FAR 4.705-1—Financial and cost accounting records.
Plain-English Summary
FAR 4.705-1 sets the retention periods for specific financial and cost accounting records used to support federal contract transactions. It covers accounts receivable invoices and related adjustments, invoice registers, carrier freight bills, shipping orders, material/work/service order files, cash advance recapitulations tied to employee travel, paid/canceled/voided checks other than payroll checks, accounts payable records supporting disbursements for materials and services, labor cost distribution cards or equivalent records, and petty cash records with supporting vouchers. The purpose is to ensure that contractors and other record holders keep enough documentation available to support billing, payment, cost accumulation, and audit review for the required period. In practice, this section helps contracting officers, auditors, and contractors know which records must be preserved and for how long so that costs, invoices, and disbursements can be verified if questioned later. It is a records-retention rule, not a payment or allowability rule, but it directly affects the contractor’s ability to substantiate charges and the Government’s ability to audit them. The section is especially important because these records often support indirect cost proposals, incurred cost submissions, invoice validation, and other financial reviews long after the transaction occurred.
Key Rules
Receivables records: 4 years
Keep accounts receivable invoices, invoice adjustments, invoice registers, carrier freight bills, shipping orders, and similar documents that detail the material or services billed on related invoices for 4 years. These records show what was billed and support the accuracy of receivable activity.
Material and order files: 4 years
Retain material, work order, and service order files, including purchase requisitions, purchase orders, and transfer orders for material or supplies, for 4 years. These records document the basis for ordering, transferring, and tracking materials or services tied to contract performance.
Travel cash advances: 4 years
Keep cash advance recapitulations used as posting entries to accounts receivable ledgers for employee travel and related expense vouchers for 4 years. They support reconciliation of advances against travel expenses and repayments.
Non-payroll checks: 4 years
Retain paid, canceled, and voided checks other than those issued for salary and wages for 4 years. These records help verify disbursements and trace payments to vendors or other recipients.
Accounts payable support: 4 years
Keep accounts payable records supporting disbursements for materials, equipment, supplies, and services for 4 years, including remittance advices, vendor invoices, invoice audits, distribution slips, receiving and inspection reports or equivalent certifications, and debit and credit memoranda. These documents substantiate that the Government-related disbursement was properly supported and received.
Labor distribution records: 2 years
Retain labor cost distribution cards or equivalent documents for 2 years. These records support the allocation of labor costs and are often critical to verifying direct and indirect labor charges.
Petty cash records: 2 years
Keep petty cash records showing the expenditure description, payee, authorizing person, and date, along with vouchers and supporting documents, for 2 years. These records document small cash expenditures and the authority for those payments.
Responsibilities
Contractor
Maintain the listed financial and cost accounting records for the required retention periods, ensure the records are complete and traceable to the underlying transactions, and preserve supporting documents such as invoices, receipts, receiving reports, vouchers, and authorizations.
Contracting Officer
Rely on these retention requirements when requesting records, evaluating whether documentation should still be available, and determining whether a contractor’s recordkeeping practices support contract administration and audit needs.
Auditors and reviewers
Use the retained records to verify billed amounts, disbursements, labor allocations, and petty cash expenditures, and assess whether the contractor can substantiate claimed costs and payments during the retention period.
Agency
Apply the retention framework consistently in contract administration and oversight, and coordinate with audit or investigative personnel when records are needed for review within the applicable retention period.
Practical Implications
Contractors should map these record types to their accounting systems so they do not accidentally destroy supporting documents too early, especially after contract closeout or fiscal year-end cleanup.
The shorter 2-year retention for labor distribution and petty cash records is easy to miss; if those records support an incurred cost submission, audit, or dispute, they may need to be preserved longer under another applicable rule or litigation hold.
These records often exist in multiple systems or formats, so contractors should keep both electronic and paper versions, or ensure the electronic copy is complete, readable, and retrievable for the full retention period.
A common pitfall is treating payroll checks as covered by this subsection; the rule expressly excludes checks issued for salary and wages, so those may be subject to different retention requirements.
If a claim, audit, protest, investigation, or litigation is pending, normal destruction schedules should be suspended even if the FAR retention period has expired, because other legal or contractual obligations may require continued preservation.
Official Regulatory Text
(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.