Has your bookkeeper ever filed an SF 1408 Pre-Award Accounting System Survey? Have they prepared an incurred cost submission from scratch, defended indirect rates during a DCAA audit, or built a chart of accounts around FAR Part 31 cost categories?
Most general bookkeepers and CPAs answer no to every one of those questions. The work looks similar on the surface: invoices, reconciliations, payroll, financial statements. Under the surface, government contract accounting follows a different set of rules. A bookkeeper who doesn’t know those rules creates risk on every contract you hold.
The difference between a general bookkeeper and a GovCon bookkeeping provider shows up at the worst possible time: during an audit, a pre-award survey, or a contract closeout. These ten questions help you tell the difference before your money is on the line.
1. Do You Have Direct Experience with DCAA Audits?
A qualified GovCon bookkeeping provider should have firsthand experience preparing contractors for DCAA audits and responding to audit findings. DCAA examines billions in contractor costs annually and questions $1 to $3 billion per year across all audit types [DCAA Annual Reports to Congress]. Experience with this process is not optional.
A good answer names specific audit types: incurred cost audits, pre-award surveys, floor checks, accounting system audits, or forward pricing audits. Ask how many they have supported in the past two years. A provider who has never sat across from a DCAA auditor will struggle to prepare you for one.
Red flag: “We handle audits” without specifics. DCAA audits follow the Contract Audit Manual (DCAM), and each audit type requires a different preparation strategy. Your DCAA compliance bookkeeping provider needs to know which documents each audit demands and how auditors evaluate them.
2. Are You Familiar with Cost Accounting Standards?
CAS governs how contractors estimate, accumulate, and report costs on government contracts. A GovCon bookkeeping provider must understand which CAS standards apply to your business and how to maintain compliance with each one. Modified CAS coverage begins at $7.5 million in aggregate CAS-covered awards, and full CAS coverage applies at $50 million on a single contract [CAS Board, FY2026 NDAA threshold updates].
A strong answer references specific standards by number. CAS 401 requires consistency between estimates and actuals. CAS 402 prohibits charging the same cost as both direct and indirect. CAS 405 requires identification and exclusion of unallowable costs. CAS 418 governs the allocation of direct and indirect costs.
Ask whether they have ever prepared or amended a CAS Disclosure Statement. Contractors above the modified coverage threshold must file one, and errors in the Disclosure Statement trigger audit findings. A provider who has never touched a Disclosure Statement is not ready for CAS-covered work.
3. How Do You Structure Indirect Rate Pools?
Indirect rate structure is the backbone of government contract accounting. Your provider should explain how they set up and maintain fringe benefit, overhead, and G&A cost pools, and how they select allocation bases for each one [CAS 418]. Getting this wrong affects every dollar you bill.
A qualified answer describes the typical pool structure: fringe benefits allocated on direct labor (commonly 30 to 45% of direct labor), overhead allocated on direct labor dollars or hours (typically 80 to 150%), and G&A allocated on total cost input (usually 10 to 25%). Ask how they handle material handling rates and Facilities Capital Cost of Money (FCCM) under CAS 414.
The best providers also explain how they monitor rate variances quarterly. A 5 to 10% variance between provisional and actual rates gets auditor attention. Your provider should catch that variance before the auditor does, and should help you use the indirect rate calculator to model adjustments before they become problems.
4. How Do You Prepare Incurred Cost Submissions?
Every contractor with a flexibly-priced contract containing the FAR 52.216-7 clause must file an incurred cost submission (ICS) within six months of their fiscal year end. Late submissions trigger decrement factors and payment withholding. DCAA’s unilateral rate determinations on late filings rarely favor the contractor.
Ask your potential provider whether they use the DCAA ICE Model or a custom format. Both work, but they should know the required schedules: Schedule A (summary of rates), Schedule H (direct costs by contract), Schedule I (cumulative direct and indirect costs), and Schedule N (the certificate of final indirect costs, which must be signed by a VP or higher). A bookkeeper’s signature on Schedule N sends the entire submission back on day one.
Test their depth: ask how they reconcile the ICS schedules back to the general ledger and trial balance. Ask whether they run the DCAA adequacy checklist before filing. Contractors who use the adequacy checklist as a final QA gate have significantly lower rejection rates.
5. How Do You Set Up the Accounting System for DCAA Adequacy?
DCAA evaluates accounting system adequacy using the criteria in DFARS 252.242-7006 and the SF 1408 Pre-Award Accounting System Survey. A GovCon bookkeeping provider must know these criteria and build your system to satisfy them before you bid on a contract. The biggest risk for small contractors is not a formal audit: it is the SF 1408 survey that determines whether they receive the contract at all.
