Surprise DCAA audits are designed to assess timekeeping and labor charging practices while work is in progress. These inspections often occur without warning and are intended to assess immediate adherence to regulatory requirements.
Contractors subject to these reviews must be ready to respond immediately, with procedures, documentation, and staff behavior already aligned with DCAA expectations.
Immediate Actions When Auditors Arrive
DCAA auditors may arrive unannounced, requesting immediate access to personnel, systems, and records. The first priority is to verify the auditor’s credentials and clarify the scope of the visit.
The designated executive sponsor and outsourced accounting lead should be notified immediately to initiate internal coordination. According to the DCAA Contract Audit Manual (CAM) 6-401, engaging the correct liaison functions early is essential to maintain audit flow and minimize miscommunication.
Auditors should be given a secure, quiet work area. A log for “Information Provided by Contractor” (IPC) should be started immediately to document every record, report, or file shared with the audit team.
Floor-check guidance issued by the DCAA recommends establishing a clear and auditable chain of custody for all materials exchanged during the review. Keeping this process consistent reduces the likelihood of confusion during follow-up or dispute resolution.
How To Manage Real-Time Staff Interviews
Employee interviews often form the core of a real-time labor evaluation. Auditors will ask direct questions about job titles, project assignments, and labor charge numbers.
According to the DCAA, staff should answer with factual, specific responses, and avoid speculation of any kind. If timesheets are shown during the process, they must reflect actual electronic records, not approximations.
When remote staff are included, video or phone interviews will be conducted. A supervisor must be present during these calls to confirm that work-at-home controls are being followed.
Maintaining Audit Readiness at All Times
Contractors subject to DCAA oversight must treat readiness as a standing requirement, not a temporary condition. Daily timekeeping discipline forms the baseline. Employees must record their time each day, certify entries, and submit records for supervisor review.
Once approved, time entries should be locked to prevent unauthorized changes. These procedures align with expectations outlined in both the DCAA Contract Audit Manual and the Information for Contractors guide.
A one-page matrix linking each DFARS 252.242-7006 requirement to the corresponding system control in the outsourced provider’s software or workflow should be maintained and updated regularly. The tool helps simplify alignment and provides a clear reference when auditors ask how compliance is achieved.
Floor-check preparations can be enhanced by running quarterly mock audits using DCAA Master Audit Program 10310 headings, including planning, employee interviews, and reconciliation, to test internal controls and staff awareness.
To support rapid response, a document set should be maintained and updated weekly. It should include the current organizational chart, timekeeping standard operating procedures, labor distribution reports for the active pay period, records of any recent corrective actions, and a verified list of audit liaisons.
Effective Post-Audit Follow-Through
Following a surprise audit, contractors typically receive a draft deficiency report or a Form 1 notice. A formal response is generally due within 30 days. A corrective action matrix should be built as the foundation of this response.
Each finding must be paired with a root cause, planned fix, responsible individual, and implementation timeline. The corrective path must reference specific DFARS or FAR provisions to demonstrate alignment with regulatory standards.
Contracting officers should be kept informed throughout the resolution process. Under DFARS 252.242-7005 and 7006, a finding of an unacceptable accounting system can trigger payment withholds. Maintaining an open line of communication with the government representative helps reduce the likelihood of penalties and supports constructive resolution of identified issues.
All documentation and evidence used to close out audit findings should be archived. The DCAA may review this material during a future audit or an incurred-cost review.
The Government Accountability Office has noted that delays in resolving incurred-cost audits can impact contract close-out timelines, creating administrative backlogs and financial uncertainty. Maintaining organized records shortens response time and reduces the need for rework.
How Outsourced Providers Reduce Audit Risk
Outsourced DCAA-compliant accounting services offer more than transactional support. A well-structured provider relationship can help enforce compliance in real-time.
An automated timekeeping platform that clearly separates direct and indirect labor codes supports DFARS 252.242-7006 criteria 9 and 10 and often provides read-only access to auditors, which accelerates document delivery and minimizes disruption.
Mock floor checks, run quarterly by the outsourced partner, help surface training gaps and identify any policy shortfalls before the DCAA does. Incurred-cost proposal support also contributes to alignment, connecting real-time labor data to later reporting cycles.
On-call audit liaisons provide immediate access to reports and data when auditors arrive, allowing company staff to stay focused on daily operations rather than scrambling for documentation.
Checklist for Readiness
Staying audit-ready requires consistency, documentation discipline, and practiced staff responses. Contractors can use a simple readiness checklist to make sure all tasks are complete, and the project is ready to move forward:
- Confirm that the DFARS 252.242-7006 compliance matrix is current
- Verify that daily time entries and supervisor approvals are complete
- Confirm a mock floor check has been conducted within the past 90 days
- Update the rapid-response folder with this week’s data
- Verify current contact information for audit liaisons and outsourced provider staff
- Remind employees of the standard for interviews: factual, honest, concise
Audit Readiness Starts Long Before the Knock at the Door
While it may seem scary, a surprise DCAA audit is not a crisis when preparation is part of standard operating practice. When strong systems and reliable support are in place, audit day doesn’t feel disruptive; it simply blends into normal operations.
The team at Diener & Associates works with contractors to build and sustain that level of readiness. Schedule a consultation online or reach out directly at 1-(703)-386-7864 to speak with a professional CPA on our team.