4.705-1 Financial and cost accounting records
Source: FAR 4.705-1 on acquisition.gov
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.
(a) Accounts receivable invoices, adjustments to the accounts, invoice registers, carrier freight bills, shipping orders, and other documents which detail the material or services billed on the related invoices: Retain 4 years.
(b) Material, work order, or service order files, consisting of purchase requisitions or purchase orders for material or services, or orders for transfer of material or supplies: Retain 4 years.
(c) Cash advance recapitulations, prepared as posting entries to accounts receivable ledgers for amounts of expense vouchers prepared for employees’ travel and related expenses: Retain 4 years.
(d) Paid, canceled, and voided checks, other than those issued for the payment of salary and wages: Retain 4 years.
(e) Accounts payable records to support disbursements of funds for materials, equipment, supplies, and services, containing originals or copies of the following and related documents: remittance advices and statements, vendors’ invoices, invoice audits and distribution slips, receiving and inspection reports or comparable certifications of receipt and inspection of material or services, and debit and credit memoranda: Retain 4 years.
(f) Labor cost distribution cards or equivalent documents: Retain 2 years.
(g) Petty cash records showing description of expenditures, to whom paid, name of person authorizing payment, and date, including copies of vouchers and other supporting documents: Retain 2 years.