Understand the Different Types of DCAA Audits
When you receive a contract from the United States government, you are entering into a business relationship with the largest purchaser of goods and services in the world. It is an organization that is highly sophisticated, with written and unwritten rules and expectations, DCAA audits, and stiff consequences when compliance isn’t met.
This white paper explores the role of the Defense Contract Audit Agency (DCAA) in federal contracts, and reviews the following types of DCAA audits (and how easy the audit is to pass on a 10 scale):
- Pre-award survey (3/10) – Before you receive your funding the government wants to make sure you are aware of the FAR Part 31 rules and show a willingness to abide by them.
- Full blown accounting system review (10/10) – You’ve delivered on your government contract and now DCAA wants to perform a deep dive into your accounting records to make sure you’ve done everything properly and haven’t overcharged them.
- Provisional billing rate audit (2/10) – This is nothing more than sharing with a DCAA auditor the Escel spreadsheet and assumptions you used to develop the indirect cost rate you used in your funding proposal.
- Progress payment audit (4/10) – Assuming you are doing the accounting properly (which is a BIG assumption) this audit forces you to demonstrate that you can tie back every number in a randomly chosen bill you’ve charged to your government contract to source documentation.
- Surprise time sheet audit (7/10) – These audits typically occur when a whistle blower makes an accusation under the false claim act (10/10). Otherwise, this is a routine exercise that a DCAA auditor performs to document your ongoing compliance when your volume of business with the federal government increases (1/10).
- Financial capacity audit (6/10) – Usually performed when you are about to receive a much larger than usual government contract, DCAA wants to make sure that you have the financial ability to float the cash flow so you can perform on this potential funding award. They will focus on your balance sheet, current ratio, debt ratios, etc.
- Annual incurred cost audit (7-9/10) – It’s tough to rank the difficulty of passing this type of audit as it all depends on the “risks” inside the report and how aggressive you are in trying to recover costs.
- Contract closeout (2/10) – a formality unless you’ve overbilled the government or done something foolish.
We’ll detail how the Defense Contract Audit Agency (DCAA) works, what is checked, what’s at stake, and how hard each type of audit is to pass. This overview should help you make informed decisions about the proper oversight of your accounting system.
Is your accounting system DCAA audit proof? Contact Us to schedule a time to speak to one of our government funding experts.
Ed Jameson, CPA, Managing Member
With over 40 years of experience as a government funding award accounting specialist, Ed is a recognized national expert in the field. In addition to helping hundreds of clients navigate FAR Part 31 compliance. he has been an active speaker and panel moderator at Tech Connect's National SRIR/STTR conferences since 2011. presents at the DOD's Mentor Protégé Summit and presents regularly for several state and local organizations.