When a Government Contractor (GovCon) decides to upgrade or completely change the accounting system they use, they have many important considerations to keep in mind to ensure they have a DCAA compliant accounting system.
There are many things to consider when selecting a new accounting system and developing an implementation plan:
- Evaluate continued adherence to regulatory requirements
- Determine how to handle the loss of approval of their legacy accounting system
- Determine if an accounting practice change will occur
- Determine how to access historical data
Accounting software must meet the adequacy criteria of the Defense Federal Acquisition Regulation Supplement (DFARS) Business Systems Rules to pass a DCAA audit. There are 18 criteria for a system to be deemed adequate – which can be broken down into five major capabilities:
- Internal control environment over approval, structure, access, monitoring and policies
- Segregation of direct and indirect costs on a monthly basis for allocation to projects
- Reporting costs under general ledger control, subsidiary cost ledger and transactional details
- Timekeeping and labor distribution of direct and indirect labor costs
- Compliance with contract terms, conditions, regulations and other laws
Transferring Archival Data
An accounting system is intertwined and codependent on the system’s controls to classify, accumulate and report incurred costs. Data from the old system must be properly archived and transferred to avoid the costly risk of failing a compliance audit.
Migrating to Cloud-based Applications
It is vital to make sure data is transferred correctly to remain compliant. When migrating to a cloud-based application, companies must consider how to archive the former system’s data and what historical data must be moved to the new system. It is also important to keep the legacy system available for DCAA auditors – even if the data has been moved to the new system.
Contractors must ensure they have access to supporting source documents as well as the mapping files used to translate data from their legacy accounting system. Failure to have this data available would risk DCAA questioning costs and possibly putting the acceptability of the new accounting system at risk.
Record Retention Requirements
Federal Acquisition Regulations (FAR) requires contractors to make available records and other supporting evidence to satisfy contract negotiation, administration and audit requirements for three years after final payment, or the period specified in FAR, whichever period expires first. However, contractors may be required to make records available for a longer period if required by contract or if the contractor did not file their incurred cost submission in a timely manner.
Accounting Information Systems Consulting for Government Contractors
We can walk you through the process and ensure you consider all areas that can impact the business of a government contractor. WJ Technologies has deep government contracting experience and has guided many contractors through the inherent risks of moving to a new, DCAA compliant accounting system.
Contact us today for a free assessment: firstname.lastname@example.org
WJ Technologies is a leading provider of accounting software and services for Government Contractors. We tailor our services to meet your company’s needs offering accounting systems consulting, software evaluation and decision support, accounting services, staff augmentation, training, and government contracting services. Contact us to learn more about how we can help you!