Legal Definitions - Defense Contract Audit Agency

The Defense Contract Audit Agency (DCAA) is a specialized agency within the U.S. Department of Defense. Its primary mission is to ensure financial accountability and integrity in government contracting.

The DCAA achieves this by performing independent audits of contracts awarded by the Department of Defense. These audits verify that contractors' costs are fair, reasonable, and comply with federal regulations. Additionally, the DCAA provides expert accounting and financial advice to various DoD components responsible for purchasing goods and services (procurement) and managing those contracts (contract administration).

Here are some examples of how the DCAA operates:

• Pre-Award Cost Review: Imagine the Air Force is planning to award a significant contract to "Skyward Dynamics" for the development of a new generation of aircraft engines. Before finalizing the deal, the Air Force asks the DCAA to review Skyward Dynamics' proposed costs, including labor rates, material expenses, and overhead. The DCAA conducts an audit to ensure these costs are accurate, justifiable, and comply with government contracting principles, providing crucial financial advice to the Air Force's procurement team.

  This example demonstrates the DCAA's role in conducting contract audits and providing financial advice during the procurement phase, helping the DoD component make informed decisions before a contract is awarded.

• Post-Award Cost Verification: "Oceanic Technologies Inc." has a multi-year, cost-reimbursement contract with the Navy to develop advanced sonar systems. Under this type of contract, the Navy pays for Oceanic Technologies' approved costs plus a fee. Periodically, DCAA auditors visit Oceanic Technologies' facilities to examine their accounting records, invoices, payroll data, and timekeeping systems. Their goal is to verify that all costs claimed by the company are legitimate, allowable under the contract terms, and directly related to the sonar system development.

  This illustrates the DCAA's function in conducting ongoing contract audits during the contract administration phase, ensuring that taxpayer money is spent appropriately on existing contracts.

• Contractor System Audit: The Army is considering awarding several large contracts to "Global Defense Solutions." Before committing, the Army requests the DCAA to perform an audit of Global Defense Solutions' overall accounting and estimating systems. The DCAA assesses whether the company's internal controls, financial processes, and cost-tracking methods are robust and reliable enough to accurately manage government funds and comply with federal acquisition regulations across all their defense contracts.

  This example highlights the DCAA's broader role in providing accounting and financial advice, not just on individual contract costs, but on the integrity and compliance of a contractor's entire financial infrastructure, which impacts future procurement and contract administration.