Maintaining compliance with the Defense Contract Audit Agency’s (DCAA) requirements remains a common pain point for new and established government contractors. The results of DCAA audits often dictate a contractor’s renewal status; unfortunately, many businesses lack the training and assessment infrastructure needed to align their accounting and timekeeping practices with the agency’s notoriously strict guidelines.
This blog reviews the DCAA’s key compliance checks to help new government contractors create a strategy for DCAA compliance that will outlast their first audit. To future-proof DCAA compliance, contractors must understand their role, the DCAA’s purpose, and the regulations that will determine their compliance status moving forward.
What is the Purpose of the DCAA?
The DCAA reports on the accounting, labor, and financial practices of government contractors to the relevant federal agency. They review proposals for new contractors, submit recommendations in contract negotiations, and conduct accounting audits internally.
Their primary goal is to make sure that government funds are used responsibly by companies that comply with federal regulations on good accounting and labor practices. The DCAA’s objective for each audit can differ depending on the industry and the contractor’s compliance status.
For new government contractors, training and communication are key to guarantee that accounting and financial records are prepared for the auditor’s review. For many contractors, this remains a complex goal even after years of successful renewals.
Summary of the DCAA Auditory Process
Regardless of the contractor’s industry, the DCAA audit process follows a similar progression.
1. Pre-Award Audit
During the initial step, the auditor reviews the contractor’s proposal to determine whether its cost objectives meet federal guidelines for allowable expenditures. The results of the pre-award audit contribute to the contractor’s successful negotiations.
2. Documentation Review
In this crucial step, the auditor requests relevant documentation from the contractor related to their cost proposals, accounting practices, and labor records. Without a document filing system optimized for DCAA retrieval, contractors run the risk of prolonging the audit process and damaging their relationship with the auditors.
3. Field Audit
Auditors conduct on-site audits of the contractor’s labor, timekeeping, documentation, and accounting practices in addition to any other relevant control systems. While contractors are required to comply with most document retrieval requests, they are not compelled to provide certain employee records.
Additionally, contractors are not legally obligated to provide on-site space for the auditor to conduct their business, though many contractors comply with this request to establish a better rapport with DCAA personnel.
4. Report
Once the DCAA has reviewed the documentation and on-site processes, the auditor issues their findings for the contractor’s review. If a contractor believes that certain judgments are unfair or easily resolved, they may submit an appeal before the final results are submitted to the relevant federal agency.
The DCAA reserves the right to change this process, which is why contractors should keep themselves in the loop by reviewing the DCAA’s contractor information manual.
How to Collaborate with DCAA Auditors
To pass DCAA audits, contractors must remain transparent with their auditors and promptly respond to requests for documentation. This process can be made smoother with a digital filing system that prioritizes per-contract separation and clear organization. If team leaders can easily retrieve the requested documents, the auditors can do their job more effectively and note your business’s efficiency in their reports.
In addition, contractors must be proactive in resolving any concerns raised by the DCAA auditors. Compliance gaps can escalate to legal complications if they are not promptly addressed. To avoid litigation, contractors should implement education and training to help managers understand the rules of contract governance in their situation as well as the DCAA auditor’s methods.
Examining the Future of Compliance
Despite passing their initial audits, many contractors fail to maintain their contracts due to new challenges with scalability or changing regulations. To future-proof a compliance strategy, contractors must continue to adhere to updated FAR and CAS guidelines as well as maintain an updated staff training workflow.
Contractors that monitor compliance internally, raise awareness of ethical and legal considerations in their situation, conduct mock audits, and hire experienced CPAs will be better prepared to achieve long-term DCAA compliance.
Contact Diener & Associates to Future-Proof Your DCAA Compliance Strategies
Diener & Associates is a team of experienced CPAs focused on helping government contractors overcome common challenges with federal compliance. Our CPAs review contractors’ accounting, timekeeping, and legal processes, conducting mock internal audits to detect compliance gaps, and assisting supervisors in their understanding of relevant federal standards, such as the GAAP.
Schedule a consultation today to learn how the expert CPAs at Diener & Associates can help you establish a future-proof strategy for DCAA compliance, even in your first government audit.