DCAA

DCAA performs audits of defense contractor financial operations on behalf of the Department of Defense and other federal agencies. Their primary mission is to ensure that contractors’ accounting systems, cost proposals, and incurred costs comply with government cost accounting standards.

For small businesses entering defense contracting, having a "DCAA-compliant" accounting system is often a prerequisite. This means your accounting system must separately track direct costs, indirect costs, and unallowable costs. It must be capable of accumulating costs by contract and generating the reports DCAA requires.

A full DCAA audit can be rigorous. Common issues include commingling of personal and business expenses, failure to track labor hours by project, and inadequate segregation of unallowable costs (entertainment, alcohol, lobbying). Setting up your accounting system correctly from the start is far easier than fixing it after an audit finding.

Many startups begin with a pre-audit review or readiness assessment to identify gaps before DCAA comes knocking. QuickBooks or similar software can work if properly configured, but dedicated government accounting solutions like Unanet, Deltek, or Procas are purpose-built for compliance.