Guide · Software or Service
Software gives you a tool. We give you a closed month.
A DCAA compliance add-on for QuickBooks records your time and costs and flags what looks wrong. Someone still has to close the month, compute the rates, and answer the auditor.
- 12 years inside DCAA
- 100+ DoD contractors audited
- CPA led
- QuickBooks, Costpoint, SAP & NetSuite
- Remote, nationwide
The short answer
Software is a tool. An adequate accounting system is people using that tool the same way every month. What an auditor evaluates is the whole thing, which is why a DCAA compliant accounting system is built, not bought. That’s the choice this page is about: buy a DCAA compliance add-on for QuickBooks and do the work in house, or pay someone to do the monthly government contract accounting.
The regulation doesn’t name any product. DFARS 252.242-7006 (renumbered 252.242-7999 under DoD Class Deviation 2026-O0050) defines an accounting system as your “accounting methods, procedures, and controls.” Its 18 criteria include reconciling cost ledgers to the general ledger, approving adjusting entries, determining contract costs at least monthly, excluding unallowable costs, and producing the data the limitation of cost and limitation of funds clauses require. Software helps with several of those. None of them happens without a person.
So the real question isn’t which tool. It’s who does the work every month, and whether they have the knowledge and the hours. For small contractors with 3 to 50 employees and no full-time controller or CFO, that’s usually the owner or a part-time bookkeeper, and that’s where most gaps start.
Side by side
Three ways to get government contract accounting done
The same work has to happen on every path. What changes is who does it, when, and who checks it. For path C, the plan details come from our published prices.
| What gets done | A. Add-on plus your staff | B. Add-on, staff, and a CPA at year end | C. M2 monthly GovCon accounting |
|---|---|---|---|
| Month-end close | Your staff, when their other work allows. The add-on records transactions; it doesn’t close the month. | Your staff, monthly if they have the time. The outside CPA usually sees the books after the year ends. | We do the monthly bookkeeping and close in your own QuickBooks, on a close date set in writing when you start. |
| CPA review | Only if someone on staff is a CPA. | Once a year, after year end, unless you pay for more. | A CPA reviews every month-end close, on every plan. |
| Labor distribution | The add-on can capture time and push labor to contracts. Your staff approve timesheets, fix errors and tie hours to payroll. | Same as A. The CPA may test it after the year ends. | Your employees still enter their own time. We review timesheets against payroll every month and keep job costing by contract. |
| Indirect rates | The add-on computes rates from the pools and bases your staff define. Your staff decide what goes in each pool and compare the result with billing and proposal rates. | Same as A during the year. The CPA may compute final rates for the year. | Cost-Type and Controller plans: monthly fringe, overhead and G&A rates, with provisional billing rates tracked against actuals. Controller adds rate forecasts for proposals. Core does not include rate calculations. |
| Funding and ceilings | Reports can show cost against funding if someone enters and updates the funding. Your staff watch the notice thresholds and write the notice. | Same as A. A year-end review comes too late for these notices. | Every plan: funding and ceilings on each contract checked monthly against the notice thresholds, so you hear about it before the notice is due. Cost-Type adds a quarterly check-in on rates and budget. Controller adds budget versus actual by contract. |
| Incurred cost submission | Your staff prepare it, starting from the add-on’s reports. | Often prepared or reviewed by the outside CPA, at their fees. | Quoted separately. Fixed fee from $4,000 the first year and from $2,500 after, for 1 to 3 contracts with the year’s books closed and reconciled. |
| Audits and data requests | Your staff answer the auditor and pull the data. | Your staff, with the CPA if you engage them for it. | Controller plan includes year-round audit readiness. Audit representation is quoted separately: a fixed fee where scope allows, otherwise $160 an hour with a not-to-exceed cap agreed in advance. |
| What you pay | The add-on subscription, your QuickBooks subscription, and the salary and hours of the person doing the work. All vary. | Everything in A, plus the CPA’s fees for year-end work. Those vary by firm and scope. | From $800 a month (Core), $1,500 (Cost-Type) or $2,500 (Controller), quoted as a fixed monthly figure in writing. QuickBooks and payroll at Intuit’s price on their own line. Incurred cost submissions, tax returns and cleanup quoted separately. |
Paths A and B describe the work, not any one product or firm. What software does, what staff can cover and what a CPA charges all vary, so we don’t put numbers on them. Items in square brackets are not yet part of our published plans.
