DEFENSE CONTRACT AUDIT AGENCY (DCAA): Background, Compliance and Tips

This blog is presented as a public service by the national law firm of Charles Jerome Ware, P.A., Attorneys and Counsellors.

www.CharlesJeromeWare.com

BACKGROUND

The Defense Contract Audit Agency (DCAA), is an agency of the United States Department of Defense under the direction of the Under Secretary of Defense (Comptroller). DCAA is primarily responsible for performing all contract audits for the Defense Department (and, to a lesser extent, for other agencies outside DoD), and providing cost accounting and financial advisory services regarding contracts and subcontracts to all DoD components responsible for procurement and contract administration.

These services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts. DCAA does not provide consulting/advisory services to contractors due to independence requirements.

Today, the Defense Contract Audit Agency consists of approximately 4,000 people located at more than 300 field audit offices throughout the United States, Europe, and in the Pacific. The Agency provides standardized contract audit services for the Department of Defense, as well as accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration.

These services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts. DCAA does not provide consulting/advisory services to contractors due to independence requirements.

DCAA also provides contract audit services to some other Government Agencies, as well as to other countries under the Foreign Military Sales (FMS) program, on a reimbursable basis. The largest non-DoD agency for which DCAA performs audits is NASA (primarily since the same government contractors, especially on major programs, do substantial business with both DoD and NASA).

COMPLIANCE

The noble purpose of the DCAA is, quite simply, to avoid tax payer funds going toward the purchase of $1,000 hammers, $2,500 toilet seats, and $3,000 coffee makers, etc.

Business services and products companies that sell to government agencies need to comply with a number of DCAA requirements if they want to avoid failing an audit.

Full and complete compliance by contractors is paramount.

TIPS

1. Strict DCAA compliance is absolutely crucial to any company wanting to win government contracts. Therefore, superior DCAA compliance software and, in some cases, excellent DCAA compliance consultancies, can be very helpful for contractor success.

2. For consistent DCAA compliance, and to insure successful DCAA audits, contractors are strongly advised to have documented policies and procedures which should be followed stringently.

3. Contractors also should have a system in place (certainly for "services") that charge labor for hourly time, certain accounting and billing system properties, and employees who are trained in certain areas of compliance such as, for example, tracking employee time on a daily basis.

4. The system for charging labor for hourly time in 3, supra, should certainly be documented (in writing). In reality, though, it is infrequently documented.

5. Costs (especially labor hour costs) should be allocated and accumulated separately by various categories, including direct versus indirect, and per contract.

6. Indirect costs (such as the costs of accounting, billing and payroll, HR and benefits personnel) should be consistently documented and allocated across the direct cost items.

7. Reports should be generated at least monthly.

8. Unallowable expenses should be identified and excluded by policy.

There are numerous DCAA regulations to comply with that explain how to estimate projects, bid on them, bill for them, and allocate costs for the projects. Study them carefully.

[see, www.softwareceo.com/45282/Curt Finch/02-29-2012; "Defense Contract Audit Agency", www.dcaa.mil; "DCAA Products and Services", www.dcaa.mil.products.htm/22-22-2011; "GAO: Give Troubled DoD Audit Agency More Independence", Elise Castelli, Federal Times, September 23, 2009; "Pentagon Auditors Blasted By New Report", John M. Donnelly, Congressional Quarterly, Today, September 30, 2009]