Each Government agency has a cognizant auditor’s office. The Defense Contract Audit Agency (DCAA) is the United States Department of Defense (DoD) group responsible for performing DCAA compliance audits and financial advisory services on Government contracts. DCAA may be engaged by other agencies to provide these services as well, but they primarily support the DoD. Auditors from other agencies overwhelmingly follow DCAA guidelines. Therefore, being “DCAA compliant” is conventionally the same as saying “Government audit compliant.”

DCAA plays an important advisory role to ensure that the Government gets the best value for every dollar spent on contracting. In addition to contract and indirect rate audits, DCAA audits various business systems, including Timekeeping, Accounting, and Estimating. Contractors bidding on Government contracts need to operate their business systems in a manner that they can be determined to be adequate by DCAA. An audit failure can lead to lost proposals, suspended contracts, and/or penalties and fines.


Just as each Government agency has a cognizant auditor’s office, each agency has a contracting office. The Defense Contract Management Agency (DCMA) is the DoD entity with responsibility and authority to enforce contract terms and conditions. The DCMA, as the administrative contracting office, has the authority to accept or reject the DCAA’s advice regarding the adequacy of business systems. While the DCAA acts only in an advisory role, its auditors are recognized experts on accounting matters, internal controls, and business systems. The default stance for DCMA is to accept DCAA findings.

Compliant Business Systems

The McKelvey Group (TMG) works with Government contractors to prepare them for audits by DCAA and other Government agencies. Our team can help to ensure that business systems and contracts adhere to the guidance and regulations set by the Federal Acquisition Regulations (FAR), Cost Accounting Standards (CAS), and Generally Accepted Government Auditing Standards (GAGAS).

TMG’s Approach to an Adequate Accounting System

TMG’s formal approach includes an evaluation of the current accounting system, identification of weaknesses, task assignments, and process management. We have extensive experience working with Government auditors, which translates directly to client preparedness. An adequate accounting system is not an evaluation criterion. It is a basic contract requirement with a pass/fail determination, as noted in FAR 16.301-3.

TMG will do a thorough review of our client’s accounting system to provide our findings and recommendations to achieve or retain DCAA compliance. Our review focuses on four primary components: Accounting Policy & Procedure Manual, Accounting Software, Training of Accountants on the Policies and Software, and Internal Compliance.

The single-biggest failure point for Government contractors is their timekeeping system. Adequate timekeeping policies and procedures are key for Government contractors to ensure compliance with DCAA. A non-compliant system is a red flag during a DCAA audit. TMG works with clients to ensure that their timekeeping and labor distribution systems become and stay DCAA compliant.

Importance of Compliance

An adequate accounting system is important to prime contractors bidding directly on a contract and to subcontractors. Many Government Request for Proposals (RFPs) are being released with the requirement that contractors have an adequate accounting system before a proposal is submitted. Tier I contractors are also getting increased pressure from DCAA and cognizant Audit Agencies to ensure that their subcontractors are CAS and FAR compliant. Both contractors and subcontractors can miss potential opportunities by not having a compliant accounting system in place.

Contact us to help you review your current accounting system.