Your accounting system either passes an eighteen-part federal test or it does not. That one fact decides whether you are allowed to hold a cost-reimbursable award, and it has almost nothing to do with what you pay your bookkeeper.
The contractors who fail share a profile. Timekeeping that does not reconcile. Indirect cost pools that were never properly separated. Labor records that do not support what was billed. Almost all of them are small contractors whose bookkeeper was a generalist who had never seen an SF1408.
The cost of failing is not the bookkeeping fee. It is the 60 to 180 day wait before you perform on a Phase II SBIR, a cost-reimbursable services contract, or any other award that requires DCAA-approved accounting. That is what DCAA compliant bookkeeping services for small businesses actually deliver: the right to start work on time.
The scale is not small. In FY24 DCAA examined $599.8 billion in contract costs and identified over $15.9 billion in audit exceptions. Net savings came to $5.1 billion, a figure DCAA itself footnotes: $1.7 billion of it is a monetized estimate rather than money recovered. (Source: DCAA Report to Congress on FY 2024 Activities, Table 3 and Figure 1.)
The 18 criteria come from DFARS 252.242-7006 (Accounting System Administration), the post-award contract clause that governs how a contractor’s accounting system must operate.
The SF1408 is the other instrument, and contractors mix the two up constantly. It is the pre-award survey DCAA runs before you are allowed to start, and it covers 15 evaluation criteria about how your system is built. The two overlap heavily. The difference is timing: the SF1408 asks whether the system is ready, and the DFARS clause governs how it has to keep running afterwards.
Below: the 18 criteria a DCAA-compliant bookkeeper must satisfy, the warning signs that distinguish a real GovCon bookkeeper from a generalist with marketing copy, and the four service-tier patterns that fit different contractor stages.
DCAA Compliant Bookkeeping Services for Small Businesses: The 18 DFARS Criteria
DFARS 252.242-7006(c) lists 18 specific criteria for an adequate contractor accounting system. The table below translates each criterion into the operational test a DCAA-fluent bookkeeper applies at month-end.
| # | Criterion | Practitioner Test |
|---|---|---|
| 1 | Sound internal controls | Segregation of duties; written policies; review evidence |
| 2 | Proper segregation of direct and indirect costs | Chart of accounts separates direct labor by contract from indirect labor by pool |
| 3 | Identification and accumulation of direct costs by contract | Class tracking or job costing isolates each contract’s direct costs |
| 4 | Logical indirect cost allocation methodology | Pool composition documented; allocation base reasonable; CAS 402 consistency |
| 5 | Accumulation of costs under general ledger control | All costs flow through GL; no off-system tracking |
| 6 | Timekeeping system identifying labor by intermediate or final cost objective | QuickBooks Time or equivalent with class/job codes for direct and indirect time |
| 7 | Labor distribution charging system | Timecards reconcile to payroll, payroll reconciles to GL |
| 8 | Interim determination of costs at least monthly | Monthly close with indirect rate calculation |
| 9 | Exclusion of unallowable costs | FAR 31.205 screening at expense entry; unallowable pool isolated |
| 10 | Identification of contract costs by contract line item and units | CLIN-level tracking on cost-reimbursable contracts |
| 11 | Segregation of preproduction costs from production costs (where applicable) | Project-stage separation when applicable |
| 12 | Cost accounting information for cost or pricing data | Historical cost data retrievable for proposal pricing |
| 13 | Adequate, reliable data for limitation of cost or limitation of funds clauses | Real-time contract burndown reporting |
| 14 | Cost accounting information for forward pricing rate proposals | Indirect rate proposal package readily produceable |
| 15 | Documentation of consistent cost accounting practices | Written accounting policies referenced at audit |
| 16 | Reconciliation of cost accounting data to financial accounting data | Trial balance reconciles to indirect rate calculation |
| 17 | Management reviews or external audits at appropriate intervals | Annual self-audit or external compliance review |
| 18 | Billings reconciled to cost ledger | Voucher reconciles to GL contract cost balances |
Source: DFARS 252.242-7006.
What Distinguishes a Real GovCon Bookkeeper From a Generalist
Six signals distinguish a bookkeeper who passes the 18 criteria from one who does not:
- Knows the 18 criteria by heart. A real GovCon bookkeeper names DFARS 252.242-7006 and discusses the 18 criteria without consulting reference materials. A generalist describes “DCAA compliance” in marketing language.
- Has set up at least three SBIR Phase II awardees. The SBIR pre-award survey is the most common DCAA accounting system audit for small contractors. A bookkeeper who has guided three or more clients through it has the operational reps that single-client experience cannot replicate.
- Calculates indirect rates monthly. The bookkeeper produces a monthly indirect rate calculation as part of the standard close process. If indirect rates are calculated only once a year for ICS, the system is not running on the cadence DCAA expects.
- Maintains a written accounting policies document. The bookkeeper has produced (or maintains) a 10-20 page written accounting policies document covering timekeeping, allocation methodology, unallowable cost screening, and audit response. The document references specific FAR clauses.
- Reconciles voucher-to-trial-balance every billing cycle. The bookkeeper produces a reconciliation report tying each WAWF voucher to the underlying GL balances. The reconciliation is the bookkeeper’s standard work product, not something assembled on demand.
- Has direct DCAA correspondence experience. The bookkeeper has corresponded with DCAA auditors directly, not through a CPA intermediary. That direct relationship is what makes the difference between an audit completing in 1-2 hours and one stretching across weeks.
