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What is required for a "DCAA Acceptable Accounting System"?

349The long-standing myth of an official, Government authorized list of commercial-off-the-shelf accounting software packages that have been reviewed and "approved" by the DCAA just doesn't seem to want to go away. This is a cringe-worthy question I have been asked way too frequently over the years with regard to SYMPAQ. That said, there is indeed such a thing as an "acceptable" accounting system that results from the positive outcome of an independent review of a contractor's business systems. According to DFARS 252.242.7006, Accounting System Administration, "An acceptable accounting system means a system that complies with the system criteria to provide reasonable assurance that:

1. applicable laws and regulations are complied with,

2. the accounting system and cost data are reliable,

3. risk misallocations and mischarges are minimized, and

4. contract allocations and charges are consistent with billing procedures."

There is much more to the acceptance equation than just your software or related information technology. Internal controls along with written policies and procedures must be in good order and demonstrable to get past the scrutiny of an auditor. Acceptance of your accounting system starts with you being prepared, and what better way to prepare than to educate yourself about what you can expect before the audit takes place by becoming familiar with auditor guidelines?

Achieving acceptance by conducting a demo of your accounting system

In December 2019, the DCAA published a rewrite of Chapter 5 "Audit of Contract Compliance with Defense Federal Acquisition Regulation for Contract Business Systems and Subsystems" in its CAM (Contract Audit Manual). In this chapter, a section entitled "Understanding of the Contractor's Business Systems" provides several new audit criteria for determining the acceptability of a contractor's accounting system. A new twist to the audit process is the requirement for a prospective contractor to provide a demonstration of its accounting system as directed. To wit, "Request that contractor personnel provide walk-throughs of the various system processes and then system demonstrations."

"The auditor should:

  1.  Request that contractor personnel first provide walk-throughs of the various system processes and then system demonstrations after the entrance conference for compliance with the DFARS business system criteria.
  2. Request that the contractor explain significant selected aspects of the business system in the demonstration to help confirm the auditor's understanding.
  3. Trace one or more transactions through the business system from initiation through the various processing steps to inclusion in related cost estimates, reports, or billings on Government contracts.
  4. Observe actual processing activities and examine related documents to validate the understanding of the system."

As you might gather from the above, acceptance has nothing to do with DCAA rubber stamping the brand of accounting software you are using. It has always and will continue to come down to your accounting system's ability to comply with the regulations. Specifically, this applies “to audits of each of the contractor's business systems and subsystems that are used to propose, charge, or bill significant costs to Government contracts.” When you are able to demonstrate that your accounting system meets the DCAA's audit criteria for compliance "with the applicable DFARS business systems criteria and the Pre-Award Accounting System FAR SF 1408 requirements" you will most likely achieve the goal of acceptance. And your contracting officer will be informed that you have in operation an "adequate" or "acceptable" system for accumulating and billing costs on flexibly priced contracts, but never will this be as a result of having a particular software system in place that has been "approved" based on a brand name. .  

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