The requirements for an adequate accounting system that support cost reimbursable contracts are established by the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS), and generally include the following:
- Proper segregation and identification of direct and indirect costs: The accounting system must be able to properly segregate direct costs (i.e., costs that are specifically identifiable with a particular contract or task) from indirect costs (i.e., costs that are not directly identifiable with a particular contract or task).
- Accurate and timely cost accumulation: The accounting system must be capable of accumulating costs on a timely and accurate basis, using a logical and consistent method.
- Timekeeping system: The accounting system must have an adequate timekeeping system that captures the employee’s time worked, including start and stop times, time charged to each contract, and any leave taken.
- Labor distribution system: The accounting system must be able to distribute labor costs accurately to the appropriate contracts, based on the employee’s time charged to each contract.
- Job cost accounting system: The accounting system must have a job cost accounting system that can accumulate and report costs by contract or task.
- Budget and planning system: The accounting system must have an effective budget and planning system that can project future costs and compare actual costs to the budget.
- Cost control system: The accounting system must have a system of internal controls that ensures costs are properly authorized, accounted for, and allocated to the correct contract or task.
- Invoicing system: The accounting system must be capable of producing accurate and timely invoices that reflect costs incurred on the contract.
These requirements are designed to ensure that contractors have an accounting system that can support cost reimbursable contracts and can accurately and efficiently track and report costs to the government.
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