DCAA Accounting System Conversion FAQ

What is an accounting system conversion? 

An accounting system conversion, or migration, is the process of moving from one accounting system to another. It involves transferring and evaluating every financial record, including the general ledger, accounts receivable, accounts payable, payroll data, fixed assets, open transactions, chart of accounts, workflows, and reporting structures. Because of this complexity, a conversion requires a strategic plan to manage the risks and disruptions it brings to an organization’s financial data. 

Why are accounting system conversions different for government contractors? 

The DCAA reviews government contractor accounting systems for compliance with federal regulations. As outlined in the Defense Federal Acquisition Regulation Supplement (DFARS), these requirements mirror and expand upon the standards in the Federal Acquisition Regulation (FAR), with heightened scrutiny on direct and indirect cost segregation, timekeeping controls, and cybersecurity standards. No specific accounting software is inherently DCAA-approved, so business owners should understand what to look for in their current system before beginning a conversion. 

What signs show my accounting system no longer meets DCAA requirements? 

Contractors most often consider a conversion when their system no longer meets compliance requirements as the business scales and pursues larger, more complex contracts. Sound accounting practices that work for tax purposes will not necessarily meet DFARS compliance standards, which is why many contractors reference resources, such as SF 1408 pre-award accounting system FAQs, to understand exactly what auditors look for. Common limitations include: 

• Segregation of direct and indirect costs 
• Job costing 
• Project tracking 
• Timekeeping controls 
• Clear, readily available documentation 
• Specific billing formats 

As a contractor’s business grows, its accounting system must track, report, and support this information at a granular level, which is a significant undertaking for an internal accounting team. 

Why does converting during a DCAA audit create compounding risk? 

Preparing for an audit and preparing for a conversion are both time-consuming, costly endeavors on their own. Tackling them at the same time can leave a contractor playing catch-up once a post-award audit is underway and auditors are testing execution rather than design. 

How do I prepare for a DCAA-compliant accounting system conversion? 

Before migrating, your team should understand the distinct requirements of government contracting accounting systems to confirm the new system will meet DCAA regulatory standards. 

Start with a general evaluation of your current system and chart of accounts 

Start with the chart of accounts, the backbone of the accounting system, and determine whether it follows a logical, consistent cost structure detailed enough to support the cost segregation criteria in DCAA’s pre-award accounting system checklist. From there, assess the accounting policies manual or documentation, since your team should be able to trace how time, labor, and billing are tracked if a problem arises. Other areas of review often include the transition from cash to accrual-basis accounting, required for most government contractors, and labor distribution, to confirm that actual costs are properly mapped to what is being billed. 

Get your books audit-ready before the conversion begins 

If a current system falls short of DCAA standards and a conversion is necessary before an audit, the priority should be to get the books into audit-ready shape first and resolve compliance gaps before the conversion begins. Once the audit is complete and the records are clean and well-organized, compliant accounts are far easier to migrate accurately. 

Should government contractors outsource an accounting system conversion? 

Transitioning to a new accounting system is not just a software change. It requires careful planning and disciplined execution that can take an in-house accountant years to complete. Outsourcing reduces the timeline, lowers risk, and lets business owners stay focused on contract performance rather than the mechanics of migration. If you are considering an accounting system conversion or using Unanet as your enterprise resource planning (ERP) system, connect with our outsourced accounting team to talk through your next steps.