Surviving the DCAA

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In Fiscal Year 2000, the Defense Contract Audit Agency audited nearly $200 billion in government contracts.  Why were these audits conducted?  To ensure the proper handling of taxpayer funds by government appointed contractors.

According to a 2008 Boston Globe article, the DCAA, which provides contract audits for the Department of Defense and other Federal government agencies, is the “first line of defense” for the public when it comes to policing billions of dollars in defense contracts.  Any business wishing to seek a contract with the government should be prepared to present the DCAA with complete and in-depth financial reports.  The most critical of which are reports concerning labor and cost center tracking. 

In order to achieve DCAA compliance and win any government contracts, a business must possess documented policies and procedures that are followed to the letter.  Certain accounting and billing properties, a system that charges labor for hourly time and specially-trained employees are also essential. 

According to a 2009 article by Kimberly Clark, a compliant system sufficiently records costs and internal controls.  In addition, that system instills auditors with a sense of confidence in a contractor’s record-keeping abilities.  Contractor’s with adequate systems are re-reviewed periodically to determine continued suitability of their accounting systems.

The burden of DCAA compliance is a heavy one.  Between December 2008 and March 2009, audit procedures were revised to no longer include “inadequate in part” ratings or suggestions for improving inadequate systems.  Therefore, any business whose accounting system is considered inadequate must start from scratch in order to meet DCAA standards.

Thankfully, there is hope for businesses facing a DCAA audit.  Software such as QuickBooks or Peachtree can be modified to align a business’ bookkeeping records with strict DCAA standards.  In the hands of an experienced accountant with a strong knowledge of DCAA compliance, these accounting systems can and will meet DCAA standards.  Remember too that DCAA does not APPROVE or ENDORSE any software, they are only looking for a process that works.

DCAA compliance is part of doing business with the Federal government and the Department of Defense.  Reducing the burden brought on by compliance standards offers contractors a significant competitive advantage when vying for high profile government contracts.  Today, a willingness to succeed is simply not enough.  When the DCAA calls on you, will you be ready?