Government Contracting — DCAA Audit Types

A comprehensive evaluation requested by the contracting officer before contract award to determine whether a prospective contractor has the technical capability, financial resources, accounting system, and production capacity to perform the proposed contract. Pre-award surveys assess the contractor's overall responsibility and readiness to take on government work.

An audit of the contractor's proposed forward pricing rates (indirect cost rates projected for future periods) used in pricing new contract proposals. DCAA evaluates whether the proposed rates for overhead, G&A, fringe benefits, and other indirect cost pools are reasonable, allocable, and consistent with the contractor's cost experience and anticipated changes.

A negotiated agreement between the contractor and the government establishing indirect cost rates for use in pricing future contracts and modifications during a specified period. FPRAs streamline the proposal process by eliminating the need to negotiate rates on each individual contract action. DCAA audits support the government negotiator in establishing these agreements.

An audit to determine whether the contractor's accounting system meets the criteria established in DFARS 252.242-7006 for adequacy in accumulating and reporting costs under government contracts. An adequate accounting system is a prerequisite for receiving cost-reimbursable, incentive, time-and-materials, or labor-hour contracts from the Department of Defense.

An audit of the contractor's estimating system to determine whether it produces reliable, consistent, and verifiable cost estimates for government contract proposals. DFARS 215.407-5-70 requires contractors with significant government business to maintain an acceptable estimating system that generates cost estimates consistent with actual costs and accounting practices.

An audit performed when the contracting officer requires consent before the prime contractor can award a subcontract. DCAA evaluates the proposed subcontract cost or pricing data and the prime contractor's price analysis to assist the contracting officer in determining whether the proposed subcontract price is fair and reasonable.

An audit of the contractor's actual indirect costs incurred during a completed fiscal year, submitted through the Incurred Cost Electronically (ICE) model. This is the most common DCAA audit and determines the final indirect cost rates used to settle cost-reimbursable contracts and flexibly-priced contracts. Contractors must submit incurred cost proposals within six months of their fiscal year end.

An audit to determine whether the contractor is complying with the Cost Accounting Standards (CAS) applicable to its government contracts. CAS establish rules for measuring, assigning, and allocating costs to government contracts. Non-compliance can result in contract price adjustments, withholding of payments, and potential False Claims Act liability.

An audit to determine whether the contractor submitted accurate, complete, and current cost or pricing data in connection with a negotiated contract or modification subject to the Truth in Negotiations Act (TINA, now 10 U.S.C. 3702). If the contractor's certified cost or pricing data was defective (inaccurate, incomplete, or not current as of the date of agreement on price), the government is entitled to a price reduction.

An audit of the contractor's purchasing system to evaluate whether it provides reasonable assurance that the contractor is obtaining materials and services at fair and reasonable prices and complying with government procurement regulations. An approved purchasing system allows higher thresholds for consent-to-subcontract requirements under government contracts.

An audit or surveillance review of the contractor's Earned Value Management System to determine compliance with the ANSI/EIA-748 guidelines. EVMS integrates scope, schedule, and cost data to provide objective measures of contract performance and early identification of cost/schedule variances on major acquisition programs.

An unannounced verification of labor charging practices at the contractor's facility, where DCAA auditors compare employees observed at work with the labor charges recorded in the accounting system. Floor checks are designed to detect mischarging — employees working on one contract but charging time to another, or employees not present but showing charges.

An audit of the contractor's billing system to ensure that interim and final vouchers (invoices) submitted to the government accurately reflect costs incurred, comply with contract terms, and properly exclude unallowable costs. The billing system must interface accurately with the accounting system and produce invoices that match the cost data in the contractor's books.

An audit of the contractor's system for managing and accounting for government-owned and contractor-acquired materials. DFARS 252.242-7004 establishes criteria for an acceptable MMAS that ensures accurate material cost charging, proper inventory control, and adequate property management for materials used on government contracts.

An audit of the contractor's termination settlement proposal following a government termination for convenience. When the government terminates a contract for its convenience, the contractor is entitled to recover costs incurred, profit on work completed, and settlement expenses. DCAA audits the termination claim to verify that proposed costs are allowable and reasonable.