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The federal government is the largest purchaser of supplies and services in the world. It's not surprising that many companies want to work with the United States Federal Government. According to GAO, in fiscal year 2021, the federal government spent approximately $637 billion on contracts. Winning and executing your share of this work often requires putting in place DCAA compliant systems. You must also consider and be cognizant of the compliance regulations, requirements, and oversight that come with this source of potential revenue.
In this blog, we discuss how to prepare for the oversight and audits that comes with performing government contracts. We provide a summary of the requirements and discuss how to prepare your firm for a common series of audits that will be required, including the SF 1408 pre-award survey, an accounting system and timekeeping audit as well as the incurred cost submission audit.
Review the SF 1408:Review the SF 1408 form to understand the areas that will be evaluated during the pre-award survey. The SF 1408 is used to evaluate a contractor's accounting system, financial capability, and management systems.
Understand the Pre-Award Survey Process: Understand the pre-award survey process and the roles of the government contracting officer and the pre-award survey team.
Gather Documentation: Gather all relevant documentation, such as financial statements, tax returns, and accounting policies and procedures, to support the pre-award survey.
Review Previous Audit Findings: Review any previous audit findings and ensure that corrective actions have been taken.
Perform Internal Audit: Conduct an internal audit to identify any issues or potential discrepancies that could be identified during the pre-award survey.
Reconcile Accounts: Reconcile all accounts and ensure that all accounting records are accurate and up-to-date.
Verify Compliance: Verify compliance with all relevant government regulations and policies, such as the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS).
Prepare for Interviews: Prepare for interviews with the pre-award survey team and be prepared to answer questions related to the contractor's financial and management systems.
Address Survey Findings: Address any survey findings and work with the pre-award survey team to resolve any issues or discrepancies.
By following these steps, a government contractor can be better prepared for a SF 1408 pre-award survey and improve the chances of a successful survey outcome. It is important to note that the requirements for preparing for a pre-award survey may vary depending on the specific government agency and contract, so contractors should always refer to the applicable regulations and policies for guidance.
To pass a DCAA accounting system audit, government contractors must demonstrate compliance with the accounting system requirements outlined by the Defense Contract Audit Agency (DCAA). These requirements are designed to ensure that contractors have effective accounting systems in place and are maintaining accurate and complete financial records. Some of the key requirements that contractors must meet to pass a DCAA accounting system audit include:
Adequate Segregation of Costs: Contractors must ensure that costs are properly classified and segregated in their accounting system, including direct and indirect costs, unallowable costs, and costs related to specific contracts or projects.
Consistency in Accounting Practices: Contractors must use consistent accounting practices and maintain consistent accounting records across all contracts and projects.
Compliance with Regulations: Contractors must comply with government regulations related to accounting, including those related to cost accounting standards, allowability of costs, and cost allocation.
Timely and Accurate Reporting: Contractors must be able to provide timely and accurate financial reports to the government, including invoices, financial statements, and contract status reports.
Internal Controls: Contractors must have effective internal controls in place to ensure the accuracy and completeness of their financial records, including processes for monitoring costs and ensuring compliance with regulations.
Record Retention: Contractors must maintain accurate and complete financial records for a minimum of three years and must be able to produce these records for audit by the DCAA upon request.
To pass a DCAA accounting system audit, contractors must have effective accounting systems and processes in place, comply with government regulations, and maintain accurate and complete financial records. By demonstrating compliance with these requirements, contractors can ensure that they are in good standing with government agencies and can continue to secure government contracts.
To prepare for a DCAA approved accounting system audit, a government contractor should consider the following steps:
Review DCAA Audit Guidance: Review the DCAA audit guidance related to the accounting system audit, which can be found on the DCAA website. This guidance outlines the DCAA's expectations for an acceptable accounting system and provides information on the audit process.
Review Accounting System Policies and Procedures: Review the contractor's accounting system policies and procedures to ensure they comply with DCAA requirements and best practices. This includes ensuring that the accounting system properly captures and tracks costs, has appropriate internal controls, and supports reliable financial reporting.
Perform Internal Audit: Conduct an internal audit of the accounting system to identify any issues or potential discrepancies.
Implement Corrective Actions: Address any issues identified during the internal audit and implement corrective actions as needed.
Reconcile Accounts: Reconcile all accounts and ensure that all accounting records are accurate and up-to-date.
Verify Compliance: Verify compliance with all relevant government regulations and policies, such as the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS).
Prepare Supporting Documentation: Prepare supporting documentation, such as accounting policies and procedures, flowcharts, and training records.
