Also known as: DCAA compliance · DCAA-compliant accounting system · Defense Contract Audit Agency · DCAA audit
An accounting system and cost practices built to pass a Defense Contract Audit Agency review, which many cost-type government contracts require.
The Defense Contract Audit Agency (DCAA) provides audit and financial advisory services on Department of Defense and other federal contracts, so "DCAA compliant" describes an accounting system and set of cost practices that meet the standards DCAA audits against. A point founders get wrong: DCAA does not certify, approve, or issue a "DCAA compliant" seal. It audits a contractor's system and recommends, but under DFARS 252.242-7006 (Accounting System Administration) the contracting officer makes the binding determination of whether the accounting system is acceptable, and a disapproved system can lead to withheld payments. Adequacy is judged most often through the pre-award accounting system review on Standard Form 1408 (whose criteria mirror that clause) and, later, through audits of incurred costs, forward pricing, and indirect rates. In practice an adequate system segregates direct from indirect costs, accumulates costs by contract or job, runs a compliant timekeeping and labor-distribution process, excludes unallowable costs under the FAR Part 31 cost principles, and follows the Cost Accounting Standards where they apply or otherwise Generally Accepted Accounting Principles. This matters mostly for cost-reimbursement and other flexibly priced contracts: FAR 16.301-3 lets the government use a cost-reimbursement contract only when the contractor's accounting system is adequate to determine the costs applicable to it, and the government then pays only costs that are allowable under FAR Part 31 (reasonable, allocable, and within the cost principles) rather than a fixed price. Firm-fixed-price work generally does not trigger the same accounting-system requirement, though audits can still apply where certified cost or pricing data is required.
Source: Defense Contract Audit Agency (dcaa.mil)
No. DCAA does not certify or approve accounting systems and issues no "DCAA compliant" certificate. It audits your system, most often through a pre-award review on Standard Form 1408, and gives an opinion to the contracting officer, who determines whether the system is adequate.
Mainly for cost-reimbursement and other flexibly priced contracts, where the government pays your allowable costs and must be able to verify them. Firm-fixed-price contracts generally do not trigger the same accounting-system requirement, though other audits can still apply.
Definitions are educational and may be modified by your specific policy language, endorsements, and state rules. For regulatory guidance, refer to the California Department of Insurance or the NAIC.
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