DoD Contractors receiving cost-reimbursement, incentive type, time-and-materials, or labor-hour contracts or contracts which provide for progress payments based on costs or on a percentage or stage of completion, must maintain adequate accounting systems.
"Accounting system" means the contractor's system or systems for accounting methods, procedures, and controls established to gather, record, classify, analyze, smmarize, interpret, and present accurate and timely financial data for reporting in compliance with applicable laws, regulations, and management decisions.
The contracting officer, in consultation with the auditor (or functional specialist) determines the acceptability of a contractor's accounting system and approves or disapproves the system and, if necessary, pursues correction of any deficiencies.
In evaluating the acceptability of a contractor's accounting system, the contracting officer, in consultation with the auditor shall determine whether the contractor's accounting system complies with the system criteria for an acceptable accounting system as prescribed in DFARS (DoD FAR Supplement) 252.242-7006.
An acceptable accounting system is one that complies with eighteen different criteria listed in the aforementioned DFARS reference and provides reasonable assurance that applicable laws and regulations are complied with, is reliable, minimizes risk of misallocations and mischarges and consistent with billing procedures.
A "significant deficiency" in the case of a contractor business system means a shortcoming in the system that materially affects the ability of officials of the Department of Defense to rely upon information produced by the system that is needed for management purposes.
Failure to maintain an acceptable accounting system could result in withholding of payments for CAS covered contractors but might also result in disapproval of the system. A disapproved accounting system will likely prevent companies from winning competitive bids.