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DoD SBIR Accounting System Requirements

Posted by Ed Bard on

SBIR Accounting Requirements

The DoD expects a higher level of small business accounting sophistication between Phase I and Phase II. With Phase I SBIR or STTR awards, the Federal government usually expects the small business to have a basic system due to the low dollar amount. For a potentially 10-fold increase in dollars, Phase II contracting officers need to be confident that you have, among other things, accurately estimated your indirect rate. The ability to calculate an accurate indirect rate comes from a good accounting system that differentiates direct from indirect costs while also isolating unallowable costs.  It is suggested that companies interested in pursuing Phase II SBIR contracts and other contracts of similar size with the Department of Defense (DoD), have an adequate accounting system per General Accepted Accounting Principles (GAAP), Generally Accepted Government Auditing Standards (GAGAS), Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS) in place.

The accounting system can be audited by the Defense Contract Audit Agency (DCAA).  DCAA’s requirements and standards are available on their Website at:  and click on “Guidance” and then click on “Audit Process Overview – Information for Contractors,” and also at:  and click on “Checklists and Tools” and then click on “Pre-award Accounting System Adequacy Checklist”.

The general acceptable accounting system your organization uses must provide reasonable assurance that it is:

  • Compliant with the applicable laws and regulations
  • Reliable
  • At minimal risk for misallocations and mischarges
  • Consistent for billing procedures in respect to contract allocations and charges 

More specifically your system should:

  • Segregate Direct and Indirect Costs
  • Accumulate all costs under the general ledger
  • Have a time keeping system and accurately charge direct and indirect labor correctly
  • Provide for at least monthly determination of costs charged to the contract
  • Identify and segregate unallowable costs
  • Identify costs by Contract Line Item (CLIN)
  • Provide reliable date for pricing follow-on acquisitions

DCAA Small Business Seminars

DCAA offers targeted information to assist with audit issues that relate to small businesses. Access presentations below for help on specific topics important for smaller contractors:

Checklists & Tools

Additional Links, References and Contact Information

Helpful Tip:  For those seeking a bit further information, you can take the DCAA training course here:


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