DCAA (Defense Contract Audit Agency)

What is DCAA (Defense Contract Audit Agency)?

The Defense Contract Audit Agency (DCAA) is the primary audit agency for the Department of Defense (DoD). It plays a crucial role in ensuring that taxpayer dollars are spent responsibly and efficiently on defense contracts by auditing the financial and accounting practices of government contractors.

Definition

The DCAA is responsible for performing all necessary contract audits for the DoD and providing accounting and financial advisory services regarding contracts and subcontracts to all DoD components responsible for procurement and contract administration. Their audits assess the fairness and reasonableness of proposed contract prices, the contractor's compliance with applicable laws and regulations, and the efficiency and effectiveness of their internal controls. DCAA also audits costs claimed by contractors on completed contracts and advises contracting officers on the acceptability of contractors' accounting systems. DCAA's legal basis stems from various federal laws and regulations, including the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). DCAA audits provide critical information to contracting officers, helping them negotiate fair and reasonable contract prices and protect the government's interests.

Key Points

• Audit Scope: DCAA audits cover a wide range of areas, including pricing proposals, incurred costs, accounting systems, and compliance with regulations.
• Independence and Objectivity: DCAA auditors are expected to maintain independence and objectivity in their work, ensuring that their findings are unbiased and reliable.
• Compliance Enforcement: DCAA audits help enforce compliance with federal laws and regulations, such as the FAR and CAS, promoting accountability and transparency in government contracting.
• Impact on Contractors: DCAA audit findings can have significant financial and operational impacts on contractors, potentially leading to price adjustments, cost disallowances, and reputational damage.

Practical Examples

1. Pricing Proposal Audit: A contractor submits a proposal for a DoD contract, and the DCAA reviews the proposed costs to ensure they are reasonable, allocable, and allowable under the FAR. If the DCAA identifies any questionable costs, they will issue a report to the contracting officer, who will then negotiate with the contractor to adjust the contract price.
2. Incurred Cost Audit: A contractor has completed a cost-reimbursement contract, and the DCAA audits the contractor's claimed costs to ensure they are supported by adequate documentation and are in compliance with applicable regulations. Disallowed costs can reduce the contractor's profit.
3. Accounting System Review: The DCAA conducts a Contractor Purchasing System Review (CPSR) to assess the adequacy of a contractor's purchasing system. A deficient purchasing system can lead to withholding of payments and impact future contract awards.