DCAA Compliance Checklist

DCAA Compliance Checklist

Yes, government contract work can be lucrative and fascinating work. However, suppose you’re not up to date on Defense Contract Audit Agency (DCAA) compliance regulations. In that case, you can get lost very quickly. It’s critical to ensure you meet DCAA timekeeping requirements if you want to work with any federal government organization. The process of winning a government contract is exceptionally complicated. If you decide to place a bid, you must prepare to pass a pre-award audit by DCAA to be awarded the contract.

What is DCAA compliance?

The DCAA was established in the 1960s to normalize the government’s contract auditing process. It was essentially designed to ensure the American taxpayer was getting good value for its money.

Initially, the DCAA was originally overseeing military and intelligence contracts for the U.S. Department of Defense. Later, its responsibilities widened, and it oversaw many other kinds of labor and service contracts that the federal government signs with commercial suppliers.

If and when you win a government contract, the DCAA’s time tracking rules will apply to everyone in your company. Regardless of the size of your organization, this can be a big task with many training implications. So, it’s worth your while to make time tracking as straightforward as possible and do your research ahead of time.

Generally, suppose the DCAA were ever to audit you. In that case, they’d check three main areas to see if you comply: how your accounts are established, the flow of transactions in your accounting systems, and the computations derived from them.

The Way your Accounts are Established

1. Chart of Accounts

But this is a general ledger account in which financial transactions are posted. You will need to separate which costs are direct, indirect, and unallowable. The DCAA will also examine your Chart of Accounts to ensure you’re adhering to the Generally Accepted Accounting Principles (GAAP). Having Accounts Payable, Prepaid Expenses, and Unearned Revenue will indicate that you’re accounting for cost and revenue on an accrual basis.

The Flow of Transaction

2. Trial Balance

Hour Timesheet will allow you to print a Trial Balance that summarizes your accounts’ debits and credit balances. The latter will reveal details such as the opening balance, transactions, transfers, and closing balance. The former will summarize the debits and credit balances on each of your accounts.

3. General Ledger Detail

The general ledger detail within the Hour Timesheet software will be able to provide you with the beginning balances for each account over a limited period.


The DCAA will verify the processes for allocating revenue and costs to projects. This in addition to the way you calculate indirect rates.

4. Loss & Profit by Job

An essential requirement highlighted in the pre-award survey is your accounting system’s ability to accumulate costs by project. A Profit and Loss by Job report that agrees with the standard Profit and Loss gives assurance that this can be done accurately.

5. Labor Distribution Report

Labor distribution is the process of allocating labor costs both direct and indirect to the total time recorded on timesheets. Hour Timesheet allows you to directly tie both direct and indirect hours to the accounts within your accounting system. DCAA needs to see that labor costs are equally distributed among customers, both government and commercial, that no one is favored or has received a cost subsidy.

6. Contract Backlog Report

This type of summary allows you to see the percentage of work completed and the remaining cost to complete each job in your backlog. This type of report indicates how much money is left on a contract, whether there could be a potential contract overrun and if there are corrective actions required as a result.

7. Direct Vs Indirect Labor Tracking

Contractors must consistently track both direct and indirect cost. A direct cost is any cost that is identifiable to one and only one cost objective. It normally is required or necessary for contract performance. The term cost objective is a regulatory term that can include a contract, a project, a task, a contract line item.

To be compliant contractors must accumulate costs into indirect cost pools such as bid and proposal or an independent research and development project. Hour Timesheet allows a contractor to keep track of all accumulated costs related to hours worked. Indirect costs are all costs that are not identifiable or incurred for the benefit of one cost objective. Month/Period-Close Checklist

Hour Timesheet and DCAA Compliance

Achieving DCAA audit compliance takes effort, time, and specialist knowledge. Even if you understand all the relevant regulations, you’ll also need to arrange your Chart of Accounts and configure Hour Timesheet accordingly. Contact us today. With our years of experience, we can help you avoid potential DCAA compliance issues before an audit begins.