The Defense Contract Audit Agency or DCAA is a watchdog that performs 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 taxpayers’ money is well spent. Therefore, there are several clauses and sub-clauses to comply with in order to pass the audit and secure the contract with the government. For this, you need to prepare a DCAA compliant account.
Separating indirect costs
The primary task is to determine whether your company’s accounts are adequate under the provisions of the DCAA, especially with regard to the DCAA Indirect Costs accounts Indirect costs are fees that can be quantified in any contract. Direct cost is made up of expenses such as the cost of materials, the wages of 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 administrative overhead costs. Employee benefits, such as health, pension plans, paid vacation leave, must be kept clearly on record so there are no discrepancies when the audit arrives. This is usually done by good time control which can be manual or electronic. Such records need to be consistent over at least a period of time and should not be done overnight for auditing.
Covering the areas of operations
With respect to overhead costs, 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, worker salaries, and management involved in one or even multiple projects and the like.
Correct projection of the accounts.
How you keep your accounts of indirect costs will depend largely on the type of business you are in and also the size of your business. You will need to file all such accounts within six months of the end of the tax year. It is not in the capacity of regularly qualified accountants to prepare the necessary as the specifications are very different in certain areas. The best way to avoid being penalized is to take the help of professional accountants who not only have experience preparing these accounts, but have also worked for the DCAA.