The Four Service-Tier Patterns
DCAA-compliant bookkeeping services for small business typically fit one of four engagement patterns. Ranges below reflect typical market pricing; actual cost varies by firm size and contract portfolio complexity.
| Tier | Best Fit | What’s Included |
|---|---|---|
| Setup-only | SBIR Phase I awardee preparing for Phase II | Chart of accounts, written policies, timekeeping configuration, SF1408 readiness review |
| Compliance review | Existing contractor with internal bookkeeping | Quarterly compliance review; indirect rate validation; audit-readiness check |
| Full-service | Small contractor without internal bookkeeping capacity | Monthly close, indirect rate calculation, voucher preparation, ICS support, DCAA correspondence |
| Full-service plus CFO | Mid-size contractor with active growth and layered compliance | Full-service bookkeeping plus indirect rate strategy, ACO relationship management, audit-cycle planning |
The test that settles it. Ask a prospective provider to walk you through DFARS 252.242-7006(c) criterion by criterion against your current chart of accounts. A GovCon bookkeeper does this from memory and stops on the two or three where your system falls short. A generalist reaches for the clause text. The difference surfaces in under ten minutes and costs you nothing.
Warning Signs You Have the Wrong Provider
Five patterns signal a contractor needs to evaluate alternatives:
- Indirect rates are not calculated monthly. If the bookkeeper only calculates rates annually for ICS, the system is not DCAA-compliant in operational practice.
- The bookkeeper cannot explain the chart of accounts to the auditor. If a DCAA question requires escalation to a third party, the bookkeeper does not understand the system. DCAA-compliant bookkeeping requires the bookkeeper to be the audit-response point.
- Vouchers reject in WAWF more than once per quarter. Repeated voucher rejections signal accounting reconciliation gaps that should be visible to a DCAA-fluent bookkeeper before submission.
- The contractor does not have written accounting policies. Every DCAA-compliant accounting system has documented policies. If the bookkeeper has not produced them, the system is incomplete.
- The bookkeeper subcontracts DCAA work to another firm. If the contractor’s bookkeeper consistently refers DCAA matters to a CPA firm, the contractor is paying for two providers to do one job.
Frequently Asked Questions
How is DCAA-compliant bookkeeping different from regular small-business bookkeeping?
The 18 DFARS criteria define the difference. A regular small-business bookkeeper produces accurate financial statements. A DCAA-compliant bookkeeper produces accurate financial statements that satisfy 18 specific federal contract administration requirements, including indirect cost segregation, timekeeping integration, unallowable cost screening, and contract-level cost tracking. The mechanics of monthly close are similar; the structural requirements layered on top are materially different.
Is DCAA-compliant bookkeeping required for all federal contractors?
Required for cost-reimbursable contracts (the SF1408 pre-award survey applies). Strongly recommended for fixed-price contracts above the simplified acquisition threshold, where DCAA holds authority to audit cost or pricing data. Optional for purely commercial-item contracts and below-threshold fixed-price contracts.
How much does DCAA-compliant bookkeeping cost?
Scope is what separates the tiers, not headcount. A setup-only engagement ends when the system passes review. A compliance review is periodic and assumes you keep the books yourself. Full-service means somebody else runs the monthly close and answers DCAA. What moves an engagement up a tier is contract portfolio, system complexity, and how much DCAA correspondence sits inside the scope. Our own scope and fees are on the pricing page.
Is DCAA-compliant bookkeeping possible in QuickBooks Online?
Yes, with proper configuration. QuickBooks Online with classes enabled satisfies all 18 DFARS criteria when configured by a DCAA-fluent bookkeeper. The software is not the issue; the chart of accounts structure, the timekeeping integration, and the written policies are.
How do I evaluate whether my current bookkeeper is DCAA-compliant?
Run a self-audit using the 18 DFARS criteria. Ask the bookkeeper to walk through how each criterion is satisfied in your current system. If the bookkeeper cannot demonstrate compliance with all 18, the system is incomplete. Ask for written accounting policies; if they do not exist, the documentation is missing.
What happens if my accounting system is disapproved by DCAA?
A disapproved accounting system blocks the contractor from billing on cost-reimbursable contracts until deficiencies are corrected and DCAA issues a new determination. The remediation period typically runs 60–180 days and requires documenting corrective actions, updating written policies, and in some cases rebuilding the chart of accounts. The indirect rate proposal and any pending ICS are typically suspended as well, pending system approval.
What is the difference between the SF1408 and DFARS 252.242-7006?
The SF1408 is the pre-award survey form covering 15 evaluation criteria for system structure and readiness before contract award. DFARS 252.242-7006 is the post-award contract clause defining 18 criteria for an adequate accounting system during contract performance. Both test the same underlying capabilities; the DFARS clause adds ongoing operational requirements. Building to the 18 DFARS criteria will satisfy the SF1408 evaluation.
Get the 18-Criteria Test Right Before the Auditor Asks
Most small federal contractors discover their bookkeeping is not DCAA-compliant during the SF1408 pre-award survey or the first incurred cost audit. By then the audit clock is running and remediation is expensive. Building the system to the 18 criteria from day one is what makes the first attempt the one that passes. That is the whole of what separates DCAA compliant bookkeeping services for small businesses from ordinary bookkeeping wearing the same label.
Amerifusion Bookkeeping is CPA-managed and DCAA-fluent. We set up small federal contractors with bookkeeping systems engineered to pass the 18-criteria test from day one. See our DCAA-compliant bookkeeping services, book a 30-minute readiness call, or read the companion piece What DCAA Bookkeeping Services Cost in 2026.
