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What is the Defense Contract Audit Agency (DCAA)?

A great deal of information about the Defense Contract Audit Agency (DCAA) is available on their website at www.dcaa.mil and in their publication Information for Contractors (June 2012) found on their website.

Of course, like the IRS and other government agencies, contractors are wise to form their own opinions about what these different agencies say about themselves. DCAA will often take a position that could be interpreted radically by others, and often is.

DCAA describes itself as:
The Defense Contract Audit Agency (DCAA) provides audit and financial advisory services to Department of Defense (DoD) and other federal entities responsible for acquisition and contract administration. DCAA operates under the authority, direction, and control of the Under Secretary of Defense (Comptroller)/Chief Financial Officer.
Vision
Every audit or service we deliver is on time, on point, and highly valued.
Mission
As a key member of the government acquisition team, we are dedicated stewards of taxpayer dollars who deliver high quality contract audits and services to ensure that warfighters get what they need at fair and reasonable prices.
Values
DCAA is committed to the core values of teamwork, excellence, accountability, mutual respect, integrity, and trust.

GAO defined DCAA’s functions as such:

DCAA is charged with a critical role in DOD contractor oversight by providing auditing, accounting, and financial advisory services in
connection with the negotiation, administration, and settlement of contracts and subcontracts. DCAA also performs contract audit services
and payment reviews for other federal agencies, as requested, on a fee-forservice basis. DCAA contract audit services are intended to be a key
control to help assure that prices paid by the government for needed goods and services are fair and reasonable and that contractors are
charging the government in accordance with applicable laws, regulations (e.g., Federal Acquisition Regulation (FAR) and Defense Federal
Acquisition Supplement (DFARS), standards (e.g., Cost Accounting Standards (CAS)), and contract terms.
(page 6)

Typically, DCAA first shows up when another government agency, normally the Defense Contract Management Agency (DCMA), requests their services to audit the contractor. Again, typically, this is in anticipation of a cost type contract award.

The DCAA Auditors that show up at your location will reference thousands of pages of statutes, regulations, accounting standards, and guidance (correctly or not) to form an opinion on You and your business.

This reality leads to the most common DCAA myth: Contractors can call up DCAA and request an audit. This is simply NOT TRUE.  This myth is so common, many government Request for Proposals (RFPs) actually instruct the prospective contractor to do just this. We tell our clients to follow this instruction and contact DCAA and wait (see DCAA Myths). Yet, for government budgetary issues, if no other reason,  we have never seen DCAA call and a schedule an appointment until the prospective contractor made the first cut during the proposal process.

In practice, DCAA provides the following services and the referenced GAO audit says this is 97% of DCAA’s time:

Pre Award Contract Audit Services

  • Price Proposals
  • Preaward Surveys
  • Forward Pricing Labor and Overhead Rates

Post Award Contract Audit Services

  • Incurred Costs/Annual Overhead Rates
  • Truth in Negotiation Act Compliance
  • CAS (Cost Accounting Standards) Compliance and Adequacy
  • Claims
  • Financial Capability

Contractor Internal Control System Audits

  • Accounting
  • Estimating
  • EDP (Electronic Data Processing)
  • Compensation
  • Billing
  • Budgeting
  • Material Management
  • Labor
  • Purchasing
  • Indirect and Other Direct Cost

This all boils down to a couple of simple activities:

  • 1) Audit your costs (proposed or real)
  • 2) Approve your billing on certain contracts
  • 3) Issue an audit report on your accounting
  • 4) Other assignments requested by government

Next -- "Your Responsibilities as a Government Contractor"

Stephen A. Avery's Published Works