Is Your Accounting System Adequate for Award of Flexibly Priced Contracts?

June 6, 2016

Have you found yourself trying to understand what an “adequate” accounting system means and what exactly is required for your system to be deemed adequate? An adequate accounting system can help you win new work for cost reimbursement type contracts. Here is a brief process and some of the specific criteria required to have an adequate accounting system:

A Pre-Award Accounting System Review (DCAA Activity Code 17740) involves:

  • Evaluation of the design effectiveness, not the operating effectiveness of the system
  • A mix of inquiry of appropriate personnel, observation of the entity’s operations, and inspection of relevant documentation
  • Walkthroughs of the accounting system that include a combination of the above procedures

To be deemed adequate, the accounting system should:

  • Properly segregate costs
  • Identify & accumulate direct costs by contract
  • Logically & consistently allocate indirect costs
  • Accumulate costs under general ledger control
  • Ensure the timekeeping system identify employees’ labor by intermediate or final cost objectives
  • Distribute labor to the proper account and/or job
  • Have interim determination of costs charged to a contract through routine posting to books of account
  • Exclude unallowable costs
  • Identify of costs by contract line item
  • Provide financial information required by contract clauses concerning limitation of cost and limitation of funds
  • Be able to support requests for progress payments

If you would like more details on how to prepare for an upcoming pre-award accounting system review, please contact La-Tasha S. R. Patel at or 301.231.6260.