The Defense Contract Audit Agency (DCAA) conducts audits on government contractors to determine compliance with the Federal Acquisition Regulations (FAR).

Every contractor who conducts business with the DOD must pass a DCAA audit, which is basically a broad-based review of the contractor’s operating procedures and every process connected with the DOD contract.

Do what does it mean to be DCAA and DOL compliant? And which actions are important for a contractor to take to increase his chances of passing?

Here are 7 factors that figure into the processes and procedures which enable a company to pass a compliance audit.

1. Standardize company accounting procedures

Contractors must be able to reasonably assure the labor hours are accurately reported. Time keeping policies should be written and followed. Implementing a system for tracking and recording time with a professional time keeping software program is a simple way to handle this factor.

2. Prove financial stability

An audit will require review of the contractor’s financials, from the financial statements to general ledger account code identification.

3. Show the accuracy of price proposals

It’s critical for contractors to bring a solid case for their process of reaching project estimates, including analyzing labor, duration of project, and the allocation of resources. In addition, contractors should make a concerted effort to determine direct and indirect costs involved with the project’s completion.

4. Exhibit accurate controls

The DCAA will review the controls that are in place to circumvent wasteful and inefficient actions on the part of the contractor.

5. Create written policies and procedures

This written format should lay out the individual responsibilities of controls over accounting information. It is the contractor’s responsibility to make certain this information is received by every employee.

6. Monitoring procedures and modify as necessary

A contractor shouldn’t wait for the DCAA to point out the company’s failings. Set up internal control audits to minimize the risk of noncompliance. Analyze them periodically and modify when appropriate.

7. Demonstrate accounting capability

If a contractor’s goal is to secure a DOD contract, the contractor must show a commitment to an exemplary standard of accounting capability, as well as the wherewithal to fulfill the objectives of the contract.

A DCAA audit is a daunting prospect for many contractors. However, with forethought and preparation, it is an experience that takes a contractor one step closer to lucrative DOD contract work.