Contractors for the federal government must fulfill several requirements to maintain their business relationships with the government. One of these requirements is granting the Defense Contract Audit Agency (DCAA) the authority to audit a company’s accounting system. How can parties maintain compliance with this requirement, and how do enterprise resource planning (ERP) tools make it easier?
What Is the DCAA?
The DCAA is the agency responsible for auditing recipients of Department of Defense (DoD) contracts. It does not explicitly certify contractors as compliant or noncompliant. Instead, it evaluates whether those entities adhere to the guidance and recommendations established by the DCAA. With many government contracts worth millions or billions of dollars, this process is an essential step in verifying that taxpayer dollars go toward legitimate businesses and purchases.
As contractors learn about DCAA compliance, they also typically encounter information about the Federal Acquisition Regulation (FAR), a set of rules and guidelines established by the United States government to determine how federal agencies must acquire goods and services. Similarly, the Defense Federal Acquisition Regulation Supplement is an extension of FAR that applies to the DoD.
What Does DCAA Compliance Require?
Cost principles and cost accounting standards are two key areas auditors assess when determining DCAA compliance. The first concerns the kinds of allowable costs, while the second dictates how contractors must measure and allocate their costs to remain compliant with federal contracts.
DCAA compliance requires identifying, measuring and reporting the costs of goods and services and establishing policies to address those necessities. Such companies must also have procedures that outline the best steps for effectively managing costs. Auditors also examine whether a company’s actual cost accounting practices are in sync with the stated policies and procedures.
What Are the Primary Audits Performed Under DCAA?
DCAA authorities conduct various types of audits, depending on the specific government contract involved. Knowing about these types helps contractors prepare by filling potential gaps before these examinations occur.
Forward Pricing
These audits typically occur before contract awards and require the DCAA to evaluate a contractor’s estimated costs to provide the government with the requested goods or services. These audits also involve examining the proposal, forward pricing rates and the estimated system used to produce the figures.
Incurred Cost
The results of these audits enable DCAA representatives to provide an opinion on whether a contractor’s annual allowable cost representations are reasonable and appropriate, considering the activities performed under a contract. Auditors aim to verify that all costs incurred under government contracts are accurate and supported by relevant documentation.
This audit covers both indirect and direct costs, and contractors should have numerous pieces of evidence to support their claims. These include general ledgers and statements of expenses, payroll reconciliations, tax returns, and written policies explaining the company’s financial and accounting practices. When these audits occur as part of an ongoing contract, it is helpful if the contractors have the most recent invoices, so that government representatives have up-to-date records of financial activities.
Special Audits
These audits usually center on costs associated with terminations and claims. A contracting officer typically requests that DCAA auditors conduct these checks. These professionals evaluate proposal submissions and may also request independent financial opinions on specific contractual elements.
Other Audits
This final category encompasses several potential areas, including matters related to the contractor’s cost accounting standards disclosure statement, which all new entities must submit for contracts exceeding $50 million. Audits in this group may also relate to the Truth in Negotiations Act, which aims to prevent contractors from overcharging government entities. Some auditors also review a contractor’s business systems when conducting these audits.
How Do ERPs Help Maintain Compliance?
ERP software provides users with a centralized place to record, monitor and run fundamental business processes. Using an ERP alone does not make contractors compliant. However, an ERP does keep the associated data and documents organized, making it easier to create reports, streamline processes and hold parties accountable.
Because SAP is a market leader in this software, many companies build SAP-integrated ERPs to enable customers to continue using familiar tools while working on DCAA compliance. Appropriate configuration is essential for achieving this goal, especially because ERPs encourage users to adopt consistent processes and workflows. These platforms also feature numerous integrated modules, facilitating interdepartmental communication and eliminating the barriers that often hinder access to information across a company.
ERPs also create audit trails, making it easier for companies to prove their accounting practices. They enable everyone within a business to work from the same database, preventing the discrepancies that can arise when multiple parties access different information based on their roles or other parameters.
These tools simplify timekeeping by allowing employees to enter their hours directly into the system and update them as needed. Managers can then retrieve the data and verify when the workers entered that information, if they changed it and why. Those particulars support government contractors who must justify their expenditures for DCAA audits.
