Handicap System calculates exact USGA Indexes...however USGA does not "approve" or recommend any software.  See the USGA FAQ's for details (Section 10) or this specific software FAQ question: Does the USGA® offer or recommend any handicap software? 
Handicap System calculates exact USGA Indexes...however you must meet the definition of a golf club to issue USGA Indexes. See Section 2 of the USGA Handicap System manual.

Please see How are USGA \ RCGA handicap indexes calculated?

Our software calculates exact USGA indexes...and is compliant with USGA rules in every way. An organization does not have to use specific software to issue official USGA handicaps. For details on USGA handicapping rules see links above. You will find nowhere that the USGA says you have to use specific software to provide an official index. However if your local association refuses to accept indexes calculated from other software, there is little GolfSoftware.com can do....except to say this violates USGA rules on handicapping. Over the years, we actually have more and more customers of handicapping services moving to our software, because the cost is so much less...and they get the same exact Index calculated with our software that they would get from the handicapping service. Since some handicapping services charge $10-$15 per golfer per year, the cost can add up. We have some clubs that use our software for their local needs and only purchase the handicapping service for the few golfers that actually need an "official" handicap. They use our software to do all their handicapping...but can say that these few golfers have an "official" handicap just because they have paid the $15 handicapping service fee. Crazy isn't it???

For more information, see USGA/RCGA Mode.

More about USGA Handicapping

The USGA made changes to the USGA handicap system in 1998 and 1999, 2000, and 2002 which we implemented in our Handicap System software.

We receive questions about which kinds of groups/clubs can issue handicaps. Our software has the capability of issuing both USGA (United States Golf Association) handicaps and "local" (NON-official) handicaps. Any group/club can issue "local" handicaps, because they are not official handicaps. However, if a club wants to issue USGA handicaps they must comply with guidelines set by the USGA. The USGA publishes these guidelines in the "USGA Handicap System Manual". Call the USGA at 908-234-2300 to order this manual, or visit USGA Handicap System manual to see the manual and guidelines online. As long as your organization follows USGA guidelines you can use our software to issue USGA handicaps. Our software calculates exact USGA indexes. The handicap services you send a golfer's scores to, calculate the index and send your club back a card. Our software calculates the same index as you would receive from such a service.

The Handicap System can calculate indexes and handicaps using the exact USGA (United States Golf Association) calculation formulas and nomenclature. This also includes the "Reduction of Handicap Index for Exceptional Tournament Performance". If a player consistently scores better in tournaments, his\her handicap is subject to adjustment by the "USGA Handicap Index for Exceptional Tournament Performance."
 
Brief Overview of USGA Requirements

Below is a brief overview of requirements required by USGA to issue USGA handicaps. The basic qualification is called peer review. The USGA's peer review requirements are paramount for any golf club that wishes to issue USGA Handicap Indexes to its members. In brief, peer review means that golfers regularly play together. Scores are posted personally, in a timely manner, at a common location. Reports are posted for all to see and "peers" have an opportunity to know what scores other "peers" are posting. In essence, the purpose of peer review is to keep all golfers honest. These are excerpts from the "USGA Handicap System Manual":
 
Section 2 of the USGA Handicap System Manual defines a golf club as follows:
A "golf club" is an organization of at least ten individual members, that operates under bylaws with a Handicap Committee to supervise golf activities, provide peer review, and maintain the integrity of the USGA Handicap System. Members of a golf club must have a reasonable and regular opportunity to play golf with each other. They must be able to return scores personally, and these scores must be available for review by fellow club members. Note: For administrative reasons, some golf associations may require a golf club to have more than the USGA minimum of ten members in order for that club to be a member of the golf association.
 
The following USGA Handicap Decisions further clarify the USGA Handicap System requirements for a golf club:
 
1. Golf Club Composed of Company Employees
Q: A group of 52 employees of our company formed a golf club. The members work at the same office and play in a weekly league after work. We have by-laws based on the USGA's sample "By-Laws for a Club Without Real Estate" with officers and meetings. A Handicap Committee has been formed and Handicap Reports are posted on a bulletin board for all to see. Scores are personally posted by the members and reviewed by the Handicap Committee. All other requirements of the USGA Handicap System are followed. Is this group a "golf club" for purposes of the USGA Handicap System so that it can issue Handicap Indexes to its members?
 
A: Yes. Peer Review standards are being met as members have a reasonable and regular opportunity to play golf with each other, as well as review scores posted and the Handicap Committee has the reasonable opportunity to provide its necessary peer review oversight requirements set forth in Section 8.
 
2. Clarification of Term "Golf Club"
Q: Membership in a golf organization is open to any player living within a large geographic area. In general, the members play at different golf facilities within the area, and do not normally play golf with one another. Only a small percentage of the members ever compete together. Is this organization a "golf club" within the meaning of the term in Section 2?
 
A: No. Section 2 states that in order for an organization to be considered a golf club, "members must have a reasonable and regular opportunity to play golf with each other."
 
 3. Club Members at a Driving Range Issued USGA Handicaps
Q: May a driving range sell memberships to its customers in order to issue USGA Handicap Indexes?
 
A: No. Hitting balls at the same driving range does not provide the opportunity to play golf together as required in the definition of a golf club.
 
 4. Organization Recruiting Members Through Advertisement
Q: An organization places an advertisement in a public newspaper inviting golfers to join a group that it calls a "golf club." The golfer is asked to sign-up by mail and mail in a check to a central office where a "Handicap Committee" resides. In return, he will receive a Handicap Index. Members are invited to play in tournaments held frequently and handicap reports are mailed to each member on revision dates. Members generally mail-in scores to the office organization. Can this organization meet the USGA Handicap System definition of a "golf club" and can it issue golfers Handicap Indexes?
 
A: No. A strong sense of a cohesion and organization must exist amongst the members of a group or else the essential element of peer review is absent. Because of the advertising in a public newspaper, most members of this organization would join as strangers, live over a relatively large geographic area and have insufficient opportunity to play golf regularly with one another. Furthermore, a Handicap Committee must be in a position to implement its peer review responsibilities. The organization described cannot provide the Handicap Committee with effective local oversight of its membership. The ability to play in group tournaments does not provide the peer review required by the USGA Handicap System for either the players or the Handicap Committee. Further, another independent reason why this group does not function as a golf club is that most scores are mailed in, which severely limits peer review by players and the Handicap Committee; this is not within the spirit of Section 5-2a and Section 8. Finally, another reason that peer review requirements are not being met is that this organization does not post scores and reports at a common location to be seen by the membership.