Government Contract Accounting System Requirements
Government contractors as a condition of contracting must under certain types of contracts secure an approved cost accounting system. This condition is limited to cost reimbursable contracts (such as CPFF). Also, at times the requirements are also imposed in a less formal manner to Time and Materials contracts. By the implementation of DFARS 252.242-7006 the Department of Defense is applying this requirement to certain fixed priced contracts based on cost as well. Bottom-line is it is in the best interest of a government contractor to implement an accounting system that meets these accounting system requirements. As a small business you are likely to need to meet this requirement at some point.
The requirements for an acceptable accounting system are provided by SF 1408 (https://www.gsa.gov/forms-library/pre-award-survey-prospective-contractor-accounting-system).
I have outlined in layman’s terms detailed analysis, guidelines and recommendations on the accounting system requirements on my www.dcaaconsulting.com web site ( http://www.dcaaconsulting.com/dcaa-compliant-accounting-systems/).
These are excellent resources for understanding the details of these requirements.
However, below I am providing the tasks necessary to make an accounting system compliant with these requirements.
Task 1: Develop a cost structure that is compliant. This will include developing homogenous cost pools. These pools typically include Direct Cost, Fringe, Facilities, Overhead, G&A and Unallowable Cost. The specific pool structure will depend on your organization structure and operations. Each of your accounts must be assigned to the appropriate cost pool. This will also include establishing the project structure for each contract or project as well.
Task 2: Develop policies that meet these requirements and DCAA audit expectations. The most significant ones include Direct vs. Indirect Cost Segregation; Indirect Cost Pools, Allocation Bases and Rates; Unallowable Cost Accounting, Invoicing, Timekeeping, Labor Accounting, Payroll, Project Accounting, Cost Reporting, etc. My Government Contract Accounting Manual provides everything you need.
Task 3: Timekeeping and Labor Accounting. The company should implement a timekeeping system that meets DCAA audit expectations. Also, labor accounting should be based on total time accounting when allocating labor costs.
Task 4: DCAA Cost Reporting. There are a number of reports that are necessary that are not standard with most small business accounting system software packages. Some of these include Indirect Cost Rate Statements, Labor Distribution and Contract Status Reporting (Project cost by project including indirect cost allocations). The use of ICAT will automate these reporting needs for Quick Book users.
The details of each these tasks and requirements are provided on my consulting website at (http://www.dcaaconsulting.com/dcaa-compliant-accounting-systems/).
I commonly perform assessments of accounting systems for a GAP analysis to outline any corrections that must be made. I also help government contractors in implementing government contract compliant accounting systems to meet DCAA audit requirements. Should you have any questions about the government contract accounting system requirements or the services I provide please contact me.