The primary role of the Defense Contract Audit Agency (DCAA) is to conduct audits to help ensure that federal contractors and subcontractors are complying with relevant laws, regulations, and contract terms. If you are pursuing or have a contract with the federal government, you will be subject to various audits before and during your contract term. When is a DCAA audit required? DCAA audits are initiated when a contracting officer determines they are necessary, usually based on contract type or compliance requirements for a particular award. Stay prepared to pass audits that may apply to you by understanding how the DCAA views and conducts the audit process.
DCAA Audits
If you have a contract with the federal government, you may be subjected to different types of DCAA audits before and during the term of your contract or award. DCAA audits can include reviewing your accounting and timekeeping practices, estimating and billing systems, cost accounting standards compliance, and more.
When Is a DCAA Audit Required?
When is a DCAA audit required? The answer will vary depending on your contract’s terms and regulations, which outline the government’s right to conduct an audit. DCAA audits are generally triggered by a contracting officer’s or administrative contracting officer’s need to use audit services to make decisions or meet regulatory requirements.
Pre-Award Survey of Contractor Accounting System
In some situations, pre-award accounting system audits are conducted before a contract is awarded to assess a contractor’s financial and accounting systems, internal controls, and pricing practices. Pre-award audits also verify that a contractor has documentation to demonstrate that their accounting system can meet SF 1408 criteria.
Pre-award accounting audits, including SBIR Phase II awards, are especially common with cost-reimbursement type contracts and other awards granted by the Department of Defense (DoD) and the Department of Homeland Security (DHS).
Post-Award Accounting System Audits
The government can conduct audits on a contractor’s accounting system on a regular basis or as a follow-up if issues are discovered during a pre-award audit or another routine audit. Post-award accounting system audits help verify that a contractor’s accounting system continues to comply with standards, regulations, and contract requirements.
Incurred Cost Proposal Audits
For cost-reimbursable type and time and material contracts, contractors must submit an incurred cost schedule to the government within six months from the end of the contractor’s accounting period (unless otherwise specified). An incurred cost submission audit reviews this information, determining the allowability, allocability, and reasonableness of costs claimed by the contractor on one or multiple contracts.
Provisional Billing Rate Proposal Review Audit
Another audit that may be required for cost-reimbursable contracts is a Provisional Billing Rate (PBR) Proposal Review audit. The DCAA may conduct a PRB audit to compare the proposed pool and base to the prior year and year-to-date pool and bases and to review the trend of questioned costs in relevant incurred cost audits. Information from the audit may be used to adjust unallowable expenses as part of calculating the current year’s provisional billing rates.
Real-Time Labor Evaluations
The only unannounced audit you could be subjected to is a real-time labor evaluation. The goal of a real-time labor evaluation audit is to test for compliance with timekeeping controls and to address deficiencies on a real-time basis. A real-time labor evaluation is unannounced, so you will not receive advance notification or be asked about convenient times to meet. The auditor will arrive at your location and complete an evaluation that will include the following:
- Evaluating timekeeping procedures/internal controls
- Employee interviews and observations of the employee’s workstation
- Analysis of employee timekeeping practices
- Reconciliation of labor charges with subsequent payroll and labor distribution records
Additional Audits
The above are only some DCAA audits that may be required or performed during your contract term. Additional DCAA audits you may face as part of your contract include the following:
- Defective Pricing
- Cost Estimating
- Timekeeping
- Cost Accounting Standards (CAS)
- Earning Value Management
- Material Management
- Forward Pricing Proposal
- Department of Energy (DoE) Audits
- Safe Harbor Indirect Cost Rate Audits
- Financial Capability Audits
- Voucher Audits
- Fiscal Year Indirect Rate Proposal Audits
If you want to know what audits you may face as part of your contract, start by downloading the PDF of the audit program available on the Directory of Audit Programs on the DCAA’s website.
No matter your contract terms, if you want support preparing for 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.