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As discussed in DCAAP 7641.90 (Defense Contract Audit Agency Pamplet), the government reviews the "acceptability of the contractor's accounting system for accumulating costs under a prospective Government contract." DCAA conducts an audit in which the scope is limited to obtaining an understanding of the design of the prospective accounting system and as essential to reach an informed opinion as to whether or not the design is acceptable for accumulating costs under a Government contract. DCAA also will determine if the system will provide reasonable data for projection of costs to complete a contract.
Some of the specific items that are reviewed during the audit are:
(a) Proper segregation of direct costs from indirect costs;
(b) Identification and accumulation of direct costs by contract;
(c) A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives;
(d) Accumulation of costs under general ledger control;
(e) A timekeeping system that identifies employee's labor by intermediate or final cost objectives;
(f) A labor distribution system that charges direct and indirect labor to the appropriate cost objectives;
(g) Interim (at least monthly) determination of costs charged to a contract through routine posting to books of account;
(h) Exclusion from costs charged to Government contracts of amounts that are not allowable pursuant to FAR Part 31, Contract Cost Principles and Procedures or other contract provision;
(i) Identification of costs by contract line item and units if required by the proposed contract; and
(j) Segregation of preproduction costs from production costs.
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Reference: Department of Defense: Defense Contract Audit Agency. "Information for Contractors." DCAAP 7641.90. January 2005. Located on 12/29/2010 at http://www.dcaa.mil/dcaap7641.90.pdf
Federal Acquisition Regulation (FAR) Part 31, Appendix 1 & 2. Located on 12/29/2010 at https://www.acquisition.gov/Far
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