DCAA audits? To be prepared
The government is just like any other customer. They want the project to be completed by a company that can offer the lowest price and in the shortest time possible. To prove the cost of the project, contractors must be able to calculate labor, materials, and supplies. The United States government will not take your word for it and will agree to pay a quoted price. They will check your projections and make sure they are not overcharged. They will audit your business books, so it is wise to hire an accounting firm to handle these complicated requirements.
A contractor will need to understand indirect rate models and determine which one best suits their needs. Selecting an indirect rate structure is a very important decision for a federal contractor. The indirect rate structure becomes the basis for how prices are developed, analyzed and proposed for the contractor’s work. Certainly, it is possible for a contractor to change its structure if necessary. However, the government wants the contractor to accumulate and distribute indirect costs in a logical and consistent manner.
The chart of accounts is the starting point for establishing DCAA compliant cost groups. The Cost of Goods Sold and Expense accounts are used to define cost groups within the QuickBooks and Peachtree Chart of Accounts. A cost group is identified by the account hierarchy in the chart of accounts, and each cost group has a top-level account and one or more transaction accounts.
This is just the tip of the iceberg when it comes to your books as a federal contractor. There are many variables, and unless you are experienced in this area, trying it on your own is not recommended. Find an accountant or CPA who has experience with DCAA and who knows how to correct possible errors.
To help you understand these requirements, we have formulated a DCAA checklist. By using this guide, the contractor can prepare ahead of time to ensure compliance. It can be found at http://www.vbpoutsourcing.com/indirect-cost-rate-worksheet.html.