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Estimated Read Time: 5 minutes
When a DCAA audit wraps, most contractors ask the same questions:
- “Did we pass?”
- “Is this a deficiency?”
- “What do we have to fix—and how fast?”
The reality is that DCAA issues audit results, and then contracting leadership (often the Administrative Contracting Officer / ACO) uses those results to make decisions about system adequacy, rates, billing, and next steps. FAR confirms that the Government evaluates and maintains oversight of contractor accounting system adequacy as part of contract administration. (acquisition.gov)
Below is a practical, plain-English breakdown of the most common audit outcomes—what they mean, what happens next, and how to respond professionally.
How audit outcomes are typically communicated
DCAA’s audit process materials explain that audits involve requests, evaluations, and reporting of results to support Government decisions. (dcaa.mil)
What you’ll usually see at the end of an audit
- An audit report (or formal communication of results)
- Findings categorized by severity (where applicable)
- Recommendations and/or required actions
- Follow-up requests if items remain unresolved
Outcome #1: “Pass” / Adequate / No reportable deficiencies
This is the best-case scenario: DCAA does not report issues that rise to the level of a material concern for the audit’s objective.
What “Pass/Adequate” generally means
- Your documentation supports the tested transactions
- Controls appear to be designed and operating effectively
- Any minor issues are not considered reportable at a higher level
What to do even when you “pass”
- Document what worked (so you can repeat it)
- Close out small observations internally (so they don’t become repeat issues)
- Keep your “audit-ready package” current (policies, tie-outs, training records)
Outcome #2: Deficiency or “Material Weakness” (reportable finding)
Many contractors hear “deficiency” and immediately think they’re in trouble. But there are levels. DCAA guidance on audit reporting distinguishes deficiencies from more serious issues such as material weaknesses (and how they are reported). (dcaa.mil)
Also, terminology has evolved: DoD rules have moved from “significant deficiency” terminology toward “material weakness” in certain business system contexts. (federalregister.gov)
Common examples of reportable findings
- Timekeeping controls not consistently followed (late entry, undocumented corrections)
- Labor distribution not reconciling to payroll/GL
- Unallowable costs not segregated
- Indirect rate pool/base logic unclear or unsupported
- Billing packages missing support or not tying to job cost/GL
Why this matters operationally
A reportable finding can trigger:
- more testing in follow-up audits
- higher documentation burden for billings
- delays in final rate negotiations or closeout activities
Outcome #3: Corrective Action Required (CAP) + follow-up review
If the audit identifies a material weakness (especially under DoD business system rules), the Government may require a Corrective Action Plan (CAP) and perform a follow-up review to verify it’s implemented.
DFARS accounting system administration language describes the Government providing determinations of weaknesses and the contractor addressing them. (acquisition.gov)
What a strong CAP includes
- Root cause (what failed and why)
- Immediate containment (what you did right away to stop recurrence)
- Permanent fix (policy update, system configuration, approval controls, training)
- Owner + timeline (who is accountable, dates, milestones)
- Evidence plan (what documentation proves the fix is operating)
Red flag to avoid
A CAP that only says “we trained employees” without showing:
- updated policy language
- acknowledgments/training logs
- system controls
- a test sample demonstrating compliance
A critical note for DoD contractors: payment withholding can apply in business system determinations
For covered DoD contracts, DFARS contains business system clauses that can allow the contracting officer to withhold a percentage of payments when there are serious system issues (subject to clause terms and limits). (acquisition.gov)
What this means in practice
- It’s not just “paperwork”—a system outcome can impact cash flow
- Timely corrective action and documentation can reduce how long the issue persists
- You want a CAP that is measurable and auditable
Important nuance: withholds and thresholds depend on your clause coverage and the contracting officer’s determinations, so treat this as contract-specific—not universal.
What happens after the audit: the “next steps” timeline
Even when DCAA completes fieldwork, there’s usually a period where findings are discussed, responses are evaluated, and actions are finalized.
Typical post-audit sequence (high level)
- Contractor receives results/questions and provides responses
- DCAA finalizes reporting and communicates results to contracting officials
- The ACO/CO evaluates impacts on system adequacy and contract administration
- Corrective action is implemented (if required)
- Follow-up testing occurs if needed (especially for CAP verification)
FAR identifies accounting system adequacy as a continuing contract administration function—meaning it’s not a one-time checkbox. (acquisition.gov)
How to respond based on your outcome (a practical playbook)
If you “Pass/Adequate”
Do this immediately
- Save your final audit package in an internal “gold standard” folder
- Convert any informal auditor comments into internal checklist items
- Schedule quarterly self-tests of your highest-risk areas (timekeeping, indirect rates, unallowables)
If you receive a deficiency/material weakness
Do this within the first week
- Acknowledge and respond professionally with facts (not emotion)
- Provide a root cause summary and your planned corrective actions
- Fix issues that impact current billing first (timekeeping, labor, unallowables)
If you must deliver a CAP
Do this to reduce follow-ups
- Build the CAP like a project plan with owners and dates
- Include evidence you can produce on demand (logs, approvals, system settings)
- Perform your own internal “mini follow-up audit” before DCAA returns
FAQs: DCAA audit outcomes
Does “no findings” mean we’ll never be audited again?
No. It means the audit objective was satisfied for that period/scope. Audits may recur due to contract type, incurred cost cycles, or ongoing oversight needs. (dcaa.mil)
Who decides whether our system is “adequate”?
DCAA performs audits and issues reports, but system adequacy is part of contract administration decisions managed through contracting channels (often the ACO/CO). FAR explicitly includes determining accounting system adequacy as a contract administration function. (acquisition.gov)
If we get a finding, is it automatically a “deficiency report”?
Not always. Severity and reporting format depend on the audit type and rules in play. DCAA guidance addresses how deficiencies/material weaknesses are reported. (dcaa.mil)
Can payment withholding happen from a system issue?
For certain DoD covered contracts with applicable DFARS clauses, withholding can apply based on contracting officer determinations and clause terms. (acquisition.gov)
Key takeaways
- DCAA audit outcomes generally land in three buckets: Adequate/Pass, Deficiency/Material Weakness, or Corrective Action Required (CAP). (dcaa.mil)
- Accounting system adequacy is an ongoing contract administration expectation—not a one-time event. (acquisition.gov)
- A strong CAP is measurable: root cause, controls, training, and evidence that the fix is operating. (acquisition.gov)
- For covered DoD contracts, business system outcomes can carry cash-flow implications depending on DFARS clause coverage. (acquisition.gov)
If you’ve received audit questions, a deficiency, or you’re being asked for a CAP, VSINGH CPA can help you respond strategically—tighten controls, assemble support, and build a corrective action package that reduces follow-ups and protects cash flow.
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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)
✅ DCAA Audit Readiness Series #4: Timekeeping & Labor Compliance Red Flags
✅ DCAA Audit Readiness Series #5: Indirect Rates Under Audit Scrutiny
✅ DCAA Audit Readiness Series #6: How to Respond to DCAA Requests
✅ DCAA Audit Readiness Series #7: Audit Outcomes: Pass, Deficiency, or Corrective Action ✅
8️⃣ DCAA Audit Readiness Series #8: What Happens After the Audit?