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5 Min. Read

What Is DCAA Compliance?

What Is DCAA Compliance?

A hot market to be in at the moment is going for government contracts. 

According to the Bureau of the Fiscal Service, the U.S. government spent approximately $1.1 trillion on contractual services in 2020 alone.

Being a government contractor offers a range of benefits. There is a good income, the work is flexible, you are paid on time and employment tends to be stable. 

But companies that do business with the federal government must comply with specific laws and regulations. 

Making sure you are compliant with the Defense Contract Audit Agency or DCAA is a key aspect for contractors working with the government. 

But what is DCAA compliance? Let’s take a closer look.

Here’s What We’ll Cover:

Who Are the DCAA?

What Is DCAA Compliance?

What Is a DCAA Audit?

How Can I Prepare for a DCAA Audit?

Key Takeaways

Who Are the DCAA?

The DCAA, or Defence Contract Audit Agency, is the government agency responsible for auditing the Department of Defence contracts. 

However, the DCAA can also be brought in by other government agencies to help assist with their audits. This will tend to be in relation to providing accounting and financial advisory services. 

The DCAA is there to make sure that the military, the government and the taxpayers get what they are paying for. This is summed up nicely in their mission statement:

“Supporting the Warfighter and Protecting the Taxpayer”.

What Is DCAA Compliance?

The term DCAA compliance is often thrown around in the contracting industry. But the DCAA does not actually certify contractors as compliant. 

Instead, the DCAA has a set list of recommendations and guidelines for contractors to follow. This is so that they remain compliant with the federal laws. It also helps the contractors be prepared for audits.

Being DCAA compliant means that your company has documented policies and procedures in place. These procedures then need to be strictly followed and meet all of the DCAA’s requirements. 

DCAA compliance is a strict and thorough process. It includes detailed accounting within every department that the government’s money has gone to. 

The DCAA emphasizes that recording and accounting for time tracking is also a large part of their focus. 

What Is a DCAA Audit?

A DCAA audit checks for compliance within your business.

These checks include submitting accurate documentation about costs. The DCAA has a particular focus on time-keeping and accounting. 

 Some of the common items being scrutinized during an audit are: 

  • Allowable costs
  • Unallowable costs
  • Direct costs
  • Indirect costs
  • Cost pools
  • Pooling of indirect costs

How Can I Prepare for a DCAA Audit?

The Department of Defence provides links for access to the same checklists that DCAA auditors use to assess your records. They also provide the DCAA Contractors Audit Manual to provide an overview of the audit process. 

These resources are a fantastic way to help you prepare for your audit. 

Here are some of the basic steps to take to help prepare for an audit. 

1. Make Sure Your Timesheets Are Always up to Date

Ensure that every employee completes their timesheets daily and accurately. Using software that allows for time tracking, such as FreshBooks, can be a massive time and stress saver. 

It’s also helpful to keep a track of who has submitted time, whose time has been approved and who recorded this process. This is because the DCAA won’t just be looking for your timesheets, but they’ll also want to see how much time your employees spent on each project. 

2. Account For Any Overtime

Overtime is when salaried or non-salaried employees work more than their allocated number of hours.

During a DCAA audit, they will calculate your labor costs based on the number of hours worked. Therefore it’s vital that you make sure you include any overtime hours. 

3. Make Sure Your Payroll and Time Records Are Accurate

As we said before, the DCAA put a huge emphasis on pay and time keeping. 

Therefore the responsibility of making sure you are keeping a detailed report that is also accurate is a vital one. 

If it’s clear that timesheets have been tampered with, or the numbers don’t seem to match up, the government will want thorough details of any changes. If something is found to be incorrect, whether that’s on purpose or not, you could be fined and even face jail time. 

Key Takeaways

Getting a government contract can be a lucrative business. Being able to get steady work from the federal government is a great way to ensure a strong and steady income.

However, anything that uses taxpayers’ money is strongly scrutinized. So it’s incredibly important to make sure all of your accounts are accurate and in one place. ]


Using software like FreshBooks means that you can have all of your accounting needs in one place. It’s fast, easy, secure and perfectly integrated.


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