Making sense of the government’s contract cost accounting rules

Demystifying Government Contract Cost Accounting Rules-min

Government contract cost accounting rules apply to all companies contracted to do government work across all sectors. Some contractors find these rules difficult to understand. But, this does not have to be the case. We’ll demystify them for you! We’ll also help you understand why they exist and how to interpret them. In this blog, we’ll help you make sense of the government’s contract cost accounting rules.

The essentials of government contract cost accounting

The rules relating to government contract costs have two basic functions. First, to provide guidelines for cost allowability. And second, to set parameters for cost allocability. These terms may sound unfamiliar and unnecessarily complicated for some. So, let’s break them down to their simplest terms. Allowability refers to what costs the government will cover. And allocability refers to how much of these costs the government is prepared to bear. The government does not cover at all costs deemed unallowable. On the other hand, allowable costs will be covered only to the extent that the government is prepared to accept, i.e., what portion of these costs you are permitted to allocate as government expenses.

What this means at its most basic is that the government will cover only a certain portion of your project costs—i.e., only those deemed allowable. Of those, the government will pay only for a specific portion—that which is considered allocable. The problem is that the concepts of allocability and allowability tend to feature numerous grey areas and are seldom straightforward. While the concepts themselves are relatively easy to understand, the exact rules and quantitative guidelines pertaining to them can be nebulous at times, and also tend to change frequently. Unfortunately, this uncertainty and potential for confusion often come with the territory when it comes to government work. 

The best way to deal with these challenges is to seek the help of a certified public accountant. We have the knowledge and experience necessary to help you apply government contract costing rules to your projects, and the accounting practices to help you manage them to the greatest advantage. Contact Georgen Scarborough to see if we can assist you with your government contract cost accounting.

What it means to be DCAA compliant


Working as a contractor for the federal government can give you access to large, profitable projects. However, a key component of government contracting is ensuring that your business and its processes are Defense Contract Audit Agency (DCAA) compliant. Learn what it means to be DCAA compliant.

Cost Account Standards (CAS) and Federal Acquisition Regulation (FAR)

In simple terms, being DCAA compliant means that your business can comply with a DCAA audit. This audit checks if your business is compliant with government regulations such as Cost Account Standards (CAS) and Federal Acquisition Regulation (FAR). Thus, to be DCAA compliant, your business must be transparent in its financial management. It must clearly state how the contract money is used and the results that emerged.

DCAA-approved accounting software

An important aspect to remember is that the DCAA does not provide certification or accreditation to any accounting systems. While these systems may help your business be compliant with DCAA audits, they are not formally recognized by the DCAA.

Types of DCAA audits

There is no one type of DCAA audit. Instead, they perform a variety of checks including forward pricing, incurred cost, Contract Purchase Systems Review (CPSR) etc.

How to be DCAA compliant

Accounting experts from George Scarborough can help you with audit support and ICE submission support, while ensuring your employees perform their basic bookkeeping tasks efficiently. We also offer you the option to outsource the entire DCAA compliance process to us.

Georgen Scarborough has years of experience working with various government contractors from start-ups to large businesses. We want to help you with your accounting needs and ensure you are not faltering in the DCAA compliance process. Contact us today.

How a government contractor qualifies their accounting systems with Defense Contract Audit Service

Accounting systems

A government contract can be a welcome source of income for your company, but it also comes with a few stringent regulations and auditing requirements that need to be adhered to. The biggest of these is DCAA Compliance–and you may need the assistance of a reputable accounting company for this. Being able to successfully complete a DCAA audit helps to ensure not only the legality of your business but also that you get additional government contracts in the future. 

What is a DCAA compliant accounting system?

Being DCAA compliant means that your company has the systems and procedures in place to comply with the DCAA audit process. You won’t get any formal certifications for this, instead, the DCAA audits will check if your company meets the Cost Accounting Standards, Federal Acquisition Regulations, and various other government policies and rules. There are no specific accounting systems that are formally approved by the DCAA, so saying that an accounting system is DCAA compliant simply means that they meet the requirements of various audits.

Here are 3 things every government contractor needs to know about DCAA compliance.

