What Is DCAA Compliance? Top Questions Answered

If you’re looking to take on new government contracting work, it can come with a list of requirements.

It can certainly be daunting if you don’t feel up to date on DCAA knowledge. Whether you’re just getting started or need a light refresher, we’ve answered the top questions around DCAA compliance to make sure your firm’s on the right track.

What is DCAA?

The Defense Contract Audit Agency (DCAA) performs all contract audits for the United States Department of Defense. Although it’s a member of the Department of Defense, the DCAA also assists other government agencies with accounting and financial advisory services. The goal of the DCAA is to make sure taxpayers and military dollars are being spent accurately, with audits in place to check on the processes.

Why is it important to be DCAA compliant? 

Failure to follow DCAA regulations will lead to a poor audit trail with the consequence of excluding your firm from further government contracting work. The DCAA can also recommend that the current project stop payments on the work in progress. Therefore, the procedures are critical to running successful engagements involving a government group. 

What is the difference between DCAA and DCMA?

The DCMA is responsible for monitoring the contractor beginning from the time the contract is awarded to contract closeout. The DCAA is tasked with monitoring and ultimately auditing the accounting system used by the contractors throughout the contract.

While these two agencies are similar, they have different missions. The DCMA is tasked with the administration work of DoD contracts and the DCAA is tasked with the financials and accounting aspects of the contracts.

DCAA compliance requirements

There are a number of requirements set out by the DCAA in order to help contractors with their timekeeping and accounting on government contracts.

• Timesheets must be completed every day and can’t be changed after they are submitted
• Project numbers and descriptions need to be clear
• Overtime and time off should be accurately recorded 
• Timesheet and payroll approvals must be performed by different parties but you can integrate your time tracking and accounting systems to save time and money

The level of organization and accuracy required by the DCAA has moved a lot of contractors and businesses away from paper timesheets to digital time tracking and accounting solutions.

DCAA accounting requirements

Using a timekeeping software, as opposed to manual tracking, helps prevent staff from going off policy. Look for a time and billing software that can be configured to follow DCAA regulations automatically, such as blocking late entry of time or prevent timesheets with errors from being submitted. 

Having a system with set review and approval processes also makes staying compliant seamless. Lastly, make sure the timekeeping system you choose can integrate into the accounting tool of your choice, as the main importance of compliant time tracking is to guarantee accurate accounting and billing. 

DCAA timekeeping requirements

DCAA compliant timekeeping follows regulations set in place to ensure government contractors follow the rules of the Federal Acquisition Regulations (FAR). The FAR system makes certain every process in which the government purchases goods or a service is the same. 

For contracted services, the money spent associated with hours worked requires a specific set of rules meant to prevent any inaccurate tracking of time. For a breakdown of the specific actions needed to be DCAA compliant, check out our blog on steps to DCAA compliant timekeeping.

DCAA compliance for small businesses

These regulations are important for all businesses that want to take on government contracts, no matter how many employees you have. It does become simpler to accurately reflect hours to specific projects with a smaller team, as well as preparing an audit trail. This actually encourages small businesses to be more relaxed on the requirements at times but it’s important to keep compliance top of mind.

To help your small business remain DCAA compliant, you can rely on accounting software that follows Generally Accepted Accounting Principles (GAAP). 

May small businesses use Quickbooks and there’s no need to change solutions because Quickbooks can be configured to meet DCAA compliance requirements if paired with a robust timekeeping and reporting solution like BigTime.

4 tips for DCAA compliance

When it comes to DCAA compliance, the answer to the little voice in your head is yes. Yes, you should make sure you’ve built a strong foundation, even if it means more leg work up front, it’ll save you from a scramble at the end when being organized really matters. 

If you’ve already forged ahead, it’s not too late to go back and reassess the process in place to make sure you’re on the right path for growth. 

So, let’s make a plan. Follow these four steps to invest in the success of your DCAA compliance and it’ll be smooth sailing ahead. 

Tip 1: Build a sustainable plan for growth

Even small firms need to think big when it comes to government contracting. Growing a business on a manual process, that may work for the initial project, will keep creating more work down the road. 

Remember to think long-term when you’re planning out your process for compliance. Finding a PSA software that is flexible enough to grow with your firm allows you to adapt to the process, rather than having to reinvent the wheel in each new phase of business.

Tip 2: Create documentation for DCAA policies and procedures

Having a formal policy for DCAA time tracking and building your audit trail is required by the DCAA, along with an accompanying procedure document detailing the process. Resist from thinking of this as just another compliance step to cross off the list, and use the opportunity to get your whole firm organized.

Although some of the compliance rules seem tedious, there’s a lot of good ideas built-in for aligning your time tracking, budgeting, capturing costs and invoicing. Keep notes as you plan, or enlist the help of a consultant from the beginning to help you build out your own custom “formula” for success. This will save you money down the line of having to hire a last-minute consultant when an audit strikes.

Tip 3: Get everyone on the same page

Standardizing your firm’s internal management and time tracking system for all employees is the safest route. Even if government contracting is only a branch of your business, you never know when you’ll need to pull in an additional resource, and ultimately one process keeps things less complicated and organized. 

Communication is key to making the adoption seamless for everyone in your organization. Aim to make the transition swiftly to avoid messy records and overlaps. Change is hard in the beginning, but everyone will adapt to the new norm with time. 

Tip 4: Train your employees with the why

Often the biggest pain point in service firms, and even more crucial in those who need to be DCAA compliant, is operations doesn’t get accounting the information they need. Many businesses make the mistake of training their employees on their processes, but leave out the essential “why”. Why am I doing this? Why is it important? Why were these steps put it place? It’s human nature to give more care and thought to our actions if we know the purpose behind them. 

When training operations on the needs of DCAA compliance, and staffers on their time tracking, make sure to communicate the importance of the audit trail. Explain how the regulations impact the way accounting is able to build your documentation and the possible consequences that come from failing an audit. 

To learn more strategies on DCAA time tracking, budgeting, reporting and more, watch our on-demand webinar with Golden Gait Consulting.