Compliance

Where compliance meets confidence

In addition to efficiently delivering services that meet client needs, government contractors must follow a litany of compliance guidelines covering everything from timekeeping to security, incurred cost, and more.

These stringent standards can represent a significant burden and risk for government contractors. The cost of not complying can lead to fines, billing withholds, or lost certifications and contract bids. If the non-compliance is deemed very serious, it can even result in jail time.

The Defense Contract Audit Agency (DCAA) is a vital part of the acquisition process for the Department of Defense (DoD) and certain other agencies. Their primary function is to ensure taxpayers’ money is spent responsibly by auditing agencies who perform acquisition and contract administration work for the US Government. Unlike other regulatory agencies, the DCAA only audits contractors.

The DCAA hold a tremendous amount of influence over the acquisition process because they communicate with the contracting officer (CO) and make recommendations that help the CO determine the price of the contract.

For more information on how to thoroughly prepare for impending audits, visit the DCAA website or watch the video below.

The Gold Standards: FAR and CAS

As with most business engagements, government contracts are high-value financial investments. Because the contracts are funded by taxpayer money, government agencies — and the DCAA specifically — will pay close attention to how and where every cent is spent.

That’s why GovCons need to become intimately familiar with both the Federal Acquisition Regulation (FAR) standards and Cost Accounting Standards (CAS) to maintain DoD compliance and better position themselves to win more business.

FAR

The Federal Acquisition Regulation (FAR) standards are the holy grail of acquisition. They are the primary set of rules governing how the federal government procures products or services, designed to help agencies minimize cost, improve service quality, fulfill public policy objectives, and generally conduct business with integrity and fairness.

GovCons working with the DoD must demonstrate an ability to comply with the various standards and provisions or show they will be able to do so by the time they are awarded the bid.

Failure to abide by any or all of the standards puts a GovCon at risk of losing a winning bid, having an existing contract cancelled or amended, or incurring fines and other financial penalties.

CAS

One of the more challenging elements of a GovCon’s business, Cost Accounting Standards (CAS) are 19 rules that help government agencies
determine costs on negotiated contracts. The
regulations affect contracts specifically, rather than contractors as a whole.

CAS was created to build consistency in how larger defense contractors and subcontractors manage cost accounting. It also establishes regulations that require contractors to disclose their cost accounting practices in writing.

Contractors with CAS-covered contracts must monitor their bidding, booking, and billing to ensure each is consistent with their written cost accounting disclosures prior to winning a project.

Incurred Cost

The most common and challenging audit type, Incurred Cost Submission (ICS) is a financial representation of the work a contractor performed during a specific period. This audit is required for contracts when the contract amount is not fixed and when it contains the Allowable and Payment Clause. The incurred cost audit is intended to make sure claimed actual costs match billed costs. The overall submission (Incurred Cost Electronically—ICE) can be difficult, and you must identify items such as your rate structure, direct cost to cost objectives (contracts), and both indirect and unallowable costs.

Timekeeping

Timekeeping is the bane of many contractors’ existence. But accurate timekeeping is absolutely essential for GovCons, as timekeeping audits are among the most prevalent audits reported year over year and are the only audits performed by DCAA without advanced notice. The audit is intended to keep GovCons honest and vigilant about the veracity and reliability of employee time records, prove that employees are at work, performing in assigned job classifications, and charging time to the proper line item.

Forward Pricing

Forward pricing audits are conducted on a Forward Pricing Rate Proposal (FPRP), tied to a base year rather than to a specific contract. They are usually done during the award selection process and are aimed at ensuring both DCAA and the contractor agree rates are reasonable and can realistically be used on future pricing. This audit typically results in a Forward Pricing Rate Recommendation (FPRR).

Accounting System

Accounting System Audits are conducted pre-award and should be considered necessary to win any cost type contract. Specifically, GovCons must prove they maintain an accounting system that complies with existing laws and regulation, is accessible and provides reliably accurate data, has safeguards against misallocations and mischarges, and allocates contract budgets and charges consistent with billing procedures.

Business System

In addition to pre-award audits of accounting systems, DCAA may also conduct more general business system audits, intended to help ensure contractors have all the necessary infrastructure, processes, and procedures in place to properly manage government prime contracts. These audits include accounting systems and processes, along with earned value management (EVM), estimating, material management and accounting (MMAS), property management, and purchasing systems.

Special Audits

Special audits may be requested by contracting offers needing an independent financial opinion about specific portions of a contract. These high-priority investigations may be conducted before or after contract award. Special audits conducted after contract award primarily address change requests for part of a contract or agreements that are in some stage of termination. These are complex audits of high-risk contracts in which the DCAA must carefully evaluate the cost of original contract work against the changed scope of work.

Miscellaneous Audits

The DCAA typically initiates other audits when there is high-risk potential for misallocation or mischarging of costs. The majority of the audit effort in this category focuses on the adequacy of the contractor’s Cost Accounting Standards Disclosure Statement, compliance with cost accounting standards and the Truth in Negotiation Act (TINA), assessment of contractor Cost Impact Statements, and review of contractor business systems.

National Aeronautics and Space Administration (NASA)

The National Aeronautics and Space Administration (NASA) is an independent agency of the U.S. federal government responsible for the civilian space program, as well as aeronautics and space research.

Health and Human Services (HHS)

The Department of Health and Human Services (HHS) is a Cabinet-level civilian agency. It includes both the Center for Medicare and Medicaid Services (CMS) and the National Institutes of Health (NIH) – both of which maintain large procurement budgets.

Cybersecurity Maturity Model Certification (CMMC)

The Cybersecurity Maturity Model Certification (CMMC) is an initiative of the Department of Defense intended to strengthen security over critical Controlled Unclassified Information (CUI) in the custody of contractors.

Timekeeping

Unanet’s web-based timekeeping software enables GovCons to reliably collect employee hours and track project statuses anytime, anywhere. The tool also features supporting systems for payroll, invoicing, project accounting, chargeback, and job cost accounting alongside robust auditing capabilities. Unanet is recognized as the best DCAA-compliant government contractor timesheet.

Accounting

Unanet’s complete project-based ERP solution delivers an integrated set of capabilities for real-time project performance, people management, and financials in one application to eliminate the need for reconciling data between different systems. The solution makes it easy for GovCons to efficiently manage core financial reporting activities, including segregating direct and indirect costs, charging direct and indirect labor to final cost objectives, and excluding unallowable costs.

Expense Reporting

Accessible from any device, Unanet’s Expense Report software helps contractors compile employee travel and materials expenses, along with the related expense authorization requests. The solution automates expense reporting and follows all government expense reporting guidelines to eliminate administrative effort, increase efficiency, and ensure accuracy.

Success Story

Array Information Technology

As a leading IT products and services firm, Array Information Technology needed a user-friendly accounting system that would support DCAA Compliance. They also wanted a system that would provide real-time data and reporting to all 15 branches to make informed company decisions. Deltek GCS did not fulfill their requirements, so they looked to Unanet for help. After the implementation, Array can now create real-time reports for managers, return accurate data, and successfully complete a DCAA audit.

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Where compliance meets confidence

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DCAA Compliance: A Quick Guide

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The Gold Standards: FAR and CAS

FAR

CAS