With increased Pentagon spending and the Defense Contract Audit Agency’s (DCAA) reduction and outsourcing of their Incurred Cost Submission audit backlog, government contractors should anticipate a significant increase in audit activity.  With a renewed emphasis on defective pricing (Truth-in-Negotiations Act or TINA) audits, even fixed-price contracts are not immune.  With this said, it is important to understand the DCAA audit process and effective audit protocol.

There are two things to keep in mind.

  1. DCAA auditors should be treated with respect. Per their website (www.dcaa.mil), they are trained professionals who are dedicated to delivering high-quality contract audits and services to ensure that warfighters get what they need at fair and reasonable prices.  They are committed to the core values of teamwork, excellence, accountability, mutual respect, integrity, and trust.
  2. A DCAA auditor’s mentality is to find areas of noncompliance. It is against their nature to spend hours or days performing an audit and not finding anything to report.

When notified of a pending DCAA audit, you should immediately assign a single point of contact to ensure DCAA receives timely, accurate and cohesive responses to their information requests and that you are aware of where the audit stands and where it is going.

Being prepared for the upcoming audit is extremely important.  As soon as you are aware of the subject of the DCAA audit, you should go to DCAA’s Contract Audit Manual and the applicable MRDS-Audit Guidance Memos to become familiar with DCAA’s established audit process.  If time permits, you should perform a preliminary internal audit to determine potential problem areas and, if necessary, begin appropriate corrective actions.

You should request and insist on an entrance conference prior to DCAA performing any part of the audit.  The purpose of the entrance conference is to:

  • Verify what is being audited and why.
  • Establish a relationship with the personnel to be performing the subject audit.
  • Determine what and who they will want to see as a part of the audit and why.
  • Define how long the audit is to take and when it is anticipated to be completed.
  • Express the need for interim updates as the audit progresses.

Document every meeting, its purpose, who attended and the results.  Have DCAA make written requests for any data required explaining why the requested data is needed and document all data provided including who it was given to, what was provided, how it was provided and the date and time it was provided.

Insist on an exit conference at the completion of the audit to lay out all of DCAA’s findings and establish an agreement, where warranted, along with necessary corrective actions required.  Notify DCAA of any findings where you cannot agree and document your rationale for disagreement.

If you are not able to successfully resolve audit issues within DCAA, escalate your position to the applicable contracting officer.  DCAA’s positions are only advisory with the contracting officer having the final authority.  Escalating disagreements through DCAA will likely not reverse the auditor’s finding position.

Questions? Contact us and talk to a government contract accounting and tax specialist to discuss your specific situation.