Everything You Need to Know About DCAA Compliance and Government Approved Accounting

DCAA Compliance and Government Approved Accounting

Your success depends on meeting DCAA (Defense Contract Audit Agency) compliance regulations when working with the government.

Government contracting can be a challenge; when you’ve cleared one hurdle, another one awaits, like finding a government-approved accounting system.

If you want to win defense contracts, you’ll need a DCAA-compliant financial system. Moreover, you’ll learn that responding to proposals without a DCAA compliant accounting system is impossible in some cases.

At Team 80, we ensure small business owners entering the SBIR/STTR program have an accounting system compliant with Federal Acquisition Regulation (FAR) and Defense Contract Auditing Agency (DCAA). If you’re one of those small business owners, this blog is for you.

“Accounting is hard enough without the government as your “partner.” That’s why government contractors should look for an accounting system that already strikes the right balance between ease of use and powerful capabilities.”
 – Sarah Sinicki, Director of Business Development, Team 80

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When creating and pitching a dynamic SBIR proposal, it’s easy to overlook crucial details, like proving you can accurately (and quickly) show how you used their funds. The federal agency you’re working with needs to understand you have an approved system in place before they give you an award. They also want to feel confident you won’t misuse taxpayer dollars or engage in billing fraud (inadvertently or by design).

So, here’s what you’ll need to do: find a DCAA-compliant accounting system.

The government wants you to have an approved accounting system before giving you an SBIR or STTR contract. You also must comply with Federal Acquisition Regulations (FAR). You should familiarize yourself with FAR’s guidebook to learn more about what you can do to ensure everything runs smoothly before the DCAA shows up.

Worker sitting at table next to laptop with DCCA DCAA compliance Paperwork

What is the DCAA?

The Defense Contract Audit Agency is a federal agency under the Department of Defense (DoD); they’re “stewards of taxpayer dollars.” The DCAA delivers high-quality contract audits and services to ensure taxpayers and the military get what they pay for at a reasonable price. Their mission has remained the same since 1965.

In 2019, the DCAA examined nearly $365 billion in DoD contractor costs. Their audits saved taxpayers roughly $3.7 billion. The savings go back into the DoD’s pockets for essential military operations, or the government returns the excess cash to the Treasury.

The DCAA is primarily responsible for DoD contracts. However, they’re also often brought in by other federal agencies (like Nasa and the Department of Energy) for contract audits and financial services.

You’ll have the DCAA knocking on your door if a government agency, the Defense Contract Management Agency (DCMA), for example, requests the DCAAs help with an audit.

If you’re not DCAA-compliant, you’ll be answering their call. And that’s not something you want.

What is DCAA compliance?

When you’re DCAA compliant, you’re following their rules, recommendations, and best practices. If that sounds simple, it’s because it is! So stay on top of your record keeping, and use DCAA compliant accounting systems that’ll pass their audits, and you’re off to the races.

Here are some tips to help you stay DCAA compliant:

  • Establish and document your policies
  • Use a DCAA compliant system capable of tracking multiple cost categories separately
  • Make sure your timekeeping records and cost-accounting are fully integrated
  • Keep detailed records, and make sure your documents are easily accessible for the eventual audit

*You should note that the DCAA won’t give you a certificate of compliance.

What is the DCAA Pre-Award Survey?

Man in white shirt with a approved stamper

The DCAA conducts pre-award surveys when they’re about to award your small business with a government contract. You shouldn’t confuse the survey with an audit. The survey is simple; it’s an evaluation of your accounting system, and it validates your ability to carry out the government contract tasks.

If you meet the DCAA’s accounting system requirements, and you’re ready to see the contract through financially, you’ll pass. In order to give yourself the best chance of securing a contract, we suggest that you use the pre-award accounting system adequacy checklist. It’ll help you stay compliant and ready for a DCAA

What happens during a DCAA audit?

You shouldn’t fear a DCAA audit, though you should prepare yourself for that eventuality. During an audit, the DCAA will determine if your accounting system adheres to Generally Accepted Accounting Principles (GAAP). They’ll check to ensure you’re recording expenses when you provide a service. Small businesses usually have to overhaul their accounting and record-keeping procedures to comply with GAAP. (If we’ve already sold you on avoiding that headache, let’s talk about how we can help.)

