To ensure that government contractors and subcontractors comply with all applicable laws, regulations, and contract terms, one of the roles of the Defense Contract Audit Agency (DCAA) is to perform a wide range of audits. Different types of DCAA audits occur at different points in the contract term and can include a review of contractors’ accounting practices, estimating and billing systems, cost accounting standards compliance, and more. Some of the most common DCAA audits include forward pricing audits, incurred cost submission audits, and performance audits. What do the most common types of DCAA audits cover? Scroll down for a brief overview.
Types of DCAA Audits
Pre-award Audits
Contractors who either have cost reimbursement contracts or who receive progress payments are subject to pre-award accounting system audits. As the name indicates, these audits are conducted before a contract is awarded to assess the contractor’s financial and accounting systems, internal controls, and pricing practices. Pre-award audits also verify that a contractor has documented that their accounting system can meet SF 1408 criteria.
Post-award Accounting System Audits
The post-award accounting system audit focuses on the contractor’s accounting system and related internal controls after a contract has been awarded, verifying that the accounting system complies with applicable standards, regulations, and contract requirements.
Forward Pricing Proposal Audits
This audit examines the contractor’s pricing proposal for a new contract or modification. It evaluates the contractor’s cost estimates, pricing methodologies, and the reasonableness of proposed prices according to regulations laid out by Federal Acquisition Regulation (FAR).
Timekeeping System Audits
The timekeeping system government contractors utilize must be in compliance with all relevant federal and state labor laws, including the Fair Labor Standards Act (FLSA), Davis-Bacon Act, and the McNamara-O’Hara Service Contract Act. DCAA-compliant timekeeping records must be retained for a minimum of three years, and timekeeping system requirements include the following:
- Detailed timekeeping procedures
- Capability to track and allocate labor costs to the correct task or work order
- Timesheet approval signed by employees and supervisors
- Overtime hours submitted, justified, and authorized in advance
- Thorough audit trail
- Segregation of duties
To ensure compliance with timekeeping regulations, the DCAA may perform a timekeeping system audit to assess a contractor’s timekeeping practices, accurate recording of labor hours, and compliance with labor charging regulations.
Cost Accounting Standards (CAS) Audits
Government contractors who meet certain thresholds are beholden to cost accounting standards (CAS), regulations that ensure consistency and uniformity in how a government contractor measures, assigns, and allocates costs on a government contract.
CAS audits are conducted to ensure that contractors subject to CAS comply with the prescribed accounting standards.
Incurred Cost Submissions Audits
All government contractors must submit an incurred cost schedule to the federal government for cost-reimbursable type and time and material contracts; these incurred cost submissions are typically due within six months from the end of the contractor’s accounting period (or as spelled out in the specific contract).
An incurred cost submission audit reviews the contractor’s actual costs incurred on a specific contract or multiple contracts. It examines the allowability, allocability, and reasonableness of costs claimed.
Additional Audits
These aren’t the only types of audits performed by the DCAA. Additional common pre-contract and contract term audits you may be subject to include the following:
- Indirect Rate Proposal Audits
- Safe Harbor Indirect Cost Rate Audits
- Financial Capability Audits
- Voucher Audits
- Labor Floor Check Audits
- Fiscal Year Indirect Rate Proposal Audits
The specific audit types you may be subject to before or during your contract term will vary depending on the nature of the individual contract. Wondering what specific audit process may apply to your business or contract? Start by downloading the PDF of the audit program available on the Directory of Audit Programs on the DCAA’s website.
And if you’re concerned about passing DCAA audits, we’re here to help! For over 20 years, GovCon has helped hundreds of clients navigate the complex world of DCAA compliance, streamline their operations, pass audits, and win contracts. We use our real-world experience to simplify your process, reduce the cost of compliance, and improve accuracy. Our government contracting software is built specifically to manage DCAA accounting and compliance, leaving no expense unaccounted for. We’d love to show you how GovCon can simplify DCAA training, accounting, and compliance for you. Contact us any time.