DCAA Audits – Keeping Them Straight

Companies engaged in cost-type government contracts, are subject to a variety of audit types. The Defense Contract Audit Agency (DCAA) comes knocking at various points during the course of doing government work. Some audits occur before an award is even granted, and some come after the work is done. The DCAA primarily does audits for the Department of Defense, but it also provides accounting and financial advisory services to other federal agencies involved in contracting. Pre-award audits include reviews of price proposals, cost estimates and labor and overhead rates. In addition, pre-award surveys are conducted. The focus of a pre-award survey is to determine whether or not a contractor’s accounting system and business practices are sufficient to handle the project that the company is bidding on. DCAA auditors also perform special audits—these can be high priority and likely requested by contracting officers who need an independent opinion on an issue in order for work to proceed. Post-award contract services include audits of Incurred Cost Proposals (ICE) and compliance with certain certifications or standards. For example, after a contractor files its incurred cost submission and the DCAA determines the submission is adequate, it may perform a more in depth audit to assess the accuracy of the information. Contractors that perform large, highly valued contracts are often held to a higher standard called CAS-compliance. They must submit a CAS disclosure statement, and are put through an audit to ensure they are CAS-compliant. Other specialized audits revolve around reviews of a contractor’s business systems. These include accounting, estimating, purchasing and billing. The DCAA also provides negotiation and procurement liaison assistance in addition to formal auditing services. While most companies follow good business practices, when it comes to passing an audit, they often find they need to formalize and tighten up their procedures. For instance, accounting staff may know the company’s billing practices, but a government auditor will want to see that practice formally explained in writing. On the flip-side, DCAA auditors won’t be impressed by a 300-page manual of procedures if no one who works at the company has read it or knows how to implement what it says. It’s most critical for a contractor to have practical, good standards in place that are clearly spelled out and easy to follow. This can make the difference between a positive, pain-free experience with the DCAA and dreading its auditors’ next visit.