According to the DCAA’s Form 1408 checklist, your accounting system must:

  • Properly segregate direct costs from indirect costs.
  • Correctly identify and accumulate direct costs by contract.
  • Have a logical and consistent method for allocating indirect costs to immediate and final objectives (a contract is considered a final cost objective).
  • Be able to accumulate the costs under a general ledger.
  • Have a timekeeping system that identifies employee’s labor by intermediate or final cost objectives.
  • Have a labor distribution system that charges direct and indirect labor to the appropriate cost objectives.
  • Determine costs charged to a contract through regular posting of books of account at least monthly.
  • Correctly identify, exclude, track allowable costs based on FAR 31 unallowable expenses.
  • Identify costs by contract line item (CLIN).
  • Segregate preproduction costs from production costs.

You’ll probably make it through an audit if your accounting system checks every box on this list. And if you’re feeling uneasy, it’s okay; the DCAA wants you to succeed, so they provide audit process overviews and let you see the checklists auditors use for assessments.

What accounting software is DCAA compliant?

Here’s a mind-bending truth. There’s no DCAA approved software, but there is software optimized for DCAA compliance. DCAA compliant software can include any commercial accounting package capable of tracking job costs. For example, Quickbooks provides accurate data, process flows, and reports that you’ll find helpful during an audit.

Still, your comprehensive, government approved accounting system is only one-half of the battle. Your accounting package is only as reliable as your information. In addition, you must establish policies and procedures for routine finance documentation.

And compliance is eternal. Once your software is compliant, it must remain compliant. With the help of a qualified accounting team (like Team 80), you can feel confident that you meet and exceed regulatory requirements.

You should let Team 80 manage your government-approved accounting needs. Here’s why:

You didn’t start your small business to manage tedious accounting tasks. Instead, we want to help you stay focused on researching and developing your SBIR program passion project. That’s why we offer affordable, turn-key accounting services – so you can stay focused on what matters most to your business.

“Federal accounting regulations are complex and ever-changing, both in their wording and how government auditors choose to interpret and enforce them. Team 80 can help you prosper in this challenging environment. When you’re serious about doing business with the federal government, you need an equally serious accounting partner.” – Sarah Sinicki, Director of Business Development, Team 80

We’ve been doing this for more than 20 years. We’ll ensure your system is DCAA compliant – today and into the future.


Robotic Rover on Mars Surface with Moon and Sun in the background

Take Your Idea to the Mars (And Beyond): Exploring NASA's SBIR Program

Do you have an innovative idea worthy of deep space? We want to help you bring that idea to life with government funding.

In 2007, small business visionaries created a revolutionary technology that helped NASA's Phoenix Mission find water on Mars.

Honeybee Robotics, Yardney Technical Products, and Starsys Research furthered NASA's mission by developing an icy soil acquisitions device, lithium-ion batteries, and a wet chemistry laboratory. But if they didn't have the government's help, the ideas might have landed on the cutting room floor instead of Mars.
Robotic Rover on Mars Surface with Moon and Sun in the background

The Small Business Innovation Research (SBIR) program helped these small businesses bring their ideas to life.

The SBIR program has awarded funds to small businesses like yours for decades. The program funds early-stage research and development for specific government agencies like the National Aeronautics and Space Administration (NASA).

The NASA SBIR program might be the key to bringing your revolutionary technology to life and into Outerspace.

Keep reading to learn everything you need to know about NASA's SBIR program.

What is the NASA SBIR Program?

The SBIR program is highly competitive and encourages domestic small businesses to engage in Federally-funded research and development for innovative technologies with commercialization potential.

There have been many discussions recently about the role small businesses can play in NASA's upcoming directives. With NASA's renewed interest in going back to the Moon and Mars, the potential for small businesses to help further their mission is at an all-time high.

Robert Cabana, Director of Kennedy Space Center, presented testimony before the Senate Committee of Small Business and Entrepreneurship, highlighting the SBIR program's importance.

He noted that there had been a "Total spend to small business [of] more than $159 million," which has gone to "fund the research, development, and demonstration of innovative technologies that both fulfill NASA needs and have significant potential for successful commercialization."

How much are NASA SBIR/STTR awards?

NASA's combined annual SBIR and STTR budget hovers between $190M and $210M. Since 2011, NASA has awarded an average of $139M in Phase I and Phase II contracts annually. The maximum value for each Phase I SBIR award is roughly $125K, and Phase II's maximum value is around $750K. NASA explicitly states that every award-winning SBIR Phase I proposal is a firm-fixed-price contract.

How many phases are in the NASA SBIR/STTR program?

There are three phases in the NASA SBIR/STTR program. Here's how NASA's interactive guide describes each Phase:

  • Phase I — a small business establishes the scientific, technical, and commercial feasibility of a product or service.
  • Phase II — a small business will demonstrate the functionality of its idea through research and development (R&D).
  • Phase III — the commercialization of innovative technologies, products, and services that have emerged from Phase I and Phase II.

