A DCAA audit includes examination of financial records and compliance with government regulations for government contracts; expect scrutiny, documentation review, and potential adjustments to ensure accuracy and adherence to rules.
Unlike IRS audits, which usually only occur when something in your records is called into question, DCAA audits occur virtually every time you apply for a government contract. Due to their frequency, it’s important that you’re prepared for DCAA audits and know what to expect from them. For those just starting out with government contracts, here’s what you need to know.
Initiating an Audit
A DCAA audit is initiated when the Procuring Contracting Officer (PCO) or Administrative Contracting Officer (ACP) makes a request to the DCAA office to review your proposal. From a business standpoint, a DCAA audit is a good thing, because it means that your application for the contract is being seriously considered.
The auditor assigned to your file will contact a company representative to request a walkthrough of your proposal. Your representative will help the auditor gain a basic understanding of the proposal and related supporting documentation.
Assessing Your Proposal
After the walkthrough, the auditor will begin auditing your proposal in earnest. The time this takes will vary largely based on the size and complexity of the audit, as well as the availability of data. First, the auditor will review your proposal assertions and decide if the proposal was prepared properly. If something in the proposal is inadequate, the audit will end quickly, with the auditor recommending that the PCO/ACO return the proposal to you without an audit until it’s been prepared properly.
It’s incredibly important that you follow all instructions for submitting your proposal based on either the format specified by the CO, or the instructions in FAR 15.408, Table 15-2. Having your proposal kicked back to you can waste time and even lead to you losing the contract.
Reviewing Supporting Data
The primary thing a DCAA auditor is looking for is adequate data to support the proposed costs in your paperwork. The burden of proof for providing this data lies solely with you, so it’s incredibly important that you submit a fully supportable and well-prepared cost proposal.
During the audit, the auditor may request supporting documents (either verbally or in writing). This request should clearly state what documentation is required and when you need to provide it by. Most requested data should be readily available, and it’s in your best interests as a contractor to provide the documentation when it’s requested. Examples of the type of data the DCAA may request include, but are not limited to:
- The basis of proposed labor rates and classifications
- How proposed labor rates were estimated
- The basis of proposed labor categories and the hours assigned to each labor category
- The basis of proposed labor hours
- The basis of proposed material costs
- The basis of proposed subcontractor costs
The DCAA deals almost exclusively in electronic data, so it’s incredibly important to support all documentation to your auditor in an electronic format. This helps with compliance, as well as making it faster and easier to share the requested information. If you don’t provide the requested documentation within the specified timeframe, the auditor will submit a formal written request with a one-week deadline. Should that deadline be missed, the auditor will formally notify you that you’ve denied them access to records, and will submit a report to the appropriate government personnel.
Completing Your Audit
If all requested data is provided to the auditor within the appropriate time period, the auditor will complete the process by holding an exit conference with your designated company representative. They will address all factual aspects of the audit, but won’t disclose detailed conclusions regarding the proposal amounts or documentation provided. Those conclusions and judgments are only to be disclosed to the CO.
Overall, a DCAA audit can move along quite smoothly if you have all of the necessary documentation readily available for your auditor. When you submit a contract proposal, you should ensure that not only the proposal is properly prepared, but that all of your company’s records are prepared to undergo the audit process.
Facing these audits for every government contract you apply for can be time-consuming and stressful. At Peter Witts CPA PC, we specialize is properly managing your financial records so that they can undergo such regular scrutiny from the DCAA. If you’re breaking into the world of government contracting, contact us today to learn how our expert accountants can help you with every DCAA audit.
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.