The Defense Contract Audit Agency (DCAA), part of the United States Department of Defense (DoD), performs audits of DoD contractors to ensure the best value for money the agency spends on defense contracting.
As part of its auditing services, DCAA will review a contractor’s accounting and business systems to ensure the contractor is able to comply with acquisition regulations.
These are the key terms contractors should know when working with government agencies.
Administrative Contracting Officer (ACO)
The ACO is the person who is typically responsible for daily activities as part of the contract once the contract has been awarded. The ACO will approve costs, ensuring that they are appropriate and permissible.
Contract Closeout Audit
A contract closeout audit occurs after a contract has been fulfilled and all actions finalized, including final payments. This audit functions as a type of checklist to ensure all actions have been completed. Contracts must be closed within six to 36 months after completion, depending on the contract.
Contract Officer (CO)
A contract officer is the person who requests a DCAA audit. In other words, a CO will determine what audits are needed and how extensive they need to be. Once requested, the auditor will typically proceed with a pre-award survey, although this won’t be the first step for every contract.
Cost Accounting Standards (CAS)
Government contractors must comply with CAS, which is a set of 19 different standards that create consistency for recording costs.
Defense Contract Management Agency (DCMA)
The DCMA administers contracts under the DoD, as well as performs auditing services not performed by DCAA. These audits include compliance with part of the Defense Federal Acquisition Regulation Supplement (DFARS) business system requirements.
Direct costs can be directly connected to a cost object, which could be a product or a project. For example, labor costs are typically considered a direct cost. Direct costs can be both fixed and variable, although they are typically variable.
Federal Acquisition Regulation (FAR)
FAR is the principal regulation that the DoD and other executive agencies use to procure supplies and services with allocated funds. Government contractors must comply with FAR standards, which exist in part to ensure consistent purchasing methodology, and a DCAA auditor will look for FAR compliance during the auditing process.
Floor checks are audits that assess compliance with timekeeping, controls on labor charges, and the accuracy and reliability of worker time records. Floor checks typically include labor interviews and reviews of policies and procedures in the workplace, as well as segregation of duties.
Generally Accepted Accounting Principles (GAAP)
Issued by the Financial Accounting Standards Board (FASB), GAAP help improve consistency when communicating financial information and help ensure that such information is comprehensive. The principles come with 10 general concepts. Government contractors must comply with GAAP.
Incurred Cost Audit
Incurred cost audits help DCAA determine if costs charged to contracts are allowable, allocable, and reasonable, as well as compliant with contract terms, GAAP, CAS, and applicable government acquisition regulations. Incurred cost audits are one of the most common post-award audits DCAA performs and verify contractor direct and indirect costs.
Incurred Cost Proposal (ICP)
An ICP is a yearly submission that details a contractor’s actual expenses performing work under a cost-reimbursable contract. An ICP details direct and indirect expenses, which the auditor will then use to compare actual contract costs to those billed. Not every government contractor will need to do an ICP.
Indirect costs can’t be tied to a specific project or outcome but are nonetheless necessary for running a business and supplying goods or services under a government contract. These could include costs to support a company’s daily operations. An example of an indirect cost would be rent for an office space.
Formerly the Wide Area Workflow System, iRapt—Invoicing, Receipt, Acceptance, and Property Transfer—is a system designed to process vendor payments digitally and collect reports digitally. Unless a contract terms require physical copies of vouchers, contractors must submit them through iRapt.
Pre-award audits are performed before a contract is awarded, and may include an audit of pricing in the cost proposal, or a survey of the contractor’s accounting system.
Pre-award surveys are designed to determine if the contractor’s accounting system is acceptable for accounting for government contracts, and are performed prior to award of a flexibly priced contract. The survey consists of multiple steps, during which compliance with GAAP and timekeeping procedures will be assessed, as will the segregation of direct and indirect costs.
Procuring Contracting Officer (PCO)
The PCO will be the person evaluating your proposal and awarding a contract. They work with the ACO when necessary. The PCO may also submit a request to DCAA to begin the auditing process.
In a proposal audit, DCAA will evaluate pricing and cost estimates for costs in the proposal. A proposal audit can include the entire proposal or portions of the proposal, as well as review of certain data or rates.
DCAA conducts post-award audits after the contract has been awarded. Post-award audits include audit of the costs acquired under the contract as well as business system audits and contract close out audits. The auditor looks for compliance with FAR and CAS as well as accurate and comprehensive data.
Provisional Billing Rate
A provisional billing rate consists of the expected indirect rates a company estimates for the approaching year. These are used to calculate interim billings submitted to the government. A provisional billing rate audit is an audit of these projected rates.
Public Voucher Audits
A public voucher audit is a type of post-award audit in which DCAA evaluates compliance with contract terms and billing instructions with accounting records, as well as the accuracy of costs billed to the government.
Learn More About DCAA Terminology and Audits
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