Defense Contract Audit Agency - Current DCAA Audits

Current DCAA Audits

Companies that are subject to DCAA audits today should expect a more thorough audit that has increased audit testing and higher levels of evidence requirements. This means contractors will have to provide more supporting documentation for claimed and/or proposed costs. Auditors will be looking closer at costs and testing more items than before.

Companies that are awarded Cost Type Contracts, Time and Materials Contracts, and other flexibly priced contracts are subject to annual DCAA audits and are required to submit incurred cost claims annually to DCAA. When these claims are audited, contractors are required to maintain and supply detailed supporting documentation for all claimed costs that are selected for testing. This means auditors will be looking at source documents for claimed costs such as original purchase orders, invoices, receipts, timesheets, 941's, general ledgers by contract, and the year end trial balance. In order to prepare for annual incurred cost audits, contractors must maintain and organize accounting records so that they are easily available when requested. This means collecting all these items at each year end and having them available as soon as the audit commences. This is required by FAR 31.201-2 (d): "A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost that is inadequately supported."

Some contractors fail to document the purpose of a trip with enough information for auditors to establish allowability of the trip. Contractors can easily fail to keep this level of documentation for each travel expense, and as a result, be denied reimbursement for such costs. For consulting/outside services costs, contractors should expect to be asked for service agreements and invoices that explain what services were performed.