Your DCAA problem isn’t QuickBooks. It’s your timesheets.

I've spent more than a decade helping small government contractors with their accounting. When one is nervous about a review by the Defense Contract Audit Agency, they usually assume the books are the problem. In my experience the books are usually fine. The weak spot is timekeeping and labor distribution, and most of the time you can fix that without replacing QuickBooks.

Does QuickBooks meet DCAA requirements on its own?

No. QuickBooks Online is one of the most popular accounting programs out there, especially among small and mid-size businesses, and it's a solid general ledger. It wasn't built for government contracting, though. Out of the box it isn't set up for daily timekeeping by project with a protected history of every change, or for distributing labor across contracts and indirect pools.

One thing worth clearing up first. DCAA does not certify or approve software. There is no "DCAA-approved" logo to buy. DCAA audits your process, not your product. So, the real question was never "is QuickBooks compliant?" It's "does the process I've built on top of QuickBooks hold up?"

What DCAA actually audits

Before a first cost-type award, DCAA can review your accounting system against the criteria on Standard Form 1408. Most of them are about the books. Two are about labor: a timekeeping system that ties each person's hours to a contract, and a labor distribution system that charges that labor to the right place. Those two are where I see small contractors get stuck most often.

Labor gets this attention because nothing outside the company backs it up. A material purchase has a vendor invoice behind it. An hour of labor has only the employee's timesheet. That's why DCAA performs unannounced floor checks, interviewing employees to confirm they are at work and charging the right job.

Where spreadsheets stop working

Many small contractors start on spreadsheets, and it makes sense, because everyone knows Excel. As the company grows, that setup gets harder to defend. DCAA's manual expects:

• Daily entry by each employee, against the right project or contract. A spreadsheet can't stop someone from filling in the week on Friday.
• All hours recorded, paid or not, certified by the employee and approved by a supervisor.
• A record of every change: the original charge, the correction and the employee's concurrence. In a spreadsheet the cell just gets overwritten.

Then comes the step many small contractors miss. Labor distribution turns approved hours into dollars, and the records should reconcile to payroll and trace to the general ledger. QuickBooks can hold the journal entry. It won't calculate the distribution across pools or link that entry back to the approved timesheets. That gap is where I've spent most of my time with GovCon clients.

The same records show you your margins

When every hour is recorded by contract and distributed to that job, you can compare what the job has cost so far against what you priced it at, while the work is still running. That's your margin on that contract. A payroll report can't show it, because it tells you what you paid people and not which job they worked on. This matters more now that a 2026 executive order tells agencies to use fixed-price contracts to the maximum extent the law allows. On a fixed-price job the price doesn't move, so every extra hour comes out of your margin. If you see a job running over in month two, you still have time to act. Even a contractor who never sees a DCAA auditor gets that out of good timekeeping.

Do you need Deltek or Unanet to be compliant?

No. DCAA doesn't require any particular system. Deltek Costpoint and Unanet are strong products, but they are full ERPs, complex to set up and to run. A company with heavy cost-type work may well need one. In practice, a small contractor has two paths:

• Keep QuickBooks and add what's missing. Many contractors start with spreadsheets, which work for a few people on one contract. From there, the options are a DCAA timekeeping app, with labor distribution usually calculated outside it, or a compliance layer that handles both and posts the journal entry back to the ledger.
• Replace QuickBooks with a full GovCon ERP. That's a complex project: you rebuild on new software, migrate your data, and budget for implementation and training, and it usually takes months.

For a small contractor, especially one preparing for a first award, the first path is usually the right size. You keep the books and the people who already know them.

Why I ended up building a tool

For a long time, labor distribution at my firm meant careful manual work, allocating every employee's hours across every contract and pool. With twenty employees, one broken formula can throw off a year of labor totals. When a client won cost-plus work, the usual advice was to move to Deltek or Unanet. That never sat well with me. QuickBooks is affordable, most accountants already know it, and help is easy to find. It just doesn't do labor distribution or indirect rates.

The problem seemed solvable, so I co-founded WiseCost, which does that work on top of QuickBooks Online. I'm not a neutral reviewer here, so whatever tool you look at, check that it covers the whole path from the daily time entry to the journal entry in the ledger.

Where to start

Staying on QuickBooks won't cover everything. If you have significant cost-type work or owe an annual incurred cost submission, bring in a GovCon CPA. If your first review is coming up, you can start this week, without leaving QuickBooks:

• Have every employee record time daily, by contract.
• Write down your timekeeping policy, including how corrections get documented.
• Pick one recent pay period and trace it from the timesheet to payroll to the journal entry in QuickBooks. If you can't follow that trail, an auditor can't either.

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  Brian Wendroff, CPA, is managing partner of Wendroff & Associates, CPAs, in Arlington, and co-founder of WiseCost, a job-costing and timekeeping platform for government contractors. He advises government contractors and the CPA firms that serve them on DCAA compliance.