Demonstrate System Capabilities: Demonstrate the capabilities of the accounting system to the DCAA auditor during the audit.
Address Audit Findings: Address any audit findings and work with the DCAA auditor to resolve any issues or discrepancies.
By following these steps, a government contractor can be better prepared for a DCAA approved accounting system audit and improve the chances of a successful audit outcome. It is important to note that the requirements for preparing for an accounting system audit may vary depending on the specific government agency and contract, so contractors should always refer to the applicable regulations and policies for guidance.
Accurate Timekeeping Records: Contractors must be able to demonstrate that they are accurately recording employee time, including start and end times, as well as time spent on specific projects or tasks. Time must be recorded daily, and timekeeping records must be signed by both the employee and supervisor.
Approval of Timekeeping Records: Contractors must ensure that timekeeping records are approved by supervisors or managers, and any changes to timekeeping records must be documented and approved by both the employee and supervisor.
Labor Distribution: Contractors must be able to demonstrate that employee time is accurately distributed to specific contracts and projects. This requires maintaining accurate records of the employee's time spent on each project and ensuring that the time is properly allocated based on the contract terms.
Compliance with Regulations: Contractors must comply with government regulations related to timekeeping, including those related to overtime pay, sick leave, and other employee benefits.
Training and Oversight: Contractors must provide training and oversight to ensure that all employees are aware of and comply with timekeeping regulations. This includes providing training on the proper use of timekeeping systems and ensuring that supervisors are properly trained to review and approve timekeeping records.
Record Retention: Contractors must retain timekeeping records for a minimum of three years and must be able to produce these records for audit by the DCAA upon request.
To pass a DCAA timekeeping audit, contractors must have effective timekeeping systems and processes in place, provide training and oversight to employees, and maintain accurate and complete timekeeping records. By demonstrating compliance with these requirements, contractors can ensure that they are in good standing with government agencies and can continue to secure government contracts.
To prepare for an incurred cost submission audit, a government contractor should consider the following steps:
Gather Documentation: Gather all relevant documentation, such as invoices, timesheets, contracts, and other financial records, to support the incurred cost submission.
Review Previous Audit Findings: Review any previous audit findings and ensure that corrective actions have been taken.
Perform Internal Audit: Conduct an internal audit of the incurred cost submission to identify any issues or potential discrepancies.
Reconcile Accounts: Reconcile all accounts related to the incurred cost submission, including indirect rates and unallowable costs.
Verify Compliance: Verify compliance with all relevant government regulations and policies, such as the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS).
Prepare Supporting Schedules: Prepare supporting schedules, such as the Schedule J, which details indirect costs and rates, and the Schedule L, which lists any significant changes to the contractor's accounting system.
Submit Incurred Cost Submission: Submit the incurred cost submission to the Defense Contract Audit Agency (DCAA) for review.
Respond to DCAA Audit Requests: Respond promptly and thoroughly to any DCAA audit requests and provide additional documentation or explanations as needed.
Address Audit Findings: Address any audit findings and work with the DCAA to resolve any issues or discrepancies.
By following these steps, a government contractor can be better prepared for an incurred cost submission audit and improve the chances of a successful audit outcome. It is important to note that the requirements for preparing an incurred cost submission may vary depending on the specific government agency and contract, so contractors should always refer to the applicable regulations and policies for guidance.
AtWork Systems designed OneLynk to enable GovCon's to navigate through the challenges of growing a GovCon business by providing a DCAA compliant ERP system to deliver exceptional performance. While a government contractor is maturing in the government market, as either a prime or subcontractor, OneLynk is there to instill the processes and systems needed to help achieve government compliance. AtWork Systems offers fractional subject matter experts - across functions like accounting, HR, financial, contract and project management - to help startups step out on the right foot or to help more mature firms transform ad hoc or inadequate processes into higher levels of performance. The combination of AtWork Systems' OneLynk and associated professional services is available as a comprehensive, secure, and affordable means of gaining the competitive advantage.
AtWork Systems is an Arlington, Virginia based managed services and software development company. Its principals have decades of experience doing business with and working for federal, state, and local government. They developed OneLynk as a configurable and scalable SaaS platform that digitizes and optimizes processes while providing just in time business intelligence for decision making. OneLynk contains a suite of easily configurable web applications for automating and monitoring business transactions, including: human capital management, accounting, timekeeping, expense management, procurement, contracts and project management, payroll services and more. Discover the latest ERP System for Government Contractors at www.atworksys.com.