The Defense Contracts Audit Agency or DCAA is a watchdog that conducts a strict audit before awarding contracts to any civilian body. They do not carry out the audits themselves, but are asked to do so on behalf of different military wings and even some civilian ones. Strict auditing is done to ensure taxpayer money is well spent. Therefore, there are several clauses and sub-clauses to comply with in order to pass the audit and secure the government contract. For this, you must prepare a DCAA-compliant account.
Separating indirect costs
The primary task is to determine if your business accounts are adequate under the DCAA provisions, especially with regard to DCAA indirect costs accounts Indirect costs are fees that can be quantified in any contract. The direct cost is made up of expenses such as the cost of materials, the wages of the workers for the project in question, the expenses of subcontractors and the like. Indirect costs, on the other hand, are specified by the FAR and must be properly explained.
Categorize costs
All recognized DCAA indirect costs can be roughly categorized into three groups: employee benefits, total overhead costs, and general administrative costs. Employee benefits, such as health, pension plans, paid vacation leave, should be kept clearly on file so there are no discrepancies when the audit comes. This is usually done by good time control which can be manual or electronic. Such records must be consistent over at least a period of time and should not be done overnight for auditing.
Covering the areas of operations
With regard to overhead costs, the records must exist at the time the money was spent for that purpose. They may also include sections such as research and development, shared facility costs, and also those for electricity and heating systems. Costs that are associated with running the business such as office space, workers’ wages, and management engaged in one or even multiple projects and the like.
Correct projection of the accounts.
How you maintain your indirect cost accounts will largely depend on the type of business you are in and also the size of your business. You must file all such accounts within six months of the end of the fiscal year. It is not within the ability of regularly qualified accountants to prepare what is necessary as the specifications are very different in certain areas. The best way to avoid being penalized is to enlist the help of professional accountants who not only have experience preparing these accounts, but have once served with the DCAA.