NASA Logo SignageEach Phase has a specific duration. The performance period for SBIR Phase I is up to 6 months, whereas the performance period for STTR is up to 13 months. The maximum performance period for both SBIR and STTR in Phase II is up to 24 months.

The NASA SBIR/STTR program does not let you switch from STTR to SBIR (or vice versa) after proposal submission. You also can't trade during the award period of performance or Phases I and II.

Every year, NASA releases a list of SBIR/STTR topics, and the proposals for these topics are due in the first quarter of the calendar year.

Don't worry if you haven't met the solicitation period for the year - you can always try again next year. Still, you should prepare, stay ahead of the curve and keep your eyes open for upcoming SBIR NASA topics.

What NASA topics are available?

NASA always has its eyes on the next frontier, and with the possibility of extended space travel, NASA needs innovative technology.

There are four Mission Directorates (MD) at NASA, and each MD has its own needs. Here are the Mission Directorates:

Each MD has topics or subtopics that support its needs. You can peruse a list of available topics to ensure that your idea will meet NASA's needs.

Topics are organized in Focus Areas, like:

  • Power and Energy Storage
  • Communications and Navigation
  • Sensors, Detectors, and Instruments
  • Life Support and Habitation Systems
  • Spacecraft and Platform Subsystems

Am I eligible for SBIR through NASA?

You're on the right path if your idea has research and technical innovation elements and meets NASA's needs.

However, suppose you want to be eligible for the NASA SBIR program (or any SBIR program). In that case, you must operate a for-profit business with less than 500 employees. Your company must be located in the US. It must be at least 51% owned and operated by one or more US citizens or permanent residents.NASA White Man & Black Women engineers sitting at desk looking at computers with large screen of astronauts on the wall

For STTR, you need to meet all of the same SBIR requirements, and you need to have a cooperative research and development relationship with a US Research Institution (RI). Your Research Institution must be an accredited college or university, a Federal research and development center, or a non-profit research organization.

How do I apply for NASA SBIR?

Are you sitting on the next revolutionary idea to help NASA explore the galaxy? If you are, it's time to start the SBIR proposal process.

The proposal process can be challenging, and prepare yourself; it's time-consuming (roughly 200 hours!). Your proposal must stand out above all the other applications, and you must prove your idea is substantive, and your team is prepared to see the project through to completion.

NASA scientists and engineers will evaluate your proposal, and they'll determine whether or not you qualify based on five factors:

  1. Scientific/Technical Merit and Feasibility
  2. Experience, Qualifications, and Facilities
  3. Effectiveness of the Proposed Work Plan
  4. Commercial Potential and Feasibility
  5. Price Reasonableness

Are you thinking about including a letter of general endorsement? Think again. NASA won't consider the blessings during the review process. If this sounds daunting, well, it is. Getting funds from the government is never easy.

Does this all sound a little daunting? It's understandable. Getting funds from the government is never easy. Take a deep breath, and don't be discouraged. Team 80 is here to help!

We have over 20 years of extensive experience working with agencies participating in the SBIR/STTR programs like NASA. We're familiar with the NASA proposal submission and solicitation process; we can put you on the path to NASA SBIR success!

Let's put your dreams in orbit. Get in touch today!


Male and Female Dod Researchers looking at tablet

You Can Be a Hero on the Government's Dime: Understanding the DoD SBIR Program

Bring your innovative idea to life and protect the nation. Here's how.

When the Department of Defense (DoD) had a severe machine failure issue, they called upon a small business, Sentient Science, for a solution. Sentient Science developed software allowing the military to predict critical equipment component failures. Now the DoD knows for sure if a Black Hawk helicopter is ready for retirement.
Pentagon Building in Washington DC

Federal Government funding via the Small Business Innovation Research (SBIR) program made the contract - and solution - possible. Without SBIR, small business owners with brilliant ideas - like you - would be unable to build world-class technology for an agency like the Department of Defense.

SBIR might be the key to bringing your DoD brainchild to life. Here's what you need to know.

What is the DoD SBIR Program?

The DoD SBIR program is a highly competitive program allowing small businesses to propose innovative research and development (R&D) solutions in response to critical military needs.

There are DoD SBIR programs that target and address various agencies' specific needs and interests. For example, the Navy SBIR program focuses on naval-specific needs, and the Army SBIR program focuses on the Army's unique needs.

