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Determining the Best Accounting Software for Small Government Contractors

Written by Hobie Frady on September 15, 2020

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People often misunderstand the term “DCAA-compliant accounting system” when it is applied to accounting software. The truth is, this term alone does not guarantee the best accounting software for small government contractors. It doesn’t even ensure that your accounting system is compliant with DCAA regulations.

In order to be DCAA compliant, your accounting system must meet several requirements.  While some accounting software systems address these principal requirements, there are alternative ways to achieve the same purpose without breaking the bank.

It doesn’t take a massive investment in purchasing, implementing, maintaining and training for your accounting system to become DCAA compliant. You simply need to understand how accounting software can help you achieve this aim.

What Is DCAA-Compliant Software?

First, it’s important to know that there’s no such thing as a “DCAA-approved” software system or software package. This term is often used as a marketing tactic to get you on board with a particular product or brand.

To be DCAA compliant, any accounting system must meet GAAP, FAR and DCAA requirements. Most accounting programs that were not designed for DCAA compliance can be made to be DCAA compliant by the use of “add-on” features or programs.

The reality is that your organization and your procedures need to meet specific requirements to be DCAA compliant. Any accounting system that can pass the accounting system audit can be considered DCAA compliant.

That being said, accounting software systems that feature specific requirements of DCAA compliance, such as timekeeping, labor distribution, contract setup and funding setup, can assist in making you compliant.

Compliance and the Pre-Award Survey

This audit will assess your accounting system to make sure it can maintain records in line with DCAA standards. The DCAA Standard Form (SF)1408 Pre-Award Survey is a crucial step when submitting government bids as a potential contractor.

The DCAA does not require an accounting system to be fully intact during the initial assessment, as these costs can be significant for new contractors. But the contractor must demonstrate the capabilities of the proposed accounting system and commit to the installation of the system once a contract is finalized.

The main purposes of the SF Pre-Award Survey include:

  • Examining the contractor’s accounting system
  • Determining whether the accounting system of the contractor is suitable for the government contract
  • Completing the SF 1408 Form

How Software Helps with DCAA Compliance

The SF 1408 Pre-Award Survey assesses your accounting system capabilities. This process is designed to be simple and transparent, so small businesses can effectively prepare for this crucial step in becoming a government contractor.

While no software program ensures that you become DCAA compliant, selecting a solid program can make the process smoother. When considering the best accounting software for small government contractors, keep in mind some of these chief areas for DCAA compliance:


Proper timekeeping can be one of the most challenging DCAA accounting policies and procedures for government contractors. A timekeeping audit is one of the most common DCAA audits and occurs without prior notice. As such, it is crucial to follow standard procedures.

The primary purpose of a timekeeping audit is to encourage contractors to be vigilant concerning the accuracy and consistency of time records, to confirm employees are in fact working, and that contractors charge costs to the proper line item.

Accounting software can help in providing electronic timekeeping for monitoring projects and providing a platform for assigning project numbers, tasks and charge numbers.

Labor Distribution

In addition to compliant timekeeping systems, contractors must account for direct and indirect costs regarding labor distribution. A direct cost is something attributable to one cost objective, such as a contract or project. Generally, these costs are required for contract performance. For example, a worker exclusively assigned to a particular project would be a direct cost.

However, some costs cannot be assigned to a single task or project and are known as indirect costs. A manager who oversees multiple contracts would be one such example. It would be impractical to try to divide his time among the many projects that a company manages to allocate their portion of his salary.

It is crucial that accounting systems accommodate the appropriate handling of indirect and direct labor costs, and it is paramount to apply an equitable formula that is consistent when allocating indirect costs to contracts for billing purposes. Accounting software can facilitate this completion process according to DCAA guidelines.

Distinguishing Between Allowable and Unallowable Costs

Government contracts prohibit some business expenses to be included in contracts. For example, some business expenses permitted in the private sector, like entertainment expenses or charitable donations, cannot be billed to a federal agency. One of the important considerations when choosing accounting software is the ability to differentiate between allowable and unallowable costs when dealing with government contracts.

CAS Compliance

Cost accounting standards (CAS) are federal laws that apply to all government contractors, and CAS can be extremely challenging for contractor compliance. The CAS consist of a set of 19 rules that guide government agencies on determining the costs associated with negotiated contracts.

The cost accounting standards were created to promote consistency in managing cost accounting and to establish requirements in the written disclosure of the cost accounting practices of government contractors. Contractors that are involved in contracts covered by CAS must effectively monitor their bidding, booking and billing to ensure consistency with the written cost accounting disclosures submitted prior to their being awarded a contract.

Accounting systems must be able to apply all the necessary CAS, and the best accounting software for small government contractors can facilitate compliance in this area.

The Best Accounting Software for You

Expensive accounting platforms often market themselves as featuring the exclusive ability to comply with all DCAA requirements. This isn’t the case. You need more than accounting software to comply with DCAA requirements.

The cost can be a critical factor when choosing the best accounting software for small government contractors, so it’s important to consider all options available to ensure you choose an accounting system that works best for you.

After all, what works best for your individual needs can differ from that of another company and may not be the most expensive option. Contact the experts at Warren Averett to find out more.

Guide: DCAA Compliance - A Comprehensive Guide for Government Contractors

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