For government contractors, few words generate more anxiety than “DCAA audit.” Whether you’re preparing for a pre-award accounting system review, an incurred cost audit, or a labor floor check, the process can feel overwhelming if your systems and documentation are not audit-ready. The good news is that surviving a DCAA audit is not about scrambling to gather records when an auditor arrives. The most successful contractors approach compliance as an ongoing business process rather than a one-time event. By maintaining strong internal controls, accurate documentation, and consistent procedures, organizations can significantly reduce audit risk and improve overall operational performance. A recent government contractor case provides a valuable example of why this approach matters.
A Real-World Compliance Lesson
In 2022, Reveal Global Consulting, LLC agreed to pay $820,000 to resolve allegations related to improper billing on a Defense Intelligence Agency contract. According to the Defense Contract Audit Agency (DCAA), the government alleged that the company billed unsupported labor hours, inflated subcontractor costs, and failed to maintain an adequate timekeeping system (full article here). One of the most notable aspects of the case involved documentation. According to DCAA, the contractor represented that certain timesheets did not exist. Auditors later identified timesheets that had previously been provided during audit activities, raising concerns about the company’s recordkeeping and compliance processes. While every case is different and settlements do not constitute an admission of liability, the situation illustrates a challenge many contractors face: maintaining systems and documentation that can withstand audit scrutiny. The lesson is not simply about timekeeping. It is about creating processes that consistently produce accurate, supportable records.
What DCAA Auditors Are Looking For
DCAA audits are designed to verify that costs charged to the government are allowable, allocable, reasonable, and properly documented. While audit scope varies depending on the type of review being conducted, several areas consistently receive attention.
Timekeeping Controls
Labor is often one of the largest costs on a government contract, making timekeeping one of the most heavily scrutinized areas during an audit.
Auditors want to see that:
- Employees record time daily
- Labor is charged to the correct contract or indirect account
- Corrections are properly documented
- Supervisors review and approve timesheets
- Historical records are maintained
Weaknesses in any of these areas can create unnecessary audit risk.
Supporting Documentation
Contractors should be prepared to provide documentation supporting labor, subcontractor costs, travel expenses, purchases, and other direct costs charged to contracts. A common misconception is that documentation simply needs to exist somewhere within the organization. In reality, contractors must be able to locate and produce supporting records efficiently when requested.
Internal Controls
Auditors also evaluate whether management has established processes designed to prevent errors and ensure compliance.
Examples include:
- Approval workflows
- Segregation of duties
- Contract setup procedures
- Accounting system controls
- Management review processes
Strong internal controls help demonstrate that compliance is built into daily operations rather than addressed only when an audit occurs.
How to Survive a DCAA Audit
The contractors that navigate DCAA audits most successfully are typically those that treat compliance as an ongoing business function rather than a last-minute exercise. Maintaining organized documentation, consistent timekeeping practices, documented procedures, and periodic internal reviews can help identify issues before they become audit findings. Most importantly, compliance should not rest solely with the accounting department. An audit-ready environment requires participation from leadership, program managers, supervisors, and employees across the organization. By establishing strong processes before an audit occurs, contractors can reduce risk, improve operational efficiency, and approach audits with greater confidence.
The Bigger Takeaway
The Reveal Global Consulting case serves as a reminder that DCAA audits are often won or lost long before auditors request documentation. Organizations that maintain strong processes, reliable records, and effective internal controls are generally better positioned to navigate audits successfully.
At Tenace, we help government contractors establish the operational processes, documentation practices, and internal controls needed to support both compliance requirements and long-term success.
References
Defense Contract Audit Agency. (2022, April 5). Reveal Global Consulting, LLC agrees to pay $820K for improper billing Defense Intelligence Agency contract. U.S. Department of Defense. https://www.dcaa.mil/Agency-News/Article-View/Article/2990044/reveal-global-consulting-llc-agrees-to-pay-820k-for-improper-billing-defense-in/ (Defense Contract Audit Agency)
Defense Contract Audit Agency. (n.d.). Audit process overview. U.S. Department of Defense. Retrieved June 18, 2026, from https://www.dcaa.mil/Small-Business/Presentations/Audit-Process-Overview/ (Defense Contract Audit Agency)
Defense Contract Audit Agency. (n.d.). Guidance. U.S. Department of Defense. Retrieved June 18, 2026, from https://www.dcaa.mil/Customers/Guidance/ (Defense Contract Audit Agency)
United States Attorney’s Office, Eastern District of Pennsylvania. (2022, March 17). Lancaster company agrees to pay $820,000 for improper billing of Defense Intelligence Agency. U.S. Department of Justice. https://www.justice.gov/usao-edpa/pr/lancaster-company-agrees-pay-820000-improper-billing-defense-intelligence-agency (Justice.gov)
U.S. Department of Justice. (2022, March 17). Lancaster company agrees to pay $820,000 for improper billing of Defense Intelligence Agency. U.S. Attorney’s Office, Eastern District of Pennsylvania. https://www.justice.gov/usao-edpa/pr/lancaster-company-agrees-pay-820000-improper-billing-defense-intelligence-agency