ERPs also enhance cybersecurity by enabling administrators to establish role-based access controls for individuals. This ensures people can only retrieve the data necessary for the scope of their positions. Besides preventing mistakes, these safeguards limit the access of potential malicious insiders who may wish to sabotage a contractor or their work.
Which Companies Have SAP-Integrated ERPs for DCAA Compliance?
SAP-integrated ERPs are helpful components for contractors seeking DCAA compliance. Here are the best options to consider.
1. Cognitus
Cognitus assists companies with digital transformation by offering solutions such as industry-specific SAP add-ons, advanced cloud products and artificial intelligence-driven products. Because this brand offers its clients services within the SAP ecosystem, it facilitates innovation and enables sustainable growth by combining extensive industry expertise with purposeful digital products.
The offering most relevant to contractors concerned with DCAA compliance is CIS-GovCon, a product that encourages government contract compliance within SAP. It helps users adhere to stipulations despite the continually changing regulatory landscape. Users get real-time project visibility, access to prebuilt dashboards for data-driven decision-making, and AI-powered automation that simplifies price management for high-value contracts.
Key Features
| Boasts more than two decades of experience | Employs more than 1,000 SAP-focused workers |
| Has more than 150 satisfied customers | Operates more than 18 locations worldwide |
2. Deltek
Deltek is a platform created to enhance high-stakes projects, including those for government entities. Its valuable features complement SAP, helping users get more from both platforms and increase their likelihood of successful bids and audits. More than 9,600 entities with government contracts use this brand’s solutions. They can access a single platform that supports industry-specific processes and enables people to spend more time driving tangible results while reducing the time devoted to administrative duties.
For example, customers can use a dedicated product for assistance with proposal pricing. Another solution helps users find and secure more government contracts by referring to data-driven insights.
Key Features
| Offers built-in governance and control | Used by 30,000 organizations globally |
| Streamlines entire project cycles for better visibility | Provides clients with a worldwide consultant network |
3. Dassian
Dassian provides a suite of solutions that result in a fully integrated approach, combining the contract and all associated project information. Access to these details helps customers undertake efficient and effective digital transformations while implementing meaningful operational changes. Because these products also simplify data sharing across organizations, they make audit preparations easier and shorten the time needed to create reports.
The company’s leadership team has more than 150 years of experience in multiple realms, including engineering, information systems and management consulting. Dassian possesses the knowledge needed to guide clients through modernizing workflows and satisfying DCAA auditors.
Key Features
| Operates as a certified SAP partner | Engages with 35 Fortune 500 executives to receive business transformation insights |
| Delivers end-to-end solutions to enhance processes | Supports users with highly regulated or complex contracts |
4. Navigator Business Solutions
Navigator Business Solutions sells highly scalable and flexible systems to support the needs of government contractors or businesses that aspire to secure these contracts. The integrated tools help people quickly and confidently calculate rates, estimates and more to gather the information needed for successful audits.
These ERP products also support brands that simultaneously manage commercial and government-related needs, giving them a single source of information to improve operations and enhance visibility. Users receive accurate, holistic views of their financial details on any cloud-enabled device, facilitating faster decision-making and more comprehensive oversight. Interested parties can register for free demos to take the first step in learning more.
Key Features
| Provides world-class customer support and system training | Enables valuable third-party integrations |
| Optimizes current or new ERP systems | Maintains a skilled team of technical specialists |
Methodology
These SAP-integrated ERP providers were chosen because of factors like a provider’s familiarity with government contracts and the businesses bidding for them and the availability of tailored solutions that save time and cause measurable, positive outcomes. Companies with dedicated teams of skilled specialists also made the list because these experts increase the likelihood of success, regardless of a client’s previous experience with DCAA.
Set a DCAA Compliance Goal
Because companies must comply with DCAA and prepare for the associated audits to win government contracts, they should evaluate their processes and find areas for improvement before proceeding. A specialized ERP platform with SAP integration capabilities provides the necessary scalability and reliability to support business growth and digital transformations.