Adequate Accounting Systems Requirements for Government Contractors
Defense Federal Acquisition Regulation Supplement (“DFARS”) 252.242-7006(a)(1) defines an acceptable accounting system as: “a system that complies with the system criteria in paragraph (c) of this clause to provide reasonable assurance that—
- Applicable laws and regulations are complied with;
- The accounting system and cost data are reliable;
- Risk of misallocations and mischarges are minimized; and
- Contract allocations and charges are consistent with billing procedures.”
John Carpenter and Curt Smith discuss some of the most common reasons contractors are not successful in getting their accounting system deemed adequate when going through a Defense Contract Audit Agency (“DCAA”) audit, often referred to as a 1408 Pre-Award Survey of Prospective Contractor – Accounting System Review.
Common deficiencies discussed in this segment include:
- Accounting properly for the costs of jobs – properly allocating direct and indirect costs
- Failure to apply the Cost Principles in FAR 31.2 – inability to identify and remove unallowable costs
- Improper timekeeping
- Poor or inadequate book keeping
Cherry Bekaert has a great deal of experience assisting contractors with accounting system reviews using the criteria in DFARS 252.242-7006 and SF1408. Please contact Cherry Bekaert with any questions about the criteria and preparation for accounting system reviews.
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