Welcome back to the Cost Corner, providing practical insight into the complex cost and pricing compliance issues that apply to government contractors. This is the second installment of a two-part column on Defense Contract Audit Agency (DCAA) audits. DCAA's mission is to conduct contract audits and to provide accounting and financial advisory services to all Department of Defense (DoD) components responsible for procurement and contract administration. Part 1 of this column, published in the September 2023 issue of Pratt's Government Contracting Law Report, provided an overview of DCAA's mission, organization, and audit rights, as well as the types of audits conducted by DCAA. This conclusion focuses on DCAA's standard audit procedures across audit types and identifies best practices for contractors dealing with DCAA audits.


There are two primary sources of audit guidance for DCAA auditors. The DCAA Contract Audit Manual (DCAM) provides technical audit guidance, audit techniques, audit standards, and technical policies and procedures for contract audits.1 DCAA Audit Programs provide roadmaps that are specific to the type of contract audit and include detailed guidance regarding the documents to be reviewed, the questions to be asked, the procedures to be followed, and the analyses to be conducted at each step of the audit. This column focuses on the DCAM audit guidance that applies across most contract types.

The DCAM encourages open communication between the audit team and the contractor.2 Most DCAA audits include an entrance conference, one or more interim conferences, and an exit conference.3 The DCAM provides guidance regarding the types of issues the audit team should address with the contractor during each stage of the audit.4

The DCAM instructs auditors to conduct an entrance conference with the contractor's designated representatives at the start of each audit assignment.5 At minimum, the audit team should explain the purpose of the audit, the overall plan for its performance including the estimated duration, and the types of books, records, and other data the audit team plans to review.6 At the entrance conference, or shortly thereafter, the audit team typically coordinates with the contractor regarding administrative matters, such as arrangements for any necessary workspace and administrative support and identification of the contractor's primary and alternative points of contact for the audit.7 It is also common for the audit team to obtain a briefing from the contractor to clarify any preliminary questions, to understand the basis for the contractor's representations, and to learn the nature and location of supporting data.8 The audit team may also request a separate "walkthrough" meeting to obtain a better understanding of the contractor's assertion(s) being audited, to identify any obvious data omissions, and to determine whether there are any other proposal inadequacies or other issues that need to be addressed early in the audit process.9

The DCAM also encourages the audit team to conduct interim conferences with the contractor.10 The audit team should disclose to the contractor any factual duplications, omissions, or other mistakes noted in the contractor's assertion, records, or supporting data.11 The audit team also should discuss preliminary audit findings with the contractor to ensure that conclusions are based on a complete understanding of all relevant facts.12 In the interest of equity, the DCAM also instructs the audit team to inform the contractor of any significant cost understatements that result from obvious and unintentional oversight, bookkeeping, or mathematical errors.13 The DCAM also encourages the audit team to communicate major audit problems to the contractor at the earliest possible time, before the final exit conference or the issuance of the audit report.14 Examples of major audit problems include denial of access to records, significant deficiencies and material weaknesses, significant differences concerning the application of generally accepted accounting principles, conclusions regarding the reasonableness of estimates, and any other items that may affect the audit.15

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1. DCAM ¶ 0-002.a (Nov. 2021).

2. See, e.g., DCAM ¶ 4-102 (July 2023).

3. DCAM ¶ 4-300 (July 2023).

4. DCAM ¶ 4-300 (July 2023).

5. DCAM ¶ 4-302.1.a (July 2023).

6. DCAM ¶ 4-302.1.b (July 2023).

7. DCAM ¶ 4-302.1.b (July 2023).

8. DCAM ¶ 4-302.1.b (July 2023).

9. DCAM ¶ 4-302.1.c (July 2023).

10. DCAM ¶ 4-303.1.a (July 2023).

11. DCAM ¶ 4-303.1.a (July 2023).

12. DCAM ¶ 4-303.1.b (July 2023).

13. DCAM ¶ 4-303.1.d (July 2023).

14. DCAM ¶ 4-303.1.h (July 2023).

15. DCAM ¶ 4-303.1.h (July 2023).


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.