By Wayne Leland CPA - Managing Partner

Do you have to purchase specific software to be compliant and have an "adequate" accounting system defined by the Federal Acquisition Systems Regulations (FAR) and Defense FAR Supplement (DFARS)?  We have helped clients who were under the impression that, as soon as they were awarded a flexibly priced contract with the government, they had to purchased specific "DCAA approved" accounting software to be in compliance.  Under the Business Systems Rule the accounting system is defined as:

The contractor's system or systems for accounting methods, procedures, and controls established to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financial data for reporting in compliance with applicable laws, regulations, and management decisions, and may include subsystems for specific areas such as indirect and other direct costs, compensation, billing, labor, and general information technology."

There is no mention of software in the above definition, so the answer is NO, there is no "DCAA approved" software on the market because DCAA does not audit or approve software products.  They audit accounting systems. If your accounting system meets the eighteen criteria defined in the DFARS Contractor Business System Clause, you will be deemed to have an adequate accounting system.  None of the eighteen criteria mention any software, let alone, approved software. The software is not the accounting system, it just automates the process.  DCAA will audit your accounting system and your internal control policies and procedures only.

The accounting system needs to be designed to accumulate time and costs so they can be accurately segregated to meet the eighteen criteria required per the DFARS Contractor Business System Clause.  The key is to set up the general ledger, labor distribution, and job cost systems to be able to track time and costs to the intermediate and final cost objectives whether they are direct or indirect.

We at Nperspective have designed and implemented compliant accounting systems which have been approved by DCAA for numerous clients.  We have designed and set up accounting systems for clients during pre-award surveys when they had not even opened a bank account yet.  We set up the system and input test data to demonstrate the accounting system could accumulate and segregate the data to meet the eighteen criteria elements required.  The design effectiveness (not the software) was determined to be adequate by DCAA.

As stated above, you can have an accounting system without purchasing any software.  However, this is not recommended. At Nperspective we have been involved in the installation, monitoring, and testing of numerous software packages for defense contractors.  As long as the accounting system, including its internal controls, is set up properly, we have found that the most popular accounting software packages are adequate to automate the system and produce the reports needed.  The prices range from high (excess of $500,000), medium ($100,000 - $150,000), and medium-low ($30,000 - $50,000), to low ($3,500 - $5,500).

Usually it is the size of the company and the number of users that dictate which accounting software is the best fit.  We have implemented the low cost ($3,500 - $5,500) software packages and received the same passing results from DCAA as we have received after implementing the other more expensive packages.  We have also been successful downsizing from a more expensive software package to a lower cost software package where the cost/benefit made sense.  The design and implementation of the accounting system is critical, the software is not.  The software certainly helps automate the system though.  

Did you know that Nperspective was recently engaged by
a client to assist with improving their financial reporting capabilities, including stronger understanding and reporting
of their inventory and gross profit, improving their cash forecasting capabilities and banking relationships and selection and implementation of a new ERP package?