A good answer covers the specific adequacy criteria: the system must segregate direct and indirect costs, identify and exclude unallowable costs, accumulate costs by contract, record costs consistently with GAAP and FAR Part 31, and provide timely data for billing and financial reporting. Ask whether they build the chart of accounts around FAR 31.205 cost categories with dedicated accounts for unallowable costs.
The right provider does not wait for an SF 1408 survey to arrive. They build your system to pass it from day one, so your first bid already reflects an adequate accounting system. Read more about the specific survey criteria in our SF 1408 Pre-Award Survey Guide.
6. What Is Your Approach to Timekeeping Compliance?
Timekeeping is DCAA’s number one focus area. A single undocumented timekeeping correction triggers a system-wide labor audit. Your GovCon bookkeeping provider must have a clear, documented approach to timekeeping setup, monitoring, and compliance.
The right answer references daily time recording, supervisor approvals, after-the-fact adjustment procedures with formal correction forms, and written timekeeping policies. Ask whether they prepare employees for unannounced DCAA floor checks. During a floor check, employees must know the timekeeping procedure before the auditor arrives. No coaching is allowed during the visit.
Ask about their policy for total time accounting: all hours in the day must be accounted for, not only billable hours. Direct time goes to specific contracts. Indirect time goes to overhead or G&A categories. Paid time off follows CAS 408 for compensated personal absence. If a provider doesn’t mention total time accounting, keep looking.
7. How Do You Screen for Unallowable Costs?
FAR 31.205 lists more than 50 specific cost categories, and several are always unallowable: entertainment [FAR 31.205-14], alcoholic beverages [FAR 31.205-51], lobbying and political activity [FAR 31.205-22], and fines and penalties [FAR 31.205-15]. CAS 405 requires contractors to identify and exclude these costs from billings to the government.
On contracts over $1,000,000, the FAR 52.242-3 penalty clause applies. Charging an unallowable cost results in the disallowed amount plus interest. Under the False Claims Act, knowingly billing unallowable costs carries treble damages plus $11,665 to $23,331 per false claim.
A qualified provider describes a systematic screening process: dedicated general ledger accounts for unallowable costs, monthly review of expense transactions against FAR 31.205 categories, and automated flags for common violations like meals, entertainment, or personal expenses coded to indirect pools. Ask for their unallowable cost policy in writing. DCAA expects one to exist before contract award.
8. What Contract Types Have You Worked With?
Government contracts come in three primary types, and each one requires a different accounting treatment. A government contractor bookkeeper needs hands-on experience with all three: firm-fixed-price (FFP), cost-plus (CP-FF, CP-IF, CPAF), and time-and-materials (T&M).
FFP contracts recognize revenue on percentage of completion or completed contract methods. Cost-plus contracts bill actual costs plus a fixed or incentive fee, requiring detailed cost accumulation by contract and cost element. T&M contracts bill labor at negotiated hourly rates plus material costs at actual. Each type carries different billing mechanics, different audit exposure, and different indirect rate implications.
Ask how they track costs at the CLIN (Contract Line Item Number) level. Ask whether they have handled IDIQ (Indefinite Delivery/Indefinite Quantity) task orders with multiple CLINs across different contract types. Small providers who have only worked FFP contracts will struggle when you win your first cost-reimbursable award.
9. What Financial Reports Do You Produce?
Standard financial statements (income statement, balance sheet, cash flow) are the starting point. A GovCon bookkeeping provider must go beyond those basics with contract-specific and compliance-specific reporting.
Ask for their standard reporting package. It should include: contract profitability reports by individual contract and CLIN, indirect rate variance reports (provisional versus actual), aging reports for accounts receivable by contract, and contract status reports showing funded versus unfunded values on incrementally funded contracts. Cash flow monitoring matters because government payments average 30 to 45 days, and underbilling on cost-plus contracts creates working capital strain.
The best providers produce a monthly financial monitoring dashboard showing rate trends, contract burn rates, and unbilled cost exposure. Ask how they flag contracts approaching their funding ceiling. Running out of funds on a cost-plus contract without notifying the contracting officer is a compliance violation and a financial disaster.
10. Is a CPA Involved in Overseeing the Work?
CPA oversight is the single clearest quality signal when evaluating a GovCon bookkeeping provider. A CPA brings professional standards, regulatory accountability, and the technical judgment to interpret FAR and CAS requirements correctly. Bookkeeping firms without CPA involvement have no professional body governing the quality of their work.