  1. The whole company needs to follow the same standards whether they are working on a government contract or not. This compliance pertains to every single employee and includes daily time entries, accurate project-level time allocations and a clear record of both unpaid and paid time. 
  2. Accurate time and labour tracking are key,  so software tools that can record and classify information precisely can help in this regard. Nearly 75% of DCAA compliance requirements are related to time tracking.
  3.  In the past, DCAA compliance was graded, and government contractors could fall short in a few areas but still be deemed compliant as long as they addressed the issues where they fell short. These days, however, it’s either a PASS or a FAIL. You will not be given time to address any issues and you simply won’t make the cut if your systems are not up to scratch.

DCAA compliance is not always easy to acquire and maintain but using the right accounting software coupled with frequent employee training will help qualify your accounting process with the DCAA’s stringent standards.

For further assistance with accounting services and queries to get your organization’s accounting systems DCAA compliant, get in touch with us via our website. Here at Georgen Scarborough Associates, we are always happy to share our expertise. 

5 Common Accounting Problems That Government Contractors Often Face

Government contractors have always faced accounting and financial management challenges. Federal contractors face critical challenges in aligning accounting methodologies with the demands of their target market. They face issues which include maintaining constant audit readiness, the need for diligence, and the demand to stay on the cutting edge of applicable technologies. If you are a part of the world of government contractors, here are 5 common accounting problems that you may face.

1. Obtaining DCAA Approval of a Government Contractor’s Accounting System

Prospective government contractors are often faced with an array of special difficulties in qualifying their accounting systems with the Defense Contract Audit Agency (DCAA).

It is critically important for all government contractors to thoroughly understand the approval requirements as well as how those will be assessed.

  • Keeping Pace With Changes in Government Rules for Finance Management and Accounting. Managing in a perpetual stream of changes in requirements is the way of business in government contracting. Currently, the increased transparency of government finance motivated by the economic stimulus plan provides a good example. But, with merely the usual turnover of new regulations, continuous changes in government financial management and accounting requirements are an ongoing fact of operating as a US government contractor.

2. Preparation for Surprise Audits

Your business must operate under the assumption that it will be subjected to a thorough government audit that will occur without advance notice. Contracts may be terminated and in some cases, payments may even be withheld on existing contracts, pending satisfactory improvements. Always be prepared to ensure that your company will receive a positive evaluation.

3. Maintaining Sufficient Staff and Training

Inaccurate data and incorrect data entry, or errors in performance, put the system at risk. If data is wrong or entered into the system improperly, or internal accounting processes such as contract cost allocations are performed incorrectly, the system is jeopardized. Contractors must ensure that the entire accounting staff is fully skilled to prevent mistakes, and for the correction of undue mistakes.

4. Failing to Use Available Information

An accounting system and design procedures have little value if the contractor does not leverage it to manage and grow the company. With innovative technology, government contractors are far better able to comply with government contracting requirements and can use the system to manage and grow their companies while gaining necessary compliance.

5. Organizing a System Around an Individual

As government contractors grow, they organize the accounting function to improve compliance and may hire a mid- or senior-level accountant to institute a system. This results in a system that cannot be maintained if the key individual leaves the business or is incapacitated.

Georgen Scarborough Associates, PC for Your Accounting Needs!

A full-service accounting firm located in Vienna, Virginia, Georgen Scarborough Associates, PC is licensed to practice in Virginia, Maryland, and the District of Columbia (DC). We are professionals who listen carefully to our clients and can customize a suite of accounting, tax, and financial management services tailored to each unique situation.

At Georgen Scarborough, we provide a broad range of products and services to give our clients a secure financial future. We offer customized services to each of our clients.

We will carefully listen to your needs, and we produce results that work. Our services include:

  • Individual Income Tax Preparation
  • Estate and Trust Tax Preparation
  • Small Business Accounting Services
  • Financial Statement and Tax Preparation for Small Businesses
  • Payroll Services
  • Audits and Tax Reporting of Non-profits
  • Accounting Services for government contractors
  • QuickBooks Advisor

DCAA Accounting Services for Government Contractor Clients

The decision to work as a contractor for the Federal government can be both exciting and worrying. While working as a contractor for the government may give you access to large, ongoing projects that you wouldn’t necessarily have been able to land in the private sector, it can also send even well-established accounting departments into a tailspin.

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