Our firm recently won our first federal cost-reimbursement contract, 54151S for IT professional services, after years of firm-fixed-price work. We are a small business, so this is a big step. We've been told to prepare for a Defense Contract Audit Agency (DCAA) incurred cost audit. We have our accounting system ready, but we are not sure what to expect. What is the typical process for a DCAA incurred cost audit? What kind of documentation do they usually request?
The Defense Contract Audit Agency (DCAA) conducts an incurred cost audit to verify that the costs a contractor claimed on a cost-reimbursement contract are allowable, allocable, and reasonable. DCAA usually starts by sending an entrance conference letter to schedule a meeting with your firm's management and accounting personnel. During this meeting, they will outline the scope of the audit, explain their process, and discuss the timeline for submitting requested documents. They typically request detailed financial records, including general ledgers, payroll records, invoices from subcontractors and vendors, and supporting documentation for direct and indirect costs. You will also need to provide your indirect cost rate proposals, your accounting policies and procedures, and information on any unallowable costs that were excluded from billings. My firm has gone through these audits; it is a thorough review of your accounting system and the costs you've charged to the government.