Pass DCAA Audits with
QuickBooks Online and GovBooks


 

​Depending on the federal contract or grant you are awarded, or for which you are submitting a bid, DCAA (Defense Contract Audit Agency) will contact you to perform an audit of your accounting system, timekeeping system, billing system, contract management system, internal controls, and accounting policies and procedures.

 

Here is a list of the most common type of audits:

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• Preaward Accounting System Surveys

• SBIR/STTR Audits

• Contract or Grant Price Proposals

• Incurred Cost Submissions

• Voucher Audits

• Defective Certified Cost Or Pricing Data Audits

• Equitable Price Adjustments

• Contract Close Outs

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DCAA involvement is most likely for Cost Reimbursable type contracts (to include T&M) and price proposals for all types of large negotiated contracts to include Cost Reimbursable, T&M and Fixed Price.

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This puts quite a burden on small and medium-sized government contractors in terms of time and expense and can limit the opportunities for business growth. On the other hand, if you have the capability to handle DCAA audits, it can create more opportunities for growth. DCAA compliance can be a key capability for your company in its growth strategy.

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I created GovBooks with the intention of reducing the burden of DCAA compliance on small and medium-sized government contractors, with a streamlined approach using inexpensive, off-the-shelf software (QuickBooks Online), connected to GovBooks, for only $100 per month.

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DCAA Accounting System Requirements

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During the audit known as the Preaward Accounting System Survey, DCAA examines your accounting system to determine if your system is set up properly to be awarded Cost Reimbursable (to include T&M) type contracts and grants. The survey itself, known as SF 1408, entitled "Preaward Survey of Prospective Contractor Accounting System Checklist", lists all the requirements that must be met to receive the coveted DCAA Certificate of Adequacy.

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Is QuickBooks Online DCAA Compliant when used with GovBooks?

Yes. If you connect your QuickBooks Online account to GovBooks, and follow my recommended setup steps, you will have an inexpensive and fully-compliant DCAA accounting system. 

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Here is a link that maps GovBooks features to the SF 1408 showing that it meets requirements.

See Map to DCAA SF 1408

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How does GovBooks make QuickBooks Online DCAA Compliant?

GovBooks adds the features that are missing from QuickBooks Online to make it DCAA compliant. Although these add-on features could be handled with spreadsheets, most government contractors will find it difficult and too time consuming to use spreadsheets after they grow to a certain size beyond the initial start up stages.

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GovBooks does the following:

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• Computes indirect rates

• Allocates indirect expenses to contracts and projects

• Tracks contract awards, contract funding and contract backlog

• Computes the labor distribution and posts it to QuickBooks Online

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​​​​​GovBooks computes indirect rates.

To be DCAA compliant, you must demonstrate the ability to compute indirect rates. If you are a Cost Reimbursable contract using provisional indirect rates, you are required by DCAA to compute your indirect rates on a monthly basis so that if your actual indirect rates are less than what you are billing, you are able to reduce your provisional indirect rates on future invoices. This computation can be done each month on a spreadsheet, but it is time consuming and prone to error. GovBooks automates this process.

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GovBooks allocates indirect expenses to contracts and projects.

To be DCAA compliant, you need to allocate your indirect expenses to contracts and projects at least monthly. First, the indirect rates must be computed (see above), and then based on the computed rates, you allocate those indirect expenses to determine the total cost on your contracts and projects. This is important so that you do not exceed the amount awarded and funded by the government. This can be done on a spreadsheet, but it is time consuming and prone to error. GovBooks automates this process.

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GovBooks tracks contract awards, contract funding and contract backlog.

To be DCAA compliant, you need to track your contract awards, contract funding and contract backlog. This gets to be complicated and tedious if you have more than a few contracts and task orders. Incremental funding is another challenge which requires modifications to your tracking system whenever new funds are received. Computing contract backlog becomes a major task when handled on a spreadsheet, especially when funded at the CLIN level. GovBooks automates this process.

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GovBooks computes the labor distribution and posts it the general ledger.

To be DCAA compliant, you need to distribute your labor costs to contracts, projects, and other cost objectives such as paid leave, using a DCAA-approved method known as Total Time Accounting or Standard Rates. For salaried employees, Total Time Accounting requires computing an effective hourly rate for each pay period, based on the actual hours work and hours taken as leave. Hours will vary from one pay period to another for employees, because to be DCAA compliant, you are required to record actual hours on your timesheet, even if the hours vary from a standard 40 hour work week. For the Standard Rates method of labor distribution, a payroll variance will accrue, and needs to be posted to an overhead account. The labor distribution calculation can be done on a spreadsheet, but it is time consuming and prone to error and I would not attempt it using a spreadsheet except for the smallest companies. Although QuickBooks Online Plus and Advanced versions have a labor distribution function, it is not DCAA compliant because it does not post labor costs to the various labor accounts required to compute indirect rates, such as Direct Labor, Overhead Labor, G&A Labor and Paid Leave. GovBooks has a labor distribution module that is fully DCAA compliant, calculates the labor costs, posts it to QuickBooks Online and automates this process.

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