The Defense Contract Audit Agency (DCAA), under the authority, direction, and control of the United States under the Secretary of Defense, performs all contract audits for the United States Department of Defense (DoD). DCAA also provides contract audit services to some other government agencies.

Today, the DCAA consists of approximately 4,000 people located at more than 300 field audit offices throughout the world. Much more data is available at www.dcaa.mil.

The purpose of the agency, simply, is to avoid the purchase of $300 hammers and $1,000 toilet seats. Business services companies, such as software and management consultancies, that sell project management and other services to government agencies need to comply with a number of DCAA requirements if they want to avoid failing an audit. As taxpayers, we should all be thrilled that our government has put processes in place to avoid overpayment and being defrauded.

As business owners selling to the federal government, however, these procedures complicate the process for winning and performing on government contracts tremendously, especially for smaller firms. Luckily, there are consultancies (such as Lunarline in Washington, D.C.) and technologies (such as Journyx) that can assist with meeting these requirements.

Lunarline, for example, provides a DCAA compliance kit with consulting services to make your company compliant after you’ve won a contract from the government. Journyx provides web-based project time tracking and cost accounting software available as an online hosted service to assist with certain important portions of the DCAA compliance regulations set.

In order to be compliant with DCAA and be able to pass a potential audit, your company must have documented policies and procedures which are followed to the letter, as well as a system that charges labor for hourly time (which could conceivably be on paper but in practice rarely is), certain accounting and billing system properties, and employees that are trained in certain aspects of compliance (such as tracking their time on a daily basis).

Costs (especially labor hour costs) must be allocated and accumulated separately by various categories, including direct versus indirect, and per contract. Indirect costs (such as the costs of accounting, billing and payroll, HR and benefits personnel) must be consistently documented and allocated across the direct cost items. Reports must be generated at least monthly. Unallowable expenses must be identified and excluded by policy.

There are many, many regulations to comply with that explain how to estimate projects, bid on them, bill for them, and allocate costs for them.

Here is an excerpt from one of many DCAA documents, DCAAP 7641.90 Information for Contractors:

2-302.2 Recommended Timekeeping Policy

a. The supervisor should approve and cosign all timecards.

b. The supervisor is prohibited from completing an employee's timecard unless the employee is absent for a prolonged period of time on some form of authorized leave. If the employee is on travel status, the supervisor for the employee may prepare a time sheet. Upon his or her return, the employee should turn in his/her time sheet and attach it to the one prepared by the supervisor.

c. The guidance should state that the nature of the work determines the proper distribution of time, not availability of funding, type of contract, or other factors.

d. The company policy should state that the accurate and complete preparation of timecards is a part of the employee's job. Careless or improper preparation may lead to disciplinary actions under company policies as well as applicable Federal statutes

If your eyes glazed over while reading that, you’re not alone.

The DCAA offers about 75 different courses you can take, some of them online, that enable you to learn how to comply. This is what makes consultancies like Lunarline so attractive. They already know all the answers and how they would apply to your company.

Many software vendors will claim that their software will make you DCAA compliant. While they probably help, software alone will not accomplish this. For example, if you have time sheet software that enables daily entry of time, that doesn’t mean your employees will use it. The company policies and procedures must also be in place and enforced in order for the software to be effective.

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