How to Avoid a DCAA Audit

What can you do to help avoid a DCAA Audit? Maybe you’re a small, medium or large company with government contracts in the tens of thousands, if not millions of dollars.  Or, you aspire to grow and obtain more government contracts. That project revenue may represent a large portion of your company’s livelihood, if not most of it. Do you really want to risk a DCAA audit, and the chances of losing some or all of it? Think “I.R.S.” for an idea of what you’re up against.  Fortunately, there are concrete steps you can take to protect yourself from audit risk. First, you should consider a DCAA compliant timesheet, like ours. Second, lock down your processes with strong policy training and enforcement. Click here to try our DCAA compliant timesheet. Video: DCAA Compliance

How to Begin

You must have three main components to your DCAA strategy, process, policies, and training, on solid software tools. All three are discussed below. It would be nice if a software package could do all of the work alone, but that would involve removing the human element, which is where most issues occur. So unfortunately, you must do a lot of upfront work on your policies and procedures before any software can help implement those procedures.  Never trust software alone to do the job. It is up to you to make sure that you are compliant; software can only come alongside to make the job easier.  

The Process

First, you must define your process, which in itself should include many DCAA audit required components, such as creating a chart of accounts to segregate indirect, direct and unallowable costs.  A major component, which someone performing a DCAA audit wants to see, is how you categorize and define your labor costs. This is where you will create pools of direct and indirect costs.  Examples of indirect costs are accounting, billing, payroll and other human resource activities. Direct costs are usually clearer and include activities immediately related to the contract work, like a machine operator or engineer. You will need to be able to show indirect and direct labor costs, per contract, and have immediate access to such reports. Just a few examples of unallowable costs are entertainment costs and most advertising costs. Travel costs that exceed the lowest available coach fares and pre-contract costs are not allowed unless specifically approved by the contracting agency.

The Policies

Next, you have to put policies in place to make your processes accurate and accountable. One main area that will help avoid a DCAA audit is to have a time keeping system to help manage your projects. Your policy should include clear language that states that it is the employees’ responsibility to completely and accurately fill out their time sheet. DCAA also requires daily time entry by the employee and supervisors to sign off and approve that time (DCAA section 2-302.1-1 and 2.302.2a). Your policies should also outline clear disciplinary action for employee failure to comply. 

The Training

Failure to comply with DCAA regulations is an area where a software application, like ours, will help make life easier, with strong policies and training playing a key role. Train employees to enter hours daily, not at the end of the week or next week. Supervisors should know the proper process for approving and locking down timesheets. This program implements several DCAA regulations with the click of a mouse, such as requiring notes and documentations when employees change timesheet entries, approve processes that let lower-level managers approve and send timesheets up to their higher-level managers and executives, export to Deltek’s GCS Premier Accounting system, or locking date ranges so timesheet records cannot be modified. Train your employees to use these tools and be prepared to defend your data when called to do so. Excel spreadsheets simply will not meet these requirements. Let us help do the job.

 The DCAA Proposal

Finally, here are a few tips for putting together your DCAA proposal. Included in your process of attaining a contract, there must be a solid BOE (Bases of Estimate). This is where software can help, but you must be clear.  For example, many contracts include unseen or possible costs that one can anticipate, but not include, as a definitive cost. Be careful to include possible contingencies, but do not write a laundry list of every minute item you may uncover. Just stick to the most common possibilities that are fairly realistic.

One other item to be clear on is your methods for attaining your costs for a contract. Be consistent on both material and labor costs. It is okay to have a different labor rate for a level 1 engineer vs. a level 2 engineer. However, do not make the mistake of charging varying rates for the same category of work. This is a common mistake with hundreds of possible tasks and employees that cross over into different roles. Our timesheet enforces these billing rates per project, per employee. See our project billing rate options for more information. Again, this is an area where spreadsheets are vulnerable to unintended mistakes that can land you in a DCAA audit without the tools to survive it.

Avoiding a DCAA audit is not easy due to the hundreds and hundreds of pages found in the CAM (DCAA Contract Audit Manual), found here at http://www.dcaa.mil/

 However, if you plan up front and then put the tools in place to correctly segregate and account for your work, you are a long way toward that goal. There are consultants and dozens of courses available to help further define DCAA requirements. It is well worth the effort and expense to understand what DCAA requirements are because they no longer offer a partial passing grade. It is either a pass/fail audit. If you fail an audit, payments can be withheld and it can easily wipe out your company. Standard Time, a reliable project/time management package, is your helpful solution to becoming more DCAA compliant. Download now to find reliable help.

Checklist for DCAA Compliance

  • Create a chart of accounts to segregate indirect, direct and unallowable costs
  • Categorize and define your labor costs
  • Create pools of direct and indirect costs
  • Have immediate access to costing reports
  • Put policies in place to make your processes accurate and accountable
  • Put an employee time keeping system in place to help manage your projects
  • Write clear policy language to completely and accurately fill out time sheets
  • Daily timesheet entry by employees
  • Supervisors sign off and approve timesheets
  • Write clear disciplinary policies for failure to comply
  • Consult a DCAA expert

    McNew & Associates

    CFO Leasing

    VBP OutSourcing

  • Take a DCAA training course

    DCAA Courses

  • Practice timesheet entry, approvals, and locking in semi-annually
  • How to setup for DCAA compliance
  • How our timesheet complies with DCAA regulations

 

 

 

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