Defense Contract Audit Agency (DCAA)

Definition

The Defense Contract Audit Agency (DCAA) performs contract audits for DoW and provides financial advisory services to contracting officers. DCAA audits cover accounting system adequacy, forward pricing rate proposals, incurred cost submissions, CAS compliance, Truth in Negotiations Act compliance, and termination settlements. DCAA audit reports drive contracting officer determinations and can result in disallowed costs, rate adjustments, or referrals for fraud investigation. DCAA does not have final authority — the contracting officer does — but its findings carry substantial weight.

Why It Matters

Any contractor doing cost-type or T&M work on DoW contracts will interact with DCAA regularly. Clean audit history is a major asset during re-competes and supports higher indirect rates. Audit failures can suspend progress payments, trigger rate caps, or disqualify a firm from cost-type work entirely. Investing in a DCAA-compliant accounting system early — QuickBooks alone is insufficient — is a foundational decision for any defense-focused firm.

Example

A 30-person engineering firm submits its first incurred cost proposal. DCAA audits and identifies $180K of unallowable costs (lobbying, alcohol, first-class travel). The firm reimburses the government, updates its accounting policies, and retains a GovCon CPA to review ICPs going forward.

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