Ask specifically: does a CPA review the indirect rate calculations, the ICS schedules, and the accounting system design? Or does a CPA sign a tax return once a year without touching the government contract accounting? The distinction matters. CPA-managed means a licensed professional directs the compliance strategy and reviews the work product. CPA-available means they answer questions when asked.
A CPA-managed firm also brings value during DCAA interactions. Auditors assign higher credibility to contractor responses prepared under CPA supervision. The professional credential signals that someone with regulatory accountability stands behind the numbers. Take our Compliance Readiness Check to see how your current provider measures up.
| Evaluation Criteria | Red Flag Answer | Strong Answer |
|---|---|---|
| DCAA audit experience | “We handle audits” (no specifics) | Names audit types, number supported |
| CAS knowledge | “We follow GAAP” | References CAS 401, 402, 405, 418 by number |
| Indirect rates | “We track overhead” | Describes pool structure, allocation bases, variance monitoring |
| ICS preparation | “We help with filings” | Names specific schedules, uses DCAA adequacy checklist |
| Accounting system | “QuickBooks is set up” | References DFARS 252.242-7006 and SF 1408 criteria |
| Timekeeping | “Employees track hours” | Describes total time accounting, floor check preparation, correction policies |
| Unallowable costs | “We remove personal expenses” | Cites specific FAR 31.205 categories, shows written policy |
| Contract types | “We do government work” | Distinguishes FFP, cost-plus, and T&M accounting treatment |
| Reporting | “Monthly P&L and balance sheet” | Contract profitability, rate variance, funding ceiling tracking |
| CPA oversight | “Our CPA does the tax return” | CPA manages compliance strategy and reviews GovCon work product |
Key Takeaways
- DCAA audit experience is non-negotiable. A provider who has never prepared for a specific DCAA audit type (incurred cost, floor check, pre-award survey) is learning on your contract and your dollar.
- Ask for regulation numbers. A qualified GovCon bookkeeping provider references FAR, CAS, and DFARS sections by number. Generalities about “compliance” without regulatory specifics signal surface-level knowledge.
- CPA oversight separates professional service from data entry. CPA-managed bookkeeping means a licensed professional with regulatory accountability directs the compliance strategy, not a technician following templates.
- Test ICS and SF 1408 knowledge early. These two deliverables reveal whether a provider understands government contract accounting at a working level or only knows the vocabulary.
- Your bookkeeper’s limitations become your audit findings. Every gap in your provider’s knowledge shows up as a deficiency when DCAA arrives.
Frequently Asked Questions
What is a DCAA compliant bookkeeping service?
A DCAA compliant bookkeeping service maintains your accounting system to satisfy the adequacy criteria in DFARS 252.242-7006. This includes segregating direct and indirect costs, identifying unallowable expenses under FAR 31.205, maintaining DCAA-compliant timekeeping records, and preparing incurred cost submissions within the six-month filing deadline.
How much does a GovCon bookkeeping provider cost?
GovCon bookkeeping fees typically run higher than general bookkeeping because the work requires FAR Part 31 and CAS expertise. Providers price on monthly retainers, hourly rates, or project fees for specific deliverables like ICS preparation. The cost of specialized bookkeeping is a legitimate indirect expense allocable to your G&A pool.
When should a government contractor hire specialized bookkeeping help?
Hire a GovCon bookkeeping provider before your first contract award, not after. The SF 1408 pre-award survey evaluates your accounting system before the government issues the contract. Setting up a DCAA-adequate system after winning an award puts you behind from day one and risks failing the survey entirely.
What is the difference between a GovCon bookkeeper and a general CPA?
A general CPA knows GAAP and tax law. A GovCon bookkeeping provider adds FAR Part 31 cost principles, Cost Accounting Standards, DCAA audit preparation, incurred cost submissions, and indirect rate management. Most general CPAs have never filed an SF 1408 or prepared an ICS, both of which are routine in government contracting.
Does my bookkeeping provider need to be a CPA firm?
No regulation requires your bookkeeping provider to hold a CPA license. However, CPA-managed firms bring professional standards, regulatory accountability, and technical judgment that non-CPA firms lack. During DCAA audits, auditors assign higher credibility to work products prepared under CPA supervision.
Choosing the right GovCon bookkeeping provider is one of the highest-impact decisions a government contractor makes. The ten questions above separate providers with real DCAA and FAR expertise from those who know the terminology without the working knowledge. If your current provider struggles to answer more than a few of these questions, book a discovery call with Amerifusion Bookkeeping. Our CPA-managed team handles DCAA compliance, indirect rate management, and incurred cost submissions for government contractors across the country.
