The Defense Contract Audit Agency (DCAA) maintains multiple audit programs to monitor and verify government contractor compliance. DCAA audit programs may occur before, after, or during contract performance through Preaward Audits, Postaward Audits, and Contractor Business System Audits. DCAA is chartered with identifying and evaluating all activities that contribute to or impact proposed or incurred costs of Government contracts.
DCAA’s major areas of emphasis include: DFARS Business Systems such as Accounting Systems, Estimating Systems, and Purchasing Systems; management policies and procedures; accuracy of contractor forward pricing and incurred cost representations; adequacy and reliability of records and accounting systems; and contract compliance with contractual provisions having accounting or financial significance such as the FAR Cost Principles (FAR Part 31), the Cost Accounting Standards (CAS), and clauses pertaining to the Truth in Negotiations Act (TINA).
The timing of DCAA’s audit will depend on the risk profile of your organization and its contracts. DCAA uses a variety of risk assessment tools to determine which areas of regulatory risk warrant audit attention. In addition, Contracting Officers have very broad discretion as to where audit resources should be deployed.
What Are DCAA Audit Programs?
DCAA audit programs are structured review processes designed to verify that contractors:
Properly account for direct and indirect costs
Only bill allowable, allocable, and reasonable expenses
Maintain compliant accounting and business systems
Follow Cost Accounting Standards (CAS) when applicable
Each program focuses on a different compliance area — and each has its own timing.
1. Incurred Cost Submission (ICS) Audits
When it happens: After you submit your annual Incurred Cost Proposal (due six months after your fiscal year-end).
The ICS audit verifies that the indirect rates and costs billed to the government are accurate and compliant with FAR Part 31.
If you hold cost-reimbursable contracts, this audit is common and expected.
Trigger: Annual incurred cost submission.
2. Accounting System Audits
When it happens: Typically before or shortly after receiving a cost-reimbursable or flexibly priced contract.
DCAA reviews whether your accounting system can:
Segregate direct and indirect costs
Accumulate costs by contract
Produce reliable financial reports
Prevent unallowable costs from being billed
An inadequate accounting system can delay awards or restrict contract types.
Trigger: Contract award or contracting officer request.
3. Forward Pricing & Proposal Audits
When it happens: During contract negotiations before award.
DCAA evaluates whether your proposed labor rates, indirect rates, and cost estimates are supported and reasonable.
This audit protects the government from overpricing.
Trigger: Submission of a negotiated cost proposal.
4. Business System Reviews (Including EVMS)
When it happens: When contracts meet certain dollar thresholds or include specific DFARS clauses.
Larger contractors may undergo reviews of systems such as:
Earned Value Management Systems (EVMS)
Estimating systems
Purchasing systems
These audits ensure systems meet DoD compliance standards.
Trigger: Contract value thresholds or required clauses.
5. CAS Compliance Audits
When it happens: When a contractor becomes subject to Cost Accounting Standards (CAS).
DCAA reviews disclosure statements and accounting practices to confirm consistency and compliance with CAS requirements.
Trigger: CAS-covered contract award.
What Determines Audit Timing?
DCAA does not audit all contractors equally. Timing depends on:
Contract type (cost-reimbursable contracts carry more scrutiny)
Contract dollar value
Risk profile
Prior audit findings
Submission deadlines (like ICS)
Government priorities and workload
High-risk contractors or those with prior deficiencies often face more frequent reviews.
The Strategic Reality
DCAA audit programs are predictable. They follow contract events and compliance requirements.
Smart contractors prepare before triggers occur, not after receiving an audit notice.
That means:
Establishing a compliant accounting system early
Reviewing indirect rate structures
Preparing documentation throughout the year
Addressing internal control gaps proactively
Preparation reduces audit risk, speeds up approvals, and protects cash flow.
If you understand the programs and their timing, you move from reactive to strategic — and that changes everything.