Through Federally-funded research and development, small business innovators like you can serve the country without enlisting.

Am I eligible for the DoD SBIR program?

  • For-profit businesses with less than 500 employees are eligible for the DoD SBIR program.
  • Your company must be US-based and at least 51% owned and controlled by one or more United States citizens or permanent residents.

If you meet these requirements and have an innovative idea or solution (or have a creative idea or solution adaptable to the DoD's needs), you're probably eligible. And if you're part of the Air Force (or any military branch), you may qualify for the Air Force AFWERX program.

How is the DoD SBIR program funded?

Taxpayer dollars pay for the SBIR program. Each year, congress requires every agency participating in the SBIR program to contribute 3.2% of their excess research and development budget towards small businesses.

DoD has the largest budget out of all agencies in the SBIR program at $1.3 billion. At least 50% of the funding in the entire SBIR program comes from DoD.

Because of their larger budget, each SBIR phase pays out a little higher than typical SBIR awards through other agencies: Phase I awards can be up to $111,500 for a performance period that can't exceed six months, and Phase II awards can be up to $1.1 million with a performance period up to 2 years.

Please note: the DoD distributes SBIR funds through contracts, not grants. The DoD is your customer (essentially).

What are the DoD SBIR Phases?

As with everything in the SBIR program, there are typically three phases:

  • Phase I Project Feasibility: This phase determines your submitted idea's scientific, technical, and commercial merit. You'll solicit, pitch, and propose your idea to the DoD. Please keep in mind that you must ensure that your innovation aligns with the agency's described requirements.
  • Phase II Technology Development: Your research and development are funded during this phase. It's also when you'll develop your idea into DoD-supporting technology.
  • Phase III Commercialization: Phase III falls outside of the SBIR program. You must obtain non-SBIR government or private funding to transition the tech you developed in Phase II into a product or service for the government and commercial marketplace.

Here's where things get funky. Another detail separates the DoD SBIR program from the standard program; it's a step called Direct to Phase II. Direct to Phase II initiates when the DoD issues a Phase II award to a small business that didn't receive its Phase I SBIR or STTR award.

Direct to Phase II initiates when a small business can prove the scientific feasibility, technical merit, and commercial opportunities of their innovation by soliciting contract proposals and grant applications.

What does the DoD need from me?

The military and the Department of Defense constantly look for innovative technologies. Three times a year, the DoD releases a list of topics to the public called Broad Agency Announcements (BAA). These announcements will help you understand the DoD's research and development needs.

You can browse current DoD announcements here. We suggest that you sign up to receive DoD Listserv emails. You can also follow their regularly updated Facebook and Twitter accounts for information.

Today, the DoD requires research and development in the following areas:

  • Air Platform
  • Battlespace
  • Biomedical
  • Chemical/Biodefense
  • Electronics
  • Ground/Sea Vehicles
  • Human Systems
  • InfoSystems
  • Materials/Processes
  • Nuclear
  • Sensors
  • Space Platforms
  • Weapons

Here's something else you should know: you can't submit a proposal for R&D that isn't included in an announcement.

DoD agencies routinely release Broad Agency Announcements (BAAs) specifically targeted for the Small Business Technology Transfer (STTR) program to encourage participation from university researchers like DESI, MURI, and ARO.

What agencies are within the DoD?

Here's a list of the 13 agencies that make up the Department of Defense. You should keep in mind that not all agencies participate in the DoD SBIR program every year, and some release additional announcements outside of the regular schedule. Also, some agencies provide broader, more general topics and programs to encourage participation from new small businesses.

Army - United States Army
Navy - United States Navy
Air Force - United States Air Force
CBD - Chemical and Biological Defense
DARPA - Defense Advanced Research Projects Agency
DHA - Defense Health Agency
DLA - Defense Logistics Agency
DMEA - Defense Microelectronics Activity
DTRA - Defense Threat Reduction Agency
MDA - Missile Defense Agency
NGA - National Geospatial-Intelligence Agency
OSD - Office of the Secretary of Defense
USSOCOM - United States Special Operations Command

How do I apply for DoD SBIR/STTR?

If you think you have what it takes to further the DoD's mission, start by creating an account here. Once you’re registered and settled on a topic, you can begin the Defense SBIR/STTR Innovation Portal (DSIP) proposal process.

We understand that the proposal process can be overwhelming. Team80 is here to help! We’re SBIR experts with over 20 years of experience working with SBIR-participating agencies like the DoD. We understand every aspect of the proposal submission and solicitation process. Let's bring your vision to life!

We're here to help you succeed. Get in touch today!