Landing the first governmental contract is a huge success for a company, but the compliance requirements are rigorous. If Defense Contract Audit Agency (DCAA) compliance raises some concerns you may begin to have doubts about whether your accounting system is suitable for the extensive Federal Acquisition Regulations’ (FAR) uniform set of policies and procedures. Here are a few of the government policies to provide a better understanding of what it means to be FAR compliant.
What is FAR and DCAA and how are they related?
FAR is the primary regulation for use by most Federal agencies in their acquisition of supplies and services with appropriated funds. The DCAA is an oversight agency that evaluates whether contractors’ financial policies, procedures, and internal controls are compliant with FAR.
Cost Accounting Standards
Cost Accounting Standards (CAS) are designed to achieve uniformity and consistency in the measurement of costs, the assignment of costs to cost accounting periods and the allocation of costs to government contracts. Areas the DCAA focus on when performing an audit for FAR compliance include:
- Chart of accounts
- Segregation of direct/indirect costs
- Identification and accumulation of costs by contract
- Logical and consistent method of allocating indirect costs to cost objectives
- Accumulation of costs under general ledger control
- Timekeeping systems
- Tracking costs by contract line item, if applicable
- Exclusion of unallowable costs
- Policies and procedures to maintain compliance with FAR
Allowable and Unallowable Costs
In determining costs of the contract, it must include all direct and indirect costs properly allocable to the contract. However, in determining costs to the Government, they are limited to those costs that are deemed allowable. Allowable costs must comply with these five factors:
- Reasonableness of the cost
- Allocability of the costs to a contract or indirect cost pool
- Standards promulgated by the CAS Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances
- Terms of the contract
- Any limitation set forth in FAR Subpart 31.2
Anders has assisted many of our clients in becoming FAR compliant. We can help you better understand the regulations, what you need to do to be FAR compliant, and assist in updating your current accounting practices so you can pass the DCAA review. If you already have a government contract or are wanting to take your business in that direction, contact an Anders advisor.
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