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I just got a visit from someone called “DCAA” and they want to look at my finances. What do I have to show them? Everything?

CCS offers the following from our Chief Financial Problem Solver, Charlie Moschel:

Wow! Talk about a loaded question! The first visit from DCAA can be quite intimidating, but the process being exercised is very routine. DCAA is the Defense Contract Audit Agency. Many civilian agencies also contract for DCAA’s services, so having a defense contract is not a prerequisite to a visit from DCAA.

First of all, DCAA’s right to access your data stems exclusively from contract clauses. So the proper starting point for an answer should be your contract. Read it. Check your compliance matrix to see where these clauses appear. They are most often incorporated by reference, so unless you have done your research, you may have never read the clause at all. Generally, DCAA will audit actual costs incurred during performance. DCAA also assesses compliance with the Truth in Negotiations Act (TINA).

This right of access is limited to the “audit trail.” Thus they have no right to any oral information – their investigation should be limited to the paper. If the flow of costs is not properly reflected in the paper, no amount of oral explanation will fix that.

On the other hand, a positive relationship with your DCAA auditor can be very fruitful. This is best left, however, to those who are experienced in dealing with DCAA. While the agency is populated with very competent folks, some are not averse to wielding their apparent authority to entice more information out of you than they are entitled to.

One interesting aspect of this discussion is what access DCAA should have to documents that exist today solely because of requirements of Sarbanes-Oxley. As a general statement, these documents do not reflect the audit trail, and, therefore, should be off limits to DCAA. Since “SOX” compliance is new to most folks, care should be taken in developing your SOX procedures so that the documents groupings do not spill over into each other. Poor record keeping can result in far more access being granted than may have been intended. Policies and procedures that relate to financial reporting should be separate from those that describe government contract cost accounting. The more well defined your cost audit trail is, the more difficult it will be for DCAA to stray outside those limits.

Also keep in mind that there are others who have audit rights under your contract, such as the Government Accountability Office and your agency’s Inspectors General. Their rights to broader access, including SOX data, will generally extend beyond the rights of DCAA.

NOTE: CCS is not authorized to practice law or accounting. This information should not be relied on in any particular facts you may have without checking with a properly licensed professional.