What Can Trigger a DCAA Audit? Things to Avoid

DCAA audits are a big deal in defense contracting. If you’re playing in this arena, understanding them is essential. DCAA audits don’t have to be intimidating if you know what triggers them and how they unfold. Here are some solid tips on staying compliant to make sure that if auditors ever knock on your door, you’re ready.

Understanding DCAA Audits

DCAA (Defense Contract Audit Agency) serves as financial oversight for government contracts to ensure DoD gets what it pays for without any funny business. By conducting thorough contract audits, this agency helps ensure that there is no ‘waste’ and ‘fraud’, and that not even one cent goes down the drain.

Audit results matter big time—they can lead to improved internal controls within companies, better cost accounting practices across industries, and ultimately more trust from you—the public—in how federal entities responsibly handle funds. 

Triggers and Causes of DCAA Audits

If you’re a defense contractor, the Defense Contract Audit Agency (DCAA) is likely on your radar. It’s crucial to understand that not keeping up with the contract audit agency’s primary functions can get you flagged. But what exactly are considered DCAA audit triggers? Here are the most common ones:

Document Traceability Concerns

Lackluster documentation might as well be an invitation for contracting officers. When expenditures look like they’ve played hide-and-seek on paper, alarm bells go off. The inability to provide solid document traceability doesn’t just raise eyebrows. It raises red flags leading directly to audits—audits designed to ensure DoD funds are used appropriately.

Digging deeper into incurred cost submissions without clear paperwork is bound for trouble. Proposal adequacy, or lack thereof, could also trigger closer scrutiny by DCAA auditors who are keen on crossing every T and dotting every I.

Non-Compliance with Timekeeping Policies

Falling out of line with timekeeping policies isn’t just frowned upon for big and small businesses. It’s one of the top triggers for an audit that any seasoned financial officer knows too well. This isn’t about being a few minutes late. It’s about ensuring every dollar spent matches real-time labor efforts down to the last second, and having all your ducks in a row when someone asks why those dollars were spent in the first place.

The Audit Process

Picture this: you’re a contractor with the Department of Defense (DoD), and one day, an email lands in your inbox. It’s from the Defense Contract Audit Agency (DCAA). They want to check out your books—initiating what is known as a DCAA audit process. Maybe it’s due to concerns over document traceability or perhaps some non-compliance issues with timekeeping policies have been flagged.

The reason for an audit initiation could be anything—a whistle-blower tip, random selection, or maybe your incurred cost submission raised eyebrows at headquarters. Regardless of why, it’s good to know what sparks these audits so you can steer clear of potential red flags.

The DCAA’s contract audit manual spells out how they kick things off and keep them moving smoothly. You’ll find everything there—from guidance on handling government contracts right down to keeping those all-important billing rates accurate.

Then, when it’s time for your DCAA audit, they will check your accounting systems for compliance against standards, such as Federal Acquisition Regulation (FAR).

Guidance for Contractors Facing a DCAA Audit

Facing a DCAA audit can feel like walking a tightrope over regulatory quicksand. But don’t sweat it; proper prep is your safety net. Get those accounting systems in tip-top shape, and play by the rules laid out in DCAA’s contract audit manual

Prepare Your Accounting Systems

Your accounting management should be more than just organized chaos. The feds want precision, traceability, and accountability. Make sure you’re using real-time labor evaluations because if you’re not tracking time effectively today, you could be losing money tomorrow.

The bottom line? You’ve got to demonstrate that every dollar spent aligns with federal acquisition regulation.

Proposal Adequacy Checklist

Gone are the days when “close enough” was good enough for government work benefits claims or proposal adequacies. If an auditor knocks on your door asking about incurred costs or provisional billing rates, hand them proof.

Understand what ticks off boxes on their checklist by checking out DCAA’s proposal adequacy checklist. Remember, getting this right helps contractors keep their heads above water while navigating through these audits DCAA conducts with precision.

How To Avoid Negative Audit Outcomes

If you’re in the defense contracting biz, you know DCAA audits are no joke. They keep a sharp eye on every dollar spent to make sure it’s all above board. But fear not. Staying compliant is your golden ticket to smooth sailing through these financial deep dives.

  • Maintain Accurate Provisional Billing Rates: You want your provisional billing rates right on the money. If they’re off, even by a little, red flags go up faster than at a bullfight. Get them straight and you’ll steer clear of trouble with DCAA auditors.
  • Utilize Public Vouchers Correctly: Use public vouchers right and doors open smoothly. These are crucial for crystal-clear financial records.

Pass That Compliance Check

DCAA audits can be navigated successfully with prep work and savvy practices—small steps that make a big impact. Get to know the ropes of DCAA contract audits, keep your documents traceable, use accounting systems such as a DCAA-compliant time tracking software, and stay sharp with provisional billing rates and public vouchers. That way, you won’t have a hard time passing the DCAA compliance check.