DCAA

DCAA employs approximately 4,500 auditors and provides audit and financial advisory services on roughly $350 billion in defense contracts annually. It is not a regulatory agency — it cannot direct contractors — but its findings carry enormous weight with Contracting Officers who rely on DCAA audits to negotiate fair prices and verify cost claims.

Key types of DCAA audits:

• Pre-award accounting system audit — determines if your accounting system is "adequate" for cost-type government work. Required before you can receive a cost-reimbursement contract. This is the most critical audit for companies entering the defense market.
• Forward pricing rate audit — audits the indirect rates (overhead, G&A, fringe) you proposed for future work
• Incurred cost audit — verifies that costs actually billed to the government during contract performance were allowable and properly allocated
• Timekeeping and labor floor checks — surprise audits of employee timekeeping to verify hours billed match hours worked

DCAA-adequate accounting system requirements:

• Ability to segregate direct from indirect costs
• Identification and exclusion of unallowable costs (FAR Part 31)
• Accurate accumulation and reporting of costs by contract
• Timekeeping system that captures hours by project daily

Common audit findings: inadequate timekeeping, unallowable costs billed (entertainment, lobbying), improper cost allocation, missing incurred cost submissions. Get your accounting system adequate — using compliant software like Costpoint, Unanet, or QuickBooks with proper configuration — before pursuing cost-type contracts.