4.705-1
Financial and cost accounting records
Contractors must retain key financial and cost accounting records for 2 to 4 years to comply with government audit and oversight requirements.
Overview
FAR 4.705-1 establishes mandatory retention periods for various types of financial and cost accounting records maintained by contractors performing government contracts. The regulation specifies how long contractors must keep specific documents such as invoices, accounts receivable, accounts payable, labor cost records, and petty cash records. These requirements are designed to ensure that records are available for audit, review, and verification by government agencies for a defined period after their creation or use.
Key Rules
- Invoices and Related Documents
- Retain accounts receivable invoices, adjustments, invoice registers, carrier freight bills, and shipping orders for 4 years.
- Material and Service Order Files
- Retain purchase requisitions, purchase orders, and transfer orders for 4 years.
- Cash Advance Recapitulations
- Retain records of cash advances for employee travel and related expenses for 4 years.
- Checks (Non-Salary/Wages)
- Retain paid, canceled, and voided checks (excluding salary/wages) for 4 years.
- Accounts Payable Records
- Retain supporting documents for disbursements (e.g., remittance advices, vendor invoices, receiving reports) for 4 years.
- Labor Cost Distribution Records
- Retain labor cost distribution cards or equivalent documents for 2 years.
- Petty Cash Records
- Retain petty cash records and supporting documents for 2 years.
Responsibilities
- Contracting Officers: Ensure contractors are aware of and comply with record retention requirements.
- Contractors: Maintain and retain specified financial and cost accounting records for the required periods.
- Agencies: May audit or review records within the retention period.
Practical Implications
- This section exists to facilitate government audits and oversight by ensuring records are available for a sufficient period.
- Contractors must implement robust recordkeeping systems and monitor retention schedules to avoid premature destruction of records.
- Failure to comply can result in audit findings, penalties, or disallowance of costs.