FAR Accounting System Requirements

The US Government places special regulations and requirements on accounting systems that contractors utilize. There are DFAR and FAR rules designed to protect the governments interest.

Requirements to Have an Adequate Accounting System

Under FAR 16.301-3 Limitations, a contracting officer may only award a cost-type contract to a contractor who has an accounting system that is adequate for determining costs applicable to the contract.

FAR 16.301-3. 16.301-3 Limitations.

• (a) A cost-reimbursement contract may be used only when—
  • (1) The contractor’s accounting system is adequate for determining costs applicable to the contract; and
  • (2) Appropriate Government surveillance during performance will provide reasonable assurance that efficient methods and effective cost controls are used.
• (b) The use of cost-reimbursement contracts is prohibited for the acquisition of commercial items.

An adequate accounting system is not an evaluation criterion. It is a basic contract requirement with a pass/fail determination. A contract (cost-reimbursement) may only be awarded to an offeror who is determined to have an adequate accounting system audited by DCAA and reviewed and agreed to by DCMA.”

Accounting System Functional Areas

• Timekeeping System
• Indirect and ODC
  • Accounts Payable
• Contracts
• General Ledger
• Chart of Authorities
• Chart of Accounts

• Job Cost (If contract was bid by job which 99.99% are)

• Accounts Receivable
• Capitalization and Depreciation

• Subsidiary Ledger

Elements of an Adequate Accounting System

• • Conforms With Generally Accepted Accounting Principles (GAAP)
• • Produces Equitable Results - Verifiable
• • Applicable to The Contemplated Contract(s)
• • Is Capable of Being Consistently Followed
• • Proper segregation of direct costs from indirect costs
• • Identification and accumulation of direct costs by contract (process or product line o.k., but must be able to get back to the way the jobs were priced)
• • System must have ability to provide financial information as required by the contract
• • Records transactions in proper accounting period
• • Cost are accumulated and identified in the same manner in which they are bid
• • A logical and consistent method for allocation of indirect costs to intermediate and final cost objectives
• • Accumulation of costs under general ledger control
• • A timekeeping system that identifies employees’ labor by intermediate or final cost objectives
• • A labor distribution system that charges direct and indirect labor to the appropriate cost objectives
• • Interim (at least monthly) determination of costs charged to a contract through routine posting to books of account
• • Exclusion from costs charged to Government contracts of amounts that are not allowable pursuant to Federal Acquisition Regulation (FAR) Part 31, Contract Cost Principles and Procedures, or other contract provisions
• • Identification of costs by contract line item and units if required by the proposed contract
• • Segregation of preproduction costs from production costs