DCAA & FAR Compliance

Pre-Award Survey & Review

Most small firms are introduced to the issue of accounting system compliance in association with their first government contract pre-award survey. Pre-award surveys usually take place prior to award of the firm’s first prime contract.  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” 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.

Software Review

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, but even more important 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.

Firms using Deltek are among the very few that enjoy a  presumption of compliance by government audit agencies.

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 as is Deltek Vision the review is often very high level.

Compliance for the Deltek Vision Customer

Deltek Vision can be easily operated in a government contract compliant manner given a well-designed system of practices, procedures and internal controls. At times, 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.

Requirements for the Contractor Accounting System DCAA Compliance for Contractors

  1. Segregation of Direct from Indirect Costs
  2. Consistent Method for Allocation of Indirect Costs
  3. Operable Cost Accounting System under General Ledger Control
  4. Policies & Procedures with Internal Controls to support compliance
  5. Timekeeping system that tracks employees time on each activity (see Labor Charging below)
  6. Labor distribution that separates direct from indirect labor cost
  7. Exclusion of Unallowables
  8. Identification of Costs by Phase and Task
  9. Segregation of Pre-production from Production Costs

Labor Charging System

Timekeeping procedures and controls is the area of utmost concern.  It is critical that employees are fully trained on their responsibility for accurately recording time charges.  This is the single most important feature management can emphasize.  To be effective, internal controls should meet the following criteria:

  1. Segregation of Responsibilities – Supervisors should not record time for employees.  Payroll and Timekeeping personnel should be separate.
  2. Procedures must be Evident – Clear-cut and reasonable procedures in writing to avoid any confusion.
  3. Maintenance and Reviews – Controls must be continually verified and violations must be remedied promptly.
  4. Employee Reminders – Employees must be constantly reminded of the importance of accurate timesheets and of all policy and procedures in place.
    1. Timesheets must be recorded daily
    2. Timesheets  must be in ink or electronic
    3. Correct distribution of time by Project, Phase & Task
    4. Record all hours worked whether paid or not
    5. Signature is required even if electronic
  5. Supervisors & Approvers
    1. Supervisors must approve all timesheets
    2. Supervisors are prohibited from completing an employee’s timesheet

Deltek Vision Job Costing

The good news is with Deltek Vision there is NO setup required.  All functionality is in place to properly cost your projects and segregate direct from indirect.  Internal Controls must be put into place, training provided, vigilant monitoring and complete documentation in a Policy & Procedures Manual.  Aside from that, Deltek Vision does everything required to comply with DCAA and FAR requirements.

Problems

  1. Recognizing and Tracking Unallowables (Costs that are expressly unallowable or mutually agreed to be unallowable, including mutually agreed to be unallowable directly associated costs, shall be identified and excluded from any billing)
  2. Reporting & Calculating the Overhead Rate (See example below)

Solutions

  1. Edit Chart of Accounts as needed to segregate Unallowables.
  2. Edit Expense Report Categories and Chart of Account Mapping as needed.
  3. Edit Expense Categories if used as needed.
  4. Maintain a constant and diligent review to assure all Costs are being properly accounted for in Project & General Ledger Reports.  Review standard Vision Reports for the YTD Overhead Rate on a monthly basis.

For more information see the DCAA website (DCAA Website) 

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