DCAA Post-Award Accounting System Audits for Government Contractors

Summary:

• Post-award audits test whether your accounting system actually operates in compliance with regulations, not just whether it’s designed to, which means auditors move from reviewing policies on paper to testing execution across timekeeping, labor charging, and cost allocation. 
• Most post-award audits occur on cost-reimbursable and time-and-materials contracts, but contractors shouldn’t assume fixed-price work eliminates audit exposure, as the DCAA may self-initiate reviews based on contract volume, dollar value, or prior findings. 
• Audit readiness requires organized, reconciled records available on demand, and some reviews—like real-time labor evaluations—happen without advance notice, making daily compliance practices more critical than preparation triggered by an audit announcement.

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Passing a pre-award survey is a meaningful milestone, but it isn’t the end of the Defense Contract Audit Agency’s (DCAA) involvement in your business. Once a contract is awarded and performance begins, you become subject to post-award audits—a deeper, more comprehensive examination of whether your accounting system is actually operating in compliance with all applicable regulations, not just whether it was designed to do so. Understanding what these audits cover, what sets them in motion, and how to prepare can make the difference between a smooth review and a finding that affects your cash flow and your ability to pursue future contracts. 

How does a post-award audit differ from a pre-award audit? 

A pre-award audit—evaluated against Standard Form (SF) 1408—is conducted before a contract is awarded. Its purpose is to assess whether your accounting system is designed to support a cost‑type contract, a determination driven by FAR requirements. 

A post-award audit goes further. The primary objective at this stage is to determine whether your accounting system is fully compliant and operating as intended, a review driven by DFARS requirements. Where the pre-award audit evaluates design, the post-award audit evaluates execution. Auditors move from reviewing policies and procedures on paper to testing whether those systems are working as intended across billing, timekeeping, labor charging, unallowable cost controls, and indirect cost accumulation. 

Does every government contract trigger a post-award audit? 

Not every government contract automatically leads to a post-award accounting system audit. According to the DCAA’s own published guidance, most DCAA audit activity on firm-fixed-price contracts takes place during the proposal stage rather than after costs are incurred. The reverse is true for cost-reimbursable contracts, where the allowable costs included in final pricing are generally determined after they’ve been incurred and reviewed. As a result, post-award accounting system audits are most commonly associated with cost-reimbursable and time-and-materials contracts. 

That said, contractors shouldn’t assume that a fixed-price contract eliminates audit exposure entirely. The DCAA’s contractor manual confirms that auditors may self-initiate a post-award accounting system audit based on their own risk assessment. The nature, dollar value, and history of your government work all factor into how likely a review becomes. Growth—taking on more contracts and larger awards—can increase that likelihood, which is why building a compliant accounting infrastructure from the start is worth the investment. 

What specific factors prompt the DCAA to initiate a post-award audit? 

The DCAA’s contractor manual identifies two primary scenarios that lead to a post-award accounting system audit:  

• A pre-award survey was completed and recommended further review 
• No pre-award survey was conducted, and the contracting officer subsequently determines that one is now necessary 

Beyond those two paths, auditors may also initiate a review on their own, and audits can arise on a recurring, cyclical basis or when concerns surface during other government oversight activities. 

Certain circumstances also tend to draw scrutiny. A significant jump in contract volume or dollar value, concerns raised during an incurred cost audit, issues identified during a real-time labor floor check, or deficiencies flagged in other government reviews can all prompt a closer look. Contractors who have had prior audit findings are particularly likely to face continued attention going forward. 

What do DCAA auditors look for during a post-award accounting system audit? 

When auditors conduct a post-award accounting system review, they’re testing whether your system holds up in practice—not just on paper. Based on the requirements outlined in DFARS 252.242-7006(c), post-award audits typically cover: 

• Whether the contractor maintains a sound internal control environment, including an appropriate organizational structure, documented accounting policies and procedures, and adequate segregation of duties to minimize the risk of mischarges and misallocations 
• Whether direct and indirect costs are properly segregated and allocated in practice, not just in policy 
• Whether employee labor hours and dollars are accurately tracked and charged to the correct contracts, with timesheets completed and certified by employees and reviewed by supervisors 
• Whether costs that are unallowable under FAR Part 31 are being identified and excluded from government billings before they’re submitted 
• Whether payroll records reconcile to the general ledger and to labor distribution records 
• Whether job cost reports can be traced back to the general ledger and to amounts billed on both a current and cumulative basis 
• Whether indirect cost rates are being calculated at least monthly and applied consistently across contracts 

Will I receive advance notice before a post-award audit? 

For most post-award accounting system audits, you’ll receive some form of advance notice. The DCAA typically begins with an entrance conference, a scheduled meeting where the auditor explains the scope and purpose of the review, outlines the timeline, and may ask general questions about your firm and its operations. From there, auditors might request a facility tour, provide a list of records they’ll need, and either schedule a return visit or request that materials be submitted electronically. 

However, not every DCAA review comes with a heads-up. Real-time labor evaluations—a specific type of review focused entirely on timekeeping compliance—are conducted without advance notice. An auditor may arrive at your location unannounced to observe whether employees are recording their time accurately and in real time. This is a meaningful reminder that audit readiness isn’t something you prepare for only after receiving notice. It needs to be part of how you operate every day. 

What records and documentation will the DCAA request? 

Post-award audits are document-intensive. Drawing from the DCAA’s published guidance and the requirements in DFARS 252.242-7006(c), you should expect auditors to request a broad range of financial and operational records. This typically includes: 

• Timekeeping records and supporting documentation for all labor charged to government contracts 
• Payroll records reconciled to the general ledger and to labor distribution records 
• General ledger detail and trial balances 
• Invoices and billing records showing costs billed on both a current and cumulative basis 
• Job cost reports traceable to the general ledger 
• Indirect cost pool details and rate calculations 
• Documentation supporting the identification and exclusion of unallowable costs 
• Subcontractor agreements and supporting cost documentation 
• The written policies and procedures that govern your accounting system and internal controls 

Auditors will typically request access to your accounting system itself to observe how it functions and verify that actual practice matches the system’s design. Organized and reconciled records that can be produced quickly signal system adequacy to the DCAA. Disorganized records, or records that don’t reconcile, are often what turn a routine review into a significant finding. 

Work with a government contracting CPA 

Post-award audits don’t have to be a crisis if you’re prepared. Our government contracting team works with contractors to build compliant accounting systems, maintain audit-ready records, and respond effectively when the DCAA initiates a review. If you have questions about your current compliance posture or want to get ahead of a potential audit, contact us today using the form below.