The Defense Contract Audit Agency (DCAA) is responsible for auditing Department of Defense (DoD) contracts to ensure government contractors are complying with federal regulations, especially in terms of costs, accounting practices, and internal controls.
For businesses in the GovCon (Government Contracting) space, a DCAA audit can be a make-or-break moment. It validates your ability to responsibly handle government funds and can significantly affect your chances of winning and keeping federal contracts.
Whether you’re new to government contracting or a seasoned player, being prepared for a DCAA audit is critical. This step-by-step guide will help you understand the process and get audit-ready.
Step 1: Understand the Types of DCAA Audits
Before preparing, it’s important to know which kind of audit you’re facing. Common DCAA audit types include:
Pre-Award Survey (SF 1408): Assesses if your accounting system is acceptable before a contract is awarded.
Incurred Cost Audit: Reviews costs claimed under cost-reimbursable contracts.
Timekeeping Audit: Examines labor charging and timecard procedures.
Floor Check: A surprise visit to ensure compliance with timekeeping policies.
Understanding the type of audit helps you focus on the relevant systems, documentation, and processes.
Step 2: Ensure Your Accounting System Is DCAA-Compliant
Your accounting system is the heart of any DCAA audit. Make sure it meets the following requirements:
Segregation of direct and indirect costs
Proper timekeeping system
Job cost ledger for each contract
Ability to track costs by project
Audit trail documentation
If you’re going through a Pre-Award Survey, the DCAA will use Standard Form (SF) 1408 to evaluate these areas. Consider using accounting software like Deltek Costpoint, QuickBooks with GovCon add-ons, or Unanet for compliance.
Step 3: Implement Strong Timekeeping Procedures
Timekeeping is one of the most scrutinized areas in a DCAA audit. Ensure:
Each employee fills out their own timesheet daily.
Changes to timesheets are documented and approved.
Supervisors regularly review and approve time entries.
Time records match payroll and project cost reports.
Create written timekeeping policies and provide training to your staff — especially project managers and administrative personnel.
Step 4: Maintain Proper Documentation
DCAA auditors will want to see detailed supporting documentation, including:
Invoices and receipts
Labor distribution reports
Purchase orders
Subcontractor agreements
Cost allocation worksheets
Employee timecards
Keep everything organized and accessible. Poor documentation is one of the most common reasons for failed audits.
Step 5: Conduct an Internal Audit or Mock DCAA Audit
Before the real audit, conduct your own internal review:
Use the DCAA’s SF 1408 checklist to self-assess your accounting system.
Have your accounting and compliance teams perform a mock audit.
Address any weaknesses or non-compliance issues proactively.
This step gives you confidence and significantly reduces the risk of surprises during the actual audit.
Step 6: Assign an Internal Point of Contact
Designate a person or small team who will be responsible for:
Communicating with the auditor
Gathering documentation
Answering audit questions
This streamlines communication and ensures the auditor has consistent and accurate information throughout the process.
Step 7: Prepare for the Audit Interview
During the audit, DCAA may ask your team questions regarding:
Your accounting system setup
Timekeeping practices
Cost allocation methodology
Billing procedures
Train your staff so they understand their responsibilities and can confidently explain your processes.
