Government contract accounting operates under a fundamentally different set of rules than commercial accounting. The Federal Acquisition Regulation (FAR) and Defense Contract Audit Agency (DCAA) requirements demand specific cost segregation, documentation practices, and accounting system capabilities that standard bookkeeping cannot provide. A non-compliant accounting system creates contract risk, potential cost disallowance, and compliance gaps that compound over time.
Lisa Hamlin currently serves as Director of Finance managing 10+ active government contracts, including Department of State and Department of Defense engagements with operations in the United States, Bahamas, Canada, and Switzerland. She maintains DCAA-compliant accounting systems across all active contracts daily. This is hands-on, current operational experience applied to small contractors who need compliant infrastructure without hiring a full-time finance director.
FAR Part 31 and allowable costs
FAR Part 31 governs cost accounting for government contracts and defines which costs are allowable, allocable, and reasonable for inclusion in government contract billing. Costs that do not meet the FAR Part 31 standard, entertainment, certain bonuses, unallowable interest, must be tracked separately and excluded from any government billing. Failing to segregate unallowable costs is one of the most common compliance deficiencies in small contractor accounting systems.
Understanding which costs are allowable under your specific contract type directly affects how much you can bill and how defensible your accounting records are if reviewed.
Building and maintaining a DCAA-compliant accounting system
The Defense Contract Audit Agency evaluates contractor accounting systems for adequacy, meaning whether the system can accurately accumulate and report costs under government contracts. An adequate accounting system must segregate direct from indirect costs, track labor to the correct contract, exclude unallowable costs from billing, and produce consistent financial reports that tie to contract invoices.
Book It Accounting builds and maintains accounting systems that meet these structural requirements. The work involves configuring the chart of accounts correctly, establishing cost pools for indirect expenses, setting up job cost tracking by contract and CLIN, and ensuring the financial data is organized in a way that supports compliant billing throughout the contract period.
Indirect rate development and tracking
Indirect costs, fringe benefits, overhead, and G&A, cannot be charged directly to government contracts. They must be accumulated in separate cost pools and allocated through indirect rates applied to an appropriate base. Developing defensible, consistently-applied indirect rates is one of the most technically demanding aspects of government contract accounting.
Book It Accounting assists with provisional rate development at the start of the contract year, maintains the rate structure in QuickBooks throughout the year as actual costs accumulate, and reconciles provisional rates against actuals at year-end. Indirect rate calculations are documented monthly so there are no surprises if your rates are reviewed.
Who needs this service
Any small business performing under a cost-reimbursable contract, CPFF, CPIF, or Time-and-Materials, must maintain an accounting system that can accurately accumulate and report contract costs. This includes subcontractors on prime contracts. The Dahlgren, Virginia area has one of the highest concentrations of Navy and defense-related contractors in the Commonwealth. Many are small companies with strong technical capability but limited accounting infrastructure designed for government contract compliance.
Book It Accounting serves this community specifically, providing FAR-compliant accounting system setup, indirect rate development, and ongoing bookkeeping with the cost segregation structure government contracts require.
A new government contract accounting engagement begins with an assessment of your current accounting system, whether you are using QuickBooks, another package, or a combination of tools, and an evaluation of whether your existing setup has the structural requirements for compliant billing. Most small contractors in their first government contract engagement find gaps that need to be addressed.
From the assessment, Book It Accounting provides a specific list of changes needed, a timeline for implementation, and an ongoing engagement structure for maintaining compliance throughout the contract period. The engagement typically includes monthly bookkeeping with proper cost segregation and quarterly indirect rate calculations. All work is documented in a format organized to support contract billing.
Book It Accounting is based in King George, Virginia and serves Dahlgren-area contractors with the same depth of government contract accounting expertise available in larger metro areas, without requiring clients to work with a firm in Northern Virginia or Washington, D.C. that has no local knowledge of the contracting environment. Virtual service delivery means the engagement works equally well for contractors throughout the region and nationwide.
For contractors evaluating whether to pursue their first government contract, Book It Accounting can provide a preliminary assessment of what accounting system changes would be needed to support compliant billing, before the proposal is submitted and before any contract is awarded. Understanding the compliance infrastructure cost of winning a government contract is part of the go/no-go decision.
- DCAA-compliant accounting system setup and maintenance
- Direct and indirect cost segregation per FAR Part 31
- Indirect cost rate development, fringe, overhead, and G&A
- Job cost accounting by contract, CLIN, and task order
- Monthly contract-level financial reporting
- Timesheet and labor distribution tracking
- Quarterly indirect rate calculations and reconciliation
- Chart of accounts structured for government contract compliance