A contractor’s circumstances, and contract type, dictates whether you are required to have a DCAA compliant accounting system. If you have a negotiated fixed price contract, you are not required to have a DCAA compliant accounting system. A contractor must only ensure that their proposal pricing data meets the cost or pricing data requirements. The accounting system should report certain financial data to support the cost or prpice data requirements under the fixed price contracts, such as indirect rate data and payroll records.
An adequate accounting system subject to DCAA audit is most relevant to cost reimbursable contracts. Under cost reimbursable contracts, the DCAA compliant accounting system must be adequate and approved by the government under FAR Subpart 16.301-3(a)(3).
In some cases, the government requires a DCAA compliant accounting system under the time and material contracts on a case by case basis. It depends on how significant the “Materials” portion of the T&M are.
12 Key Elements (SF 1408)
Below are 12 of the key elements of a DCAA compliant accounting system as identified on the Standard Form (SF) 1408.
- Demonstrate compliance with generally accepted accounting principles (GAAP)
- Segregate direct costs from indirect costs
- Accumulate contracts costs by cost element and by contract
- Logical & consistent method to allocate indirect cost pools and allocation bases
- Accumulate costs under general ledger control
- Use of a timekeeping system to identify labor by direct or indirect cost objectives
- Maintain a labor distribution system that appropriately applies labor to direct and
Indirect cost objectives
- Prove transactions are entered on at least a monthly basis
- Properly identify and account for unallowable costs
- Track costs by contract line item (CLIN) as applicable
- If manufacturing, segregate pre-production costs from production costs