DCAA AUDIT

 

I am a DCAA consultant specializing in DCAA audits.  As a former DCAA auditor I have 29 years experience as a DCAA auditor, CPA, consultant, controller, and CFO.  I advise government contractor clients on DCAA audit subjects and offer the following introduction to DCAA audits. 

The Defense Contract Audit Agency is an agency within the Department of Defense that conducts contract audits for the Department of Defense and civilian federal government agencies.  These agencies, known as procurement agencies, generally request these audits; however, some audits are performed at the initiative of DCAA such as incurred cost audits.

 It is very important to understand a few very important points about DCAA and its audits.  Some of these include:

  • DCAA audits generally speaking are advisory only, meaning DCAA renders an opinion on its audit results to the contracting officer. The authority to act on these findings rests with the contracting officer. The contracting officer makes final decisions regarding audit results. An exception would be where indirect cost rates are assigned to be "auditor determined" instead of negotiated by the contracting officer . In this case DCAA has additional authority.
  • Although DCAA is an independent audit agency, or is supposed to be, it has an obligation to the government agency who has awarded the contract or who requested the audit. It reports its findings to this agency. It does not report to the contractor. It will not generally initiate an audit at the contractor's request. These requests must be initiated by the government agency having a need such as the procurement agency desiring to award a contract subject to audit.
  • The contractor under audit has a right to a proper due process. For example there are rules to be followed when DCAA audits are conducted. DCAA is required to provide reasonable notice and provide contractors reasonable opportunity to respond to requests. Contractors are entitled to an exit conference at the completion of an audit and the opportunity to respond or the rebut DCAA findings in most cases such as accounting system audits and incurred cost audits. The contractor is entitled to a contracting officer decision, a contracting officer final decision and the contractor has the right to file claims and equitable adjustment requests under the Contract Disputes Act in cases of legitimate disputes. 

DCAA performs many different types of audits.  Most of these are performed on large contractors.  The most common audits conducted on small business contractors include the following:

 

  • Pre-award and post award accounting systems audits
  • Financial capability audits
  • Incurred cost audits
  • Price proposal audits
  • Business systems and internal controls auits
  • Occasionally invoicing type audits

  DCAA Audit Tips

 To maximize your success, I offer the following general suggestions or tips:

1. Foremost be prepared, be ready, do your preparation in advance.  To many times I hear of contractors waiting for DCAA to show up and reacting to DCAA.,  This places the contractor in a defensive position.  Be prepared do your homework.  In addition getting behind promotes a defensive negotiation position.  Get ahead of the auditor not behind.

2. Require an entrance conference.  Understand the scope and the auditor expectations before it starts. Understand the time frame of the audit and the auditors plan for conducting the audit.

3. Keep a log of what DCAA requests and the dates that you meet these requests.  Taking good notes during the audit is very important.  This documentation can be used in case the auditor goes out of bounds.  It avoids finger pointing.  Document, document, document.

4. Keep the auditor within the scope.  Protect the audit scope, make them justify requests that are out of scope.

5. If at all possible shadow the auditor, do not permit them to wonder the company. DCAA is at your location to conduct the audit, keep them on task, they are not there for a social hour with employees.

6. Require list of interviewees in advance. This will permit you to properly schedule the interview process in a controlled setting hopefully minimizing any disruption, and avoid surprises.

7. Be responsive to auditor requests, to many times I see contractors get behind in fulfilling audit requests.  This causes many negative perceptions and can cause audit scope to be increased among other things.

8. Demand an exit conference.  Depending on the audit type, DCAA may not discuss audit results. However get an exit conference to receive as much information as you can.

9. Keep the Contracting Officer apprised of the audit status.  This is particularly important in responding to DCAA audit results and when DCAA goes south. Remember your audience is the contracting officer.  The contracting officer is responsible for making contractual decisions in most cases not DCAA.  

10. If at all possible, make every effort to make sure the contracting officer hears your side of the story, sooner is better than later. This will improve your negotiation position with the contracting officer

11. One thing not to do, Do not deny DCAA access to records.  They have a job to do.  They are entitled to any financial record that is related to costs charged directly or indirectly to a government contract.  Understand what they are entitled to and what they are not.  Most important, any denial of access to records will have a negative effect on the contractor and weaken any negotiation position it may have with the contracting officer. On the other hand DCAA requests must have a logical relationship to the scope and purpose of the audit. Do everything you can to keep DCAA from cherry-picking.  If this fails appeal up the chain of command and the contracting officer.

 

If you have questions regarding DCAA audits or need assistance please contact me at 336-880-9040 or at dcaaconsulting@gmail.com.

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