If you’re a government contractor—or thinking about becoming one—you’ve probably heard the term DCAA. For many business owners, it sounds intimidating, confusing, or even a little scary.
So, let’s break it down clearly: What is it, what does it do, and why does it matter to your business?
Understanding the DCAA is important because it affects how you track costs, bill the government, and stay eligible for federal contracts.
What Is the DCAA?
DCAA stands for the Defense Contract Audit Agency. It is a federal agency that supports the Department of Defense (DOD) and other government agencies.
In simple terms, the agency’s job is to make sure government contractors:
- Charge the government correctly
- Follow contract rules
- Have reliable accounting systems (so they can charge the government correctly)
The agency does not award contracts. It does not manage projects. Its role is to audit and review contractor financial information to protect taxpayer dollars.
While it is technically part of the DOD, many other government agencies that are not under the DOD may reference or use the DCAA to lay out financial reporting requirements that they expect of their contractors.
What Does the DCAA Do?
This agency focuses on financial oversight. Some of its main responsibilities include:
- Reviewing contractor accounting systems
- Auditing costs billed to the government
- Evaluating indirect rates, like overhead and G&A
- Reviewing timekeeping practices
- Supporting agencies during contract negotiations
For government contractors, this means your accounting system needs to be set up the right way—from day one.
What’s the Difference Between DCAA and DCMA?
This is a very common question. Both agencies work together, but they have different roles.
While DCAA focuses on financial audits, DCMA (Defense Contract Management Agency) focuses on contract performance.
Here’s a simple comparison:
- DCAA: Reviews costs, rates, and accounting systems. They look at whether you’re billing and tracking costs correctly.
- DCMA: Oversees how the contract is carried out. They look at whether you’re meeting contract requirements.
What Triggers an Audit?
Not every government contractor is audited right away. However, certain situations can increase the chances of a DCAA audit.
Common triggers include:
- Winning a cost-plus-type government contract
- Submitting indirect rate proposals
- Requesting provisional billing rates
- Rapid business growth
- Issues found during prior reviews
Sometimes audits are routine. Other times, they are triggered because the government needs to confirm that your accounting system can handle federal requirements.
The key point: being audited is not a sign you did something wrong. It’s part of doing business with the government.
Why DCAA Compliance Matters
If your accounting system is not DCAA compliant, you may face:
- Delays in contract awards
- Rejected invoices
- Withheld payments
- Cost disallowances
- Extra scrutiny from government agencies
On the other hand, strong compliance builds trust and makes it easier to win and manage government contracts.
How Bay Business Group Helps Government Contractors
Bay Business Group’s outsourced accounting services specialize in helping government contractors navigate DCAA requirements.
Our team helps contractors:
- Establish proper cost tracking and timekeeping
- Prepare for audits and system reviews
- Respond to audit requests with confidence
- Maintain compliance as the business grows
Instead of reacting to problems after an audit starts, Bay Business Group helps contractors stay prepared and compliant year-round.
Navigate Compliance With Ease With Bay Business Group
If you’re a government contractor looking for clarity and confidence around DCAA compliance, schedule a free, 30-minute consultation with us. Bay Business Group can help you build the right accounting foundation from the start. Click here to set up a call or reach out to one of our team members directly: