The DCAA Audit Types

Ask a GovCon CEO about DCAA and you will usually get a single anxiety rather than a specific one. This is understandable and unhelpful. The Defense Contract Audit Agency conducts several distinct types of examination, each with its own trigger, scope, timing, and consequence. Knowing which one is coming, and what it actually looks at, converts a diffuse worry into a manageable set of preparations.

A structural note first: DCAA audits. It does not decide. The audit report goes to a contracting officer, who makes the determination and takes any action. This matters because a contractor who disagrees with an audit finding has a path — through the contracting officer, and beyond that through the disputes process — that does not run through the auditor.

Preaward Accounting System Survey

Trigger. A contracting officer is considering a cost-type award to a contractor that has not held one.

Scope. Whether the accounting system is designed to accumulate and segregate costs appropriately, reported on the SF1408.

Consequence. A gate on award. It is a design review rather than a performance audit — the system needs to be capable, not proven over time.

Floor Check

Trigger. Generally unannounced, on contractors with meaningful cost-type or time-and-materials labor.

Scope. Labor charging practice, tested by interviewing employees directly about what they are working on, what they are charging, and how corrections are handled.

Consequence. Findings on timekeeping controls, potentially escalating to accounting system deficiencies. This is the audit most likely to arrive without warning, and the one where preparation on the day is impossible — the practice either exists or it does not.

Incurred Cost Audit

Trigger. Submission of the final indirect cost rate proposal, subject to DCAA's risk-based selection and sampling. Not every submission is audited; low-risk submissions may be resolved without a full examination.

Scope. Whether claimed costs are allowable, allocable, and reasonable. Indirect pools and bases, unallowable cost identification, executive compensation reasonableness, direct cost support, and the reconciliation of claimed to billed amounts.

Consequence. Final negotiated indirect rates for the year, and settlement of the difference against what was billed provisionally. This is the audit with the most direct cash consequence, and the one that arrives furthest after the fact.

Business System Audits

Trigger. Applicable DFARS business system clauses on covered contracts. The framework covers accounting, estimating, purchasing, earned value management, material management, and property systems, with DCAA and DCMA dividing responsibility across them.

Scope. Whether the system satisfies the criteria in its governing clause on an ongoing basis, rather than at a point of award.

Consequence. This is the framework with teeth. A determination of significant deficiencies can result in payment withholding — a direct interruption of cash receipts, applied while the contractor's cost structure continues unchanged. For a mid-market company this is categorically more serious than a finding to be remediated.

Forward Pricing Rate Proposals and Agreements

Trigger. A contractor proposing rates for use in pricing future work, often where proposal volume makes rate-by-rate negotiation impractical.

Scope. Whether projected indirect rates are supported by a credible basis — business forecast, staffing plan, contract backlog, and the assumptions connecting them.

Consequence. Agreed rates that can be used across proposals, which is a meaningful competitive advantage in speed and consistency. It also means the underlying forecast is now an audited artifact, which raises the standard the forecast has to meet.

Price Proposal Audits and Cost or Pricing Data

Trigger. Negotiated procurements above the applicable threshold where certified cost or pricing data is required.

Scope. Whether the proposal is supported, and whether the data submitted was accurate, complete, and current as of the date of agreement on price.

Consequence. Defective pricing exposure. If the government later determines the data was defective, it is entitled to a price reduction — and this can surface years after award, which makes it a genuine contingent liability in a transaction and one that sellers frequently fail to disclose because they have forgotten the proposal exists.

Termination and Claim Audits

Trigger. A contract termination for convenience, or a contractor claim or request for equitable adjustment.

Scope. Whether the costs claimed in the settlement proposal or claim are allowable, allocable, reasonable, and adequately supported.

Consequence. The settlement amount. These audits are where cost accounting discipline pays for itself directly — a contractor with clean contract-level cost records recovers what it is owed, and one without them recovers what it can prove.

How to Prepare Without Overpreparing

Each audit type rewards different preparation, but the underlying capabilities are shared and small in number.

Contract-level cost data that reconciles to the general ledger, produced monthly. This supports the incurred cost audit, the termination audit, the claim audit, and system adequacy simultaneously.

Unallowables segregated at entry. Supports incurred cost audits and removes the single most common source of expanded scope.

Timekeeping practice that matches timekeeping policy. The only defense against a floor check, and unavailable on short notice.

A forecast with a documented basis. Supports forward pricing, provisional rate adjustments, and any claim requiring projected costs.

A single owner who understands the whole picture. Not a consultant on call. Someone accountable internally who can answer an auditor's question without a research project.

Worth adding: an audit finding is not a verdict. The report goes to the contracting officer, findings are frequently narrowed or resolved through the response process, and contractors who engage substantively rather than defensively generally land in a better place than those who treat the auditor as an adversary to be managed.