Credit where due
What software does well
Good software makes the routine parts consistent. Depending on the product, a DCAA compliance add-on for QuickBooks can take real work off your plate.
If your problem is inconsistent timekeeping or a rate spreadsheet that breaks, software fixes a real problem. Our DCAA timekeeping policy guide covers what the time records need to show, whatever tool captures them.
Timekeeping
Daily time entry by project and indirect code, supervisor approval, and a record of every change.
Labor distribution
The same distribution logic applied to every payroll, instead of a spreadsheet rebuilt each month.
Rate arithmetic
Fringe, overhead and G&A calculated from the pools and bases you set up, without formula errors.
Reports on demand
Job cost, budget and rate reports without exporting to Excel.
Flags
Missing timesheets, charges to closed jobs, or entries that break a rule you defined.
A record
An audit trail showing who entered and changed what, which an auditor expects to see.
The limits
What software can’t do
Software applies rules. It can’t decide what the rules should be, or notice when a transaction was coded wrong in a way no rule catches. That judgment is most of what an auditor tests.
Decide whether a cost is direct or indirect
The same kind of cost has to be treated the same way every time. Software posts what it’s told. Someone has to know that a travel bill for one contract is direct and the same trip for business development is indirect.
Catch an unallowable in the wrong account
FAR 31.201-6 requires expressly unallowable costs to be identified and excluded from any billing, claim or proposal. Alcohol coded to meals looks like any other meal to the software. A reviewer reading the detail catches it.
Reconcile and find the reason
A report can show that job cost doesn’t tie to the general ledger, or that timesheet hours don’t match payroll. A person has to find out why and fix it before the period is locked.
Decide your rates
Which pools you need, what base each one uses, and what to do when actual rates drift away from your provisional billing rates are decisions. The software does the math after someone makes them.
Send the funding notice
The limitation clauses require you to notify the contracting officer in writing, with a revised estimate. A dashboard can show the burn. It can’t judge what the next 60 days will cost or write the letter.
Sit across from the auditor
In a walkthrough, the auditor asks someone to trace a timesheet to payroll to the contract and explain each step. That person needs to understand the system, not just operate it.
Funding
Why funding monitoring is a monthly job
The notice clauses look ahead, so a year-end review can’t satisfy them. Someone has to compare incurred cost and the next month or two of expected cost to the contract’s limit every month.
- Fully funded cost-reimbursement contracts. Under FAR 52.232-20, Limitation of Cost, you notify the contracting officer in writing when you have reason to believe the costs you expect to incur in the next 60 days, added to costs already incurred, will exceed 75 percent of the estimated cost. You also notify when total cost will be greater or substantially less than estimated, and include a revised estimate.
- Incrementally funded cost-reimbursement contracts. FAR 52.232-22, Limitation of Funds, uses the same 60-day, 75 percent test against the amount the government has allotted so far.
- Time-and-materials and labor-hour contracts. Under FAR 52.232-7, paragraph (d), you notify the contracting officer with a revised estimate when payments and material costs accruing in the next 30 days, added to what has already accrued, will exceed 85 percent of the ceiling price.
Read your contract. FAR 32.706-2 lets the contracting officer change the 60 days to anywhere from 30 to 90 days, and the 75 percent to anywhere from 75 to 85 percent, in the two cost-type clauses. The stakes are real: under both cost-type clauses, the government isn’t obligated to reimburse cost above the estimated cost or allotted funds unless the contracting officer increases them in writing.
Fit
When each path fits
Each path is the right answer for some contractors. Here’s how we’d sort it if you asked us.
Add-on plus your own staff
Fits when you already have a strong in-house accountant who knows the FAR cost principles and has time to close every month, compute and compare rates, and watch funding. If that’s you, buy the tool and run it yourself. Paying us to do the same work may not add much, and we’ll say so on the call.
Add-on, staff, and a CPA at year end
Fits a capable bookkeeper with a few simple contracts and little funding risk, who wants an expert look at the year and help with the incurred cost submission. The catch: anything found at year end is up to a year old, and funding notices can’t wait that long.
