What Is the DCAA and How Does it Work?

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The US government spends more than 10% of its federal budget on defense, and in 2021 that figure rose to more than $800 billion1. So back in 1965 they set up the Defense Contract Audit Agency, or DCAA, to keep tabs on the enormous projects they commission independent contractors to carry out for them.

What’s the difference between the DCMA and the DCAA?

The Defense Contract Management Agency, or DCMA, monitors what contractors do. The DCAA audits their accounts, to make sure that whatever they’re doing is financially above board and beyond reproach.

The DCMA then has two jobs. When you put yourself forward for a contract, it assesses whether or not you can deliver what you say you can, for the price you’re proposing. Then, once the contract has been awarded, it checks to make sure that what was promised is being delivered, for the agreed price, and on schedule.

The DCAA on the other hand is concerned exclusively with your accounts. Whether the costs you’ve itemized in your proposal are realistic, legal, and are presented in a way that’s compatible with the system that the Department of Defense uses. And, once you’ve been awarded the contract, whether your accounts subsequently are consistent with what you committed yourself to.

What is DCAA compliance?

In theory, then, it seems as if the one you need to focus on is the DCMA, as they’re the ones that monitor everything you do apart from your accounts. In reality though, and as ever, it all comes down to finances. If they’re not in order, everything grinds to a shuddering halt. So it’s vital that you’re DCAA compliant.

This though is something of a misnomer. Because the DCAA don’t actually issue certificates. Rather, they give you a general thumbs up or down. So what being DCAA compliant means effectively is that they are happy with the way you’ve presented your accounts, and with the numbers they find there. So it’s extremely important that the software and system you use to do your accounting is one that the DoD can recognize, and is happy to see you using.

What they use to evaluate that is itemized in detail in the Federal Acquisition Regulation (FAR) and the Cost Accounting Standards (CAS), where you’ll find the criteria you need to meet in order to satisfy their accounting and costing requirements.

The DCAA’s 4 areas of interest

Basically, the audit that the DCAA performs will be broken down into four areas:

  • Chart of accounts
  • Timekeeping/labor accounting
  • Indirect costing
  • Reporting

The chart of accounts gives details of your cost structures and the system you use to do your accounting with. While your indirect costing and reporting have to be done in a way that’s particular to the needs of the federal government. But by far and away the most important thing for the DCAA are your timesheets.

This is both a software thing and a matter of company culture. Because what the DCAA wants to see more than anything else is that you can account for absolutely every hour that every one of your employees has worked, regardless of whether or not they were paid for it. And, crucially, that all and any changes to those individual hours were precisely logged and accounted for. All of which has to be reported on at least a monthly basis.

So it’s vital that the software system you use can centralize and consolidate all your company data in a way that they are all easily accessible, and kept up to date in real-time. You need to be able to configure your software so that you can track your direct and indirect costs separately, and it needs to be fully integrated with your timekeeping system, so you can have access to any of the reports that the DCAA might ask for when they’re needed.

ERP or PPM software?

Landing a government contract can be incredibly lucrative and provides a huge boost to your bottom line. Crucially, once you make that initial breakthrough and land that first contract, there’s every chance you’ll go on to secure any number of subsequent ones.

So it’s incredibly important that the DCAA are happy with the way you handle that first contract. And what you’ll be relying on to get that right is your software. You need then to know your ERPs from your PPMs

Because, given what’s going on in the world at the moment, it doesn’t look like the US is going to be cutting back on its military spending any time soon. So they’re going to be relying on independent contractors like you to get all that work done.

  1. Countries with the highest military spending worldwide in 2021


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