What are DCAA Audits?

The Department of Defense Contract Audit Agency (DCAA) plays a vital role in safeguarding taxpayer dollars. They achieve this by conducting independent audits of Department of Defense (DoD) contractors. These audits thoroughly examine a contractor's financial practices to ensure that government funds are used properly.

What happens during a DCAA Audit?

dcaa audit report

DCAA auditors check the contractor's financial operations carefully. This includes:

  1. Checking invoices, time records, and accounting systems: This verifies the accuracy and legitimacy of financial claims.
  2. Reviewing contracts and supporting documentation: DCAA ensures all costs align with the agreed-upon contract terms.
  3. Assessing the allowability, allocability, and reasonableness of costs:
    • Allowable: Costs permitted by the contract and federal regulations.
    • Allocable: Costs directly related to the contract's performance.
    • Reasonable: Costs incurred at a fair and customary market price.

By conducting these thorough reviews, DCAA helps guarantee that government funds are spent efficiently and responsibly.

Types of DCAA Audits:

DCAA offers a range of audits tailored to different stages of the contracting process:

Pre-Award Audits:

Conducted before awarding a contract to evaluate the proposed price's reasonableness and assess the contractor's accounting system.

Post-Award Audits:

Focus on the contractor's accounting system after a contract is awarded, verifying compliance with regulations and contract requirements.

Forward Pricing Audits:

Examine contract proposals to assess the cost estimates for services before awarding a contract.

Incurred Cost Audits:

Verify that all claimed costs were actually incurred and properly documented according to regulations.

Floor Check Audits:

Unannounced on-site reviews to verify procedures are followed correctly and employees understand relevant regulations.

Business System Audits:

Evaluate internal controls and processes in areas like timekeeping, accounting, and billing.

Provisional Billing Rates:

Scrutinize proposed rates submitted by the contractor for indirect costs.

Negotiation Assistance:

Help contracting officers assess proposals and negotiate fair terms during the contracting process.

Closeout Audits:

Final review of a contract to ensure all costs are allowable and recommend proper contract closure.

Voucher Audits:

Evaluate the accuracy of costs billed to the government by examining invoices and vouchers.

Financial Capacity Audits:

Assess the contractor's financial health and ability to fulfil awarded contracts.

Accounting System Audits:

Detailed review of the accounting system to verify proper functioning, including billing, payroll, and accounts payable.

How to prepare for a DCAA Audit?

Contractors can proactively prepare for DCAA audits by:

  • Conducting Internal Audits: Identify and address potential issues before a DCAA audit.
  • Seeking Professional Guidance: Consult with CPAs or tax attorneys for the latest regulations and audit preparation strategies.
  • Maintaining Accurate Records: Ensure your accounting system, policies, and documents are up-to-date and well-organized.

By understanding the types of DCAA audits and taking proper preparatory steps, contractors can increase their chances of a smooth and successful audit experience.

Checklist for a smooth DCAA Audit:

  • Maintain accurate and daily timesheets with explanations for edits.
  • Ensure all employees and supervisors understand relevant DCAA policies and procedures.
  • Follow DCAA guidelines and regulations for timesheet completion.
  • Accurately record and document employee overtime hours.
  • Obtain supervisor approval and signatures on timesheets.
  • Track time accurately for specific projects worked on.
  • Attach necessary documents and receipts to the system.
  • Maintain records of past audits for future reference.

By understanding DCAA audits and taking proper preparatory steps, contractors can increase their chances of a smooth and successful audit experience.


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