be to seek the efforts of an outsourced government accountant. These accountants are well-versed in DCAA regulations and requirements, and the more experienced ones may have the ability to perform a “mock’ DCAA audit and highlight the problems in your current accounting system. Outsourcing your accounting efforts will alleviate the stress and overhead of running and managing an accounting department, as well as provide expert opinions and solutions.

For the government contractor with an accounting department already intact, there is also the option of purchasing a more comprehensive accounting system. Although the DCAA does not endorse any particular software programs, there are many available programs that can get the job done. QuickBooks and Peachtree accounting programs have the capability of being enhanced in order to meet the majority of DCAA auditing requirements, with the right expertise and customization. Other programs such as Jamis, Deltek, and Costpoint have been built for the purpose of government contracting and come pre-customized with all the functions necessary to meet compliance. Software programs such as these have been well developed to meet DCAA regulations, however require a rather large upfront investment. 

It must be pointed out however, that whether you chose a pre-customized accounting program or choose to customize your existing QuickBooks and Peachtree programs, if you are not inputting the right information into the right G/L accounts, no accounting software will magically make you compliant.

DCAA rules and regulations are constantly evolving. Although, DCAA audits have always been a serious matter, now more than ever government contractors must stay on top of their game. Taking proactive efforts to ensure a DCAA compliant accounting system will go a long way in preventing a failing audit review, lost revenues, or the termination of one’s government contract. All government contractors should take the time to become familiar with DCAA regulations, or at least hire a professional accountant who already is.