The Defense Contract Audit Agency (DCAA) has issued a new version of its “Information for Contractors” (DCAA Manual 7461.90). As of the issue date, June 26, 2012, the new manual supersedes the previous 2005 pamphlet edition. “Information for Contractors” describes the auditing policies and procedures that DCAA personnel must follow and does so from the contractor’s perspective.
Greater detail on these policies and procedures from the auditor’s perspective is available in the DCAA Contract Audit Manual (No. 7460), referred to as “the CAM”, which is kept continually updated online at www.dcaa.mil. You can download “Information for Contractors” from the Index on the same page as the CAM.
If the CAM is always up to date, why did the government feel the need to update and re-issue a separate document? Part of the answer lies in the difference in viewpoints mentioned above. “Information for Contractors” is “designed to assist contractors in understanding applicable requirements and to help ease the contract audit process. It describes what contractors should expect when doing business with the U.S. Government and interacting with DCAA auditors.”
Here’s another part of the answer. The CAM has a thousand pages; “Information for Contractors” has a hundred. Which would you rather use?
Even established government contractors might want to refresh their sense of DCAA requirements by downloading the new “Information for Contractors,” but its greatest value is obviously for ‘prospective contractors” – companies new to doing business with the government and competing for their first contract.
“Information for Contractors” consists of six sections, called enclosures:
- Introduction to the Defense Contract Audit Agency (DCAA)
- Preaward Surveys of Prospective Contractor Accounting Systems
- Price Proposals
- Cost Accounting Standards
- Contract Financing and Interim and Financial Vouchers
- Incurred Cost Proposals
The Introduction spells out the DCAA’s General Audit Interests and Major Areas of Emphasis. Briefly, it is in the government’s and the taxpayer’s interest to identify and evaluate “”all activities that either contribute to, or have impact on, proposed or incurred costs of Government contracts.” This interest dictates the areas of emphasis for audits: “1) business systems, 2) management policies and procedures, 3) accuracy and reasonableness of contractors’ forward pricing and incurred cost representations, 4) adequacy and reliability of records and accounting systems, and 5) contractor compliance with [various named ] contractual provisions having accounting or financial significance…”
Each of the following enclosures cites the relevant requirements, then displays the reports and forms that have to be submitted to prove compliance and explains the data required to complete them. Thus it is a kind of Cliff’s Notes approach to understanding and navigating the compliance process.
Clearly from what has been said so far, the contractor’s accounting system and its reporting capability are a focal point for any DCAA audit – both the “preaward survey” of capabilities, which qualifies the contractor to compete for contracts, and all subsequent contract performance and operational audits. While everyone worries about compliance audits, in fact a high percentage of the approximately 9,000 audits the DCAA performs each year are requested by government purchasing agents for use in negotiations.
So let’s look at the second enclosure, “Preaward Surveys of Prospective Contractor Accounting Systems,” and come back to the others in future blogs. There are two key points for the prospective contractor to keep in mind. First, if the DCAA is asked to determine “the adequacy of the contractor’s accounting system to accumulate the kind of cost information required by the contract,” the auditor will be looking for “an operable accounting system that is under general ledger control” and capable of separately tracking and allocating both direct and indirect costs.
Secondly, the government understands that not every prospective contractor has such a system in use already, nor wants to install one before being awarded a contract. That’s OK. You can satisfy the auditor by demonstrating that you have the ability to deploy and operate such a system. If you are in this position, you might want to put a cloud-based system on your event horizon. In most cases, a cloud accounting vendor would be happy to assist you in meeting the requirement, and if you are awarded the contract, you can start up immediately because it is is a turnkey solution – and scalable if your business with the government grows .
While the DCAA does not require it, you will be wise to look for pre-built reports in this potential new system that show contract status and compliance using DCAA categories. They will save you a great deal of time and trouble, while bootstrapping your training process.
If you have questions about whether your accounting or ERP system will pass a DCAA audit or if you want assistance in preparing for a full preaward survey, give us a call at 703-860-6945. Brittenford Systems serves government contractors in Maryland, Virginia, and Washington, DC.
Please share this with others who would be interested in the recent updates to the DCAA “Information for Contractors.”