DCAA and FAR
Accounting Compliance and the Government Contractor

Most small firms are introduced to the issue of accounting system compliance in association with their first pre-award survey. Pre-award surveys usually take place prior to award of the firm's first large prime contract with the federal government. If that contract will be subject to the Federal Acquisition Regulations (FAR) - and most are - the pre-award survey will usually be conducted by an auditing arm of the Federal Government. If the prospective contract will require cost-based invoicing or reporting, an important part of the pre-award survey will be the accounting system review. As outlined in the Defense Contract Audit Agency (DCAA) publication entitled "Information for Contractors" dated January 2004, the purpose of this review is "to determine the adequacy and suitability of the contractor's accounting system and practices for accumulating costs under the type of Government contract to be awarded." (Publication DCAAP 7641.90, Chapter 2, Section 2-301). For more information on this document, visit the DCAA web site at www.DCAA.mil.

Another important document available there which also includes information on the conduct of a pre-award survey is the Defense Contract Audit Manual (DCAM). Both of these contain important information with respect to the Government's expectations with respect to contractor accounting system functionality and compliance.

Contrary to the belief prevalent in many companies, the issue of accounting system compliance does not really revolve around the software itself. Certainly a key consideration is the functionality and capability of the software employed. Even more important, though, is the network of practices and procedures required for compliance. And most important of all are the internal control mechanisms that monitor and enforce them. When DCAA (or any other Federal audit activity) reviews an accounting system for compliance with Federal regulations, they usually start with the company's policies, practices and procedures. After they have satisfied themselves that the company's policies and procedures are adequate and their day-to-day practices follow their own policies, then they will turn to the software systems in place to support the policies.

Many integrated accounting software packages can be operated in a government contract compliant manner given a well-designed system of practices, procedures and internal controls. If a firm's software lacks a particular required control or feature, this can often be offset by a manual practice or procedure. If the software lacks several such features, it may seem easier to just do the work with a pencil and paper. However, manual systems are prone to lapses in consistency and communication not usually associated with automated systems.

When DCAA examines a contractor's software tools and systems for compliance, the extent of the review will be determined by the nature of the software and their own familiarity with it. If the software is known to DCAA and they are comfortable with the functionality and controls it includes, their review is often very high level. If the software system is not one that is widely used in Government contracting or with which they are unfamiliar, they will often do a detailed review to determine that the cost recording, tracking, allocation, billing mechanisms and internal controls are sufficient to give the government a level of confidence in the results.

If the software permits, but does not enforce, compliant practices, then a detailed review of the supporting manual systems and practices will be necessary. If it is determined that the system does not include strong internal control capabilities or is deficient in one or more areas of functionality, the result of the review may be adverse. In fact, if these either the software or the manual systems that supplement it are found to be inadequate, then the overall "accounting system" will be determined unacceptable for award of the prospective contract. If the software does not even support compliant practices, then the manual systems will never even be reviewed.

Government contractor solutions from Deltek are among the very few that enjoy a presumption of compliance by government audit agencies even when not yet set up.

In any case, an inadequate accounting system may cause an award to be postponed until the company can acquire and implement a new system. The government audit agency will not develop the new system - correcting the deficient accounting system is the responsibility of the contractor. Once required corrective actions have been taken, the government audit agency, if requested by the contracting officer, will conduct a follow up review of the revised system.

Sometimes, a company may receive awards and be well into performance on multiple contracts before the compliance issue is raised. When this happens, the need for a new system can become more than just urgent. It can be a matter of survival.

Compliance for the Deltek Customer

Deltek offers two different software systems purpose built for Government contracting - GCS Premier for the entry level Government contractor and Costpoint for larger contractors or those with more advanced requirements. Deltek clients have a solid foundation for building a successful contract accounting future. Both GCS Premier and Costpoint are time tested solutions designed specifically for the unique needs of government contractors and together are used by more than 2,500 firms to support cost collection, allocation, reporting and billing on government contracts. Satisfied and compliant Deltek clients range from the giants of the government contracting world like Lockheed Martin, Northrop Grumman and CSC to heavyweights in the government services community like SAIC, BTG and MVM. In fact, more Government contractors will support their annual audit submissions to DCAA this year from a Deltek system than all other software solutions combined!

The Bottom Line

Government contract accounting compliance with a manual systems approach can be very expensive and time consuming. Customizing general purpose software to add Government contract specific functionality can be just as time consuming and expensive. Noncompliance can be even more expensive. A system based on integrated cost accounting software with a design that enforces government compliant practices is the most cost-effective solution - for today and tomorrow. From the small or mid-sized federal government contractor to the giants of the industry, Deltek has that solution.