Monthly government contract accounting
Fits contractors with 3 to 50 employees and no full-time controller or CFO, where the owner or a part-time bookkeeper keeps the books today. Common triggers: a first cost-type award, an SBIR Phase II, several T&M or cost-type contracts, or a DCAA letter on QuickBooks books.
Within path C, the plan follows the work. Core fits up to about 7 employees on one or two government contracts. Cost-Type fits cost-type or T&M work, or staff in several states. Controller fits up to 50 employees with several cost-type contracts and no full-time controller. Details are on our pricing page.
Cost recovery
How the cost of each path is recovered
The same way on all three. Accounting and bookkeeping costs are ordinary indirect costs, usually in G&A, and generally allowable if reasonable and allocable. On cost-type contracts you recover them through your indirect rates. On firm-fixed-price work they’re part of the price you bid. That applies to an in-house accountant’s salary and to outside fees alike, so compare the paths on what gets done, not on who pays.
If you’re on QuickBooks now, start with our QuickBooks setup guide. If you’re weighing a move to a GovCon ERP instead of an add-on, see Costpoint alternatives for small contractors.
Questions
Frequently asked
Does a DCAA compliance add-on make QuickBooks DCAA compliant?
No software is DCAA compliant by itself. DFARS defines an accounting system as your methods, procedures and controls. An add-on can make timekeeping, labor distribution and rate math more consistent, but the system is only adequate if people run it correctly every month.
Do I still need an accountant if I buy DCAA compliance software?
Usually, yes. Someone has to close the books each month, review how costs are coded, compute and compare indirect rates, watch contract funding and answer the auditor. That person can be on your staff if they have the knowledge and the hours.
When is software plus in-house staff the better choice?
When you already have an experienced accountant who knows the FAR cost principles and has time to close every month and compute rates. Then an add-on is a sensible tool for that person, and outsourcing the monthly work may not add much.
What does outsourced government contract accounting cost?
Our monthly plans start at $800 a month (Core), $1,500 (Cost-Type) and $2,500 (Controller). We quote a fixed monthly figure in writing after we see your file. QuickBooks and payroll are on their own line at Intuit’s price. Incurred cost submissions and tax returns are quoted separately.
Can I keep QuickBooks if I outsource?
Usually. We do the monthly bookkeeping in your own QuickBooks when it can be set up correctly: contracts as projects, direct and indirect costs split, separate unallowable accounts and project-level timekeeping.
When do I have to notify the contracting officer about funding?
Under the standard cost-type clauses, when costs expected in the next 60 days plus costs already incurred will exceed 75 percent of the estimated cost or allotted funds. Under the standard T&M clause, when the next 30 days will take you past 85 percent of the ceiling price. Your contract can set different figures, so check it.
Is outsourced accounting an allowable cost?
Generally, yes. Accounting and bookkeeping are ordinary indirect costs, usually in G&A, and generally allowable if reasonable and allocable. On cost-type contracts you recover them through your indirect rates. On firm-fixed-price work they are part of the price you bid.
More
Related services and guides
DCAA compliant accounting software: what actually exists
No product is DCAA approved. What gets evaluated instead, and what QuickBooks, Unanet and Costpoint each solve.
Guide: Is QuickBooks DCAA compliant?
How to set QuickBooks up for government contracts: projects, accounts, timekeeping and rates.
Guide: Costpoint alternatives
QuickBooks, add-ons and GovCon ERPs compared for contractors with 3 to 50 employees.
SF 1408 readiness self-check
11 questions, about 3 minutes. See which parts of your system an auditor would flag.
Government contract accounting
Monthly bookkeeping, job costing and rates for small federal contractors.
Alexander Mungov, CPA
Founder and principal, M2 CPA
Alexander Mungov spent twelve years at the Defense Contract Audit Agency, in the Denver, European and Afghanistan branch offices, finishing as a Supervisory Auditor leading a team of six. He then built and ran the FAR, DFARS and CAS compliance program inside a defense technology company, as the primary liaison with DCAA and DCMA.
He founded M2 CPA to give small and mid-size contractors the compliance support that large primes take for granted. More about Alex.
Want a closed month, every month?
Tell us your contract types and how you keep the books today. We’ll tell you which path fits, including when it’s the add-on and your own staff.