A DCAA audit can be intimidating, and you might be wondering what to expect. Here, we’ve put together some tips on what the DCAA auditors will be looking for during these checkups relating to time, costs, and payroll.
If your business contracts with the federal or local government, you should be prepared for a DCAA audit. Unlike tax and other types of audits, a DCAA audit is not triggered by an error or suspected wrongdoing; rather, it is a regular check-up to ensure procedural compliance within your business.
However, if you are new to government contracting, a DCAA audit can be intimidating, and you might be wondering what to expect. Here, we’ve put together some tips on what the DCAA auditors will be looking for during these checkups.
The main focus of a DCAA audit is procedural compliance, which includes submitting accurate documentation regarding your costs. The auditors will usually focus on your accounting and time-keeping procedures. There are various types of DCAA audits that you may face, such as pre-contract award, forward pricing, incurred costs, contractor purchase systems, and labor charges.
During the audit, the DCAA will examine several areas of your business, including
- Up-to-Date Timesheets: Ensure that every employee completes a timesheet on a daily basis, recording details about the contracts they are working on and the work they are performing. Use a time-keeping tool that can keep accurate, tamper-proof records for employee timesheets.
- Regular Time Approval: Employee timesheets must be reviewed and approved by management at the end of each pay period. Use a timekeeping software that shows which employees have submitted their timesheets, which timesheets have been approved, and who approved those hours.
- Allowable and Unallowable Costs: The DCAA will closely examine your costs to determine if any unallowable costs have been included in your contract billing. Determine which costs are allowable and ensure that no unallowable costs have been included in your billing.
- Direct and Indirect Costs: The DCAA requires that direct and indirect costs be accounted for separately. Ensure that your accounting system allows for this separation and provides clear reports regarding both direct and indirect costs.
- Time Tracking and Payroll: The individuals in charge of time tracking in your business should be different from those in charge of payroll. Managers should approve timesheets to reduce the likelihood of employee hours being tampered with.
If you’re ever uncertain about whether or not you’re handling a specific area of your accounting properly on a contract, you can request an audit to review those areas and bring yourself into compliance quickly, rather than risking making costly mistakes.
Being prepared for a DCAA audit is crucial for government contractors. By following the tips mentioned above, and working with an expert team like the one at Peter Witts CPA PC, you can ensure that your business is compliant and ready for any audits that may come your way.
I’m Kristin, the PWCPA PC Customer Success Specialist. For more information about this topic, or any other, you can always reach me through our customer ticketing system.