What is a DCAA labor audit?
The DCAA conducts a number of audits, called “audit programs.” Among the list are several types of labor audits, including:
• Non-Major Contractors Labor Floorchecks
• Operations Audits for Labor Elements
• Major Contractors Labor Floorchecks/Interviews
• Cost Accounting Standard No. 407, the Use of Standard Costs for Direct Material and Direct Labor
Floorchecks and timesheet audits
Many government agencies and the contracts they award expect employees to fill out daily timesheets. So when the DCAA conducts a labor audit, they’re confirming that employee timesheets have been filled out in a timely manner. The labor “floorchecks” listed above are surprise spot visits from government auditors to confirm employees are following company policies and that policies reflect the audit program’s labor criteria for adequate time-keeping and training.
Business system audits
The DCAA also conducts audits for business systems, forward pricing cost proposals, incurred costs proposals, labor and materials, and provisional billing rates reviews. This is where cost accounting and the act of segregating costs come into play. The more clearly your costs can be tracked to customers and projects and administrative pools, the more likely you are to pass an audit.
And it’s important for a business to pass a DCAA audit. An “adequacy” determination on a business system audit holds considerable weight for contracting officers. Loan officers, for example, appreciate the organized structure of financial statements created from pooling similar costs. An adequate determination is a green light for a contract award and signifies that a company has set up its books to accumulate and record costs correctly.