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Most DCAA “findings” aren’t about bad intent they’re about weak controls, inconsistent documentation, or preventable process gaps. The good news: the most common issues repeat across contractors, which means you can address them before an auditor does.
This post covers the most frequent DCAA audit findings Government contractors run into and a straightforward way to prevent each one.
What DCAA means by a “finding”
A finding typically points to an issue that affects the Government’s ability to rely on your:
- timekeeping and labor charging
- accounting system and internal controls
- billing support
- indirect rate structure
- treatment of unallowable costs
- documentation and traceability (GL ↔ job cost ↔ invoices)
Why findings matter
Even one weak area can trigger:
- questioned costs
- billing delays
- system deficiencies requiring corrective action
- added scrutiny in future audits
The most common DCAA findings (and how to avoid them)
1) Timekeeping deficiencies (late, incomplete, or unsupported timesheets)
Timekeeping is one of the most heavily tested areas because labor is often the largest cost on GovCon work. DCAA guidance emphasizes that timesheets are critical and that timekeeping controls should be clearly defined and followed.
What this looks like in real life
- Timesheets entered days later “from memory”
- Missing supervisor approval or inconsistent review
- Corrections made without documentation (or by someone other than the employee)
- Employees unclear on which charge code to use
How to avoid it
- Require daily time entry (or a defined cadence) and train on it
- Put written correction rules in place (who, how, and required documentation)
- Keep supervisor approvals consistent and auditable
- Run monthly spot-checks: timecards ↔ labor distribution ↔ payroll ↔ GL
2) Labor mischarging and weak labor distribution controls
DCAA floor checks/MAAR procedures evaluate whether employees are charging labor accurately and whether internal controls are working in practice not just on paper.
What triggers findings
- Employees charging to the wrong contract/task
- Indirect time not used properly (admin, training, BD, PTO)
- Labor distribution reports that don’t reconcile to payroll/GL
How to avoid it
- Maintain a clear “how to charge time here” guide (with examples)
- Reconcile labor distribution monthly and keep tie-out support
- Document role-based access: who can create/modify charge codes and why
3) Unallowable costs not identified or not properly segregated
A classic finding is when unallowable costs are included in indirect pools or worse end up billed to the Government. DCAA training materials call out the need to exclude unallowable costs from charges to Government contracts.
Common problem areas
- meals/entertainment miscoding
- advertising/marketing confusion
- penalties, fines, or interest misclassified
- “percentage-based” unallowable reductions instead of specific identification
How to avoid it
- Create distinct unallowable accounts in the chart of accounts
- Train your team on “common unallowables” relevant to your business
- Review credit cards/expenses monthly with an allowability lens
- Document your unallowable review process (who reviews, how often, what evidence is retained)
4) Inadequate documentation and poor traceability (GL ↔ job cost ↔ invoices)
One of the fastest ways to get questioned costs is simple: the cost may be legitimate, but you can’t prove it quickly and clearly. DCAA materials on cost-type requirements emphasize complete documentation and invoices that reconcile to job cost and the general ledger.
What this looks like
- ODC support missing (travel receipts, vendor invoices)
- Subcontractor invoices not retained or not reviewed/approved
- Invoice detail doesn’t reconcile to job cost or GL
- Costs posted without enough description to understand the purpose
How to avoid it
- Standardize your “invoice backup package” by cost type (labor, travel, subs, ODCs)
- Maintain a monthly reconciliation rhythm: bank → GL → job cost → billing
- Require documented approvals for subcontract/vendor costs before billing
5) Indirect rate issues (inconsistent pools/bases or unclear methodology)
Indirect rates don’t need to be identical each year, but they do need to be logical, consistent, and supportable especially when they affect billing and final rate negotiations.
What causes findings
- Pool/base definitions not written down
- Costs moving between pools without a policy reason
- Significant rate swings with no explanation
- Inconsistent treatment of similar costs (IT, recruiting, occupancy, exec support)
How to avoid it
- Write simple pool/base definitions and keep them current
- Document major drivers of rate changes (headcount shifts, new lease, tool spend)
- Reconcile pool/base schedules to the GL monthly (or at least quarterly)
6) Accounting system/internal control weaknesses
A “system” finding often means your controls aren’t strong enough for the contract type, or your records don’t reliably reconcile across reports. DCAA accounting system guidance emphasizes reconciliation between labor distribution, job cost ledgers, and the general ledger.
Common examples
- Direct vs. indirect not consistently segregated
- Job cost not reliable without manual spreadsheets
- Lack of documented approvals for key transactions
- No consistent close process (results vary month to month)
How to avoid it
- Implement a monthly close checklist with required reconciliations
- Limit who can edit key setup (COA, classes/jobs, charge codes)
- Keep an “audit binder” folder structure that stays current (not built last-minute)
FAQs: Common DCAA findings
What is the most common DCAA audit finding?
Timekeeping and labor charging deficiencies are among the most common because DCAA frequently tests labor controls through MAARs and floor checks.
Are unallowable costs always a “finding”?
They can be, especially if they’re not segregated or are included in pools/billings. A strong unallowable identification process reduces this risk.
Can “poor documentation” really lead to questioned costs?
Yes. If costs can’t be supported and traced to source documentation and reconciled to accounting records, auditors may question them—even if the cost is legitimate.
How do I reduce findings quickly before an audit?
Start with three priorities: (1) timekeeping controls, (2) unallowable segregation, (3) monthly reconciliations and invoice backup packages.
Key takeaways
- The most common DCAA findings typically involve timekeeping/labor charging, unallowables, documentation, indirect rates, and reconciliation gaps.
- Most issues are preventable with written policies + consistent enforcement + monthly tie-outs.
- “Audit-ready” means you can produce support quickly, consistently, and with clear traceability (GL ↔ job cost ↔ billing).
If you want to reduce audit disruption and prevent repeat findings, VSINGH CPA can help you strengthen controls, clean up documentation workflows, and build an audit-ready foundation that scales with growth.
👉 Check out our YouTube Shorts for quick GovCon Essentials: https://youtube.com/shorts/x8f2kdq6mV4
What’s next in the DCAA Audit Readiness Series
✅ DCAA Audit Readiness Series #1: What Triggers a DCAA Audit?
✅ DCAA Audit Readiness Series #2: Pre-Audit Readiness Checklist for GovCons
✅ DCAA Audit Readiness Series #3: Common DCAA Findings (and How to Avoid Them)
4️⃣ DCAA Audit Readiness Series #4: Timekeeping & Labor Compliance Red Flags
5️⃣ DCAA Audit Readiness Series #5: Indirect Rates Under Audit Scrutiny
6️⃣ DCAA Audit Readiness Series #6: How to Respond to DCAA Requests
7️⃣ DCAA Audit Readiness Series #7: Audit Outcomes: Pass, Deficiency, or Corrective Action
8️⃣ DCAA Audit Readiness Series #8: What Happens After the Audit?