Who Is Subject To A DCAA Audit?

The DCAA performs audits, including floor checks, reviews of accounting systems, and more, to determine if there are any inconsistencies or violations pertaining to government-issued contracts, particularly contracts that are cost-reimbursable rather than firm-fixed-price contracts. This review details what a DCAA audit means and who is subject to a DCAA audit.

What Is The DCAA?

The Defense Contract Audit Agency (DCAA) performs audit services on behalf of the Department of Defense (DoD) and other government agencies on government-issued contracts. The purpose of a DCAA audit is to confirm that the contract is fair and that the contractor followed the guidelines established in the FAR, especially regarding timekeeping requirements and cost accounting standards.

What Is DCAA Compliance?

DCAA compliance is a term used in the government contracting industry that refers to meeting the laws and regulations that businesses who work on government contracts must follow. However, the DCAA does not actually verify any contractor as “DCAA compliant.” Instead, they simply provide the contracting agency with their audit findings, and the contracting agency decides what action should be taken based upon the determined level of compliance.

What Types Of Government Contractors Are Subject To A DCAA Audit?

The DCAA does not audit government contractors individually. Instead, they audit government contracts issued by federal government agencies, which extends to reviewing the compliance methods of government contractors within the scope of the contracts being audited. The DCAA also does not audit every government contract but instead only does so when requested by the government contracting agency that has issued the contract.

Not all contract types are subject to audits. For example, a contractor who only sells goods through firm fixed prices is not likely to be audited by the DCAA. However, contracts that are cost-reimbursable and/or based on employee timekeeping and services provided are subject to a DCAA audit.

On Behalf of What Government Agencies Does The DCAA Perform Audits?

According to the DCAA’s website, the DCAA operates under the authority, direction, and control of the Under Secretary of Defense/Chief Financial Officer. Primarily, they provide advisory services to the Department of Defense (DoD). However, they also work on behalf of other government agencies, including but not limited to NASA, DOE, EPA, DHS, and the VA.

What Are The Basic Types Of Audits That The DCAA Performs?

The DCAA breaks down the audits they perform into four categories based on contract type: forward pricing, incurred cost, special audits, and other audits.

Forward Pricing

According to the DCAA, forward pricing audits are performed by the DCAA when a government agency wants to review a contract before it is awarded. During a forward pricing audit, the contract is typically reviewed to verify that the proposed cost estimate for the goods or services that will be provided by the contractor is fair and reasonable. During this audit, the DCAA may also review the contractor’s history with government contracts and their ability to follow FAR guidelines, especially as it relates to recording costs and hours worked.

Incurred Cost

An incurred cost audit reviews the contractor’s incurred costs on government contracts, meaning the costs associated with the goods and services that they provided for government agencies (which may include both direct and indirect costs). The DCAA audits the costs that are in the contract to verify that they are allowable, reasonable, and allocable. Incurred costs may include the cost of materials, the cost of the goods that are provided, and billed hours for work that was performed working on a specific contract.

Special Audits

In most cases, special audits are performed by the DCAA after a contract is awarded. These are typically issued out of response to a report filed by a contracting officer, who may indicate an issue with a certain contract that should be reviewed by the DCAA. The methods used during a special audit depend on the specifics of the case. It typically includes a DCAA floor check as well as a review of the accounting software and systems the contractor uses to verify direct and indirect costs.

Other Audits

Other audits may be performed at the request of a contracting officer or initiated directly by the DCAA for another purpose. In most cases, this involves a detailed review of the contractor’s cost accounting standards (CAS) disclosure statement and their overall compliance with cost accounting standards. The contractor’s business systems and process may also be subject to review as well. In some cases, this audit type is performed by the DCAA to determine if the contractor is in compliance with the Truth in Negotiations Act (TINA).