If you’re a government contractor based in Massachusetts, staying compliant with DCAA (Defense Contract Audit Agency) requirements isn’t optional—it’s essential. Whether you’re navigating federal contracts for the first time or managing multiple award contracts, a surprise audit can cause serious disruption if your financial systems aren’t up to par.
At Peter Witts CPA, we’ve helped countless government contractors prepare for and successfully navigate DCAA audits. In this guide, we’ll show you how to assess your current systems, avoid common mistakes, and get proactive with your audit readiness—whether through accounting support, tax prep, or Virtual CFO services.
What is DCAA Compliance—and Why Is It Critical?
DCAA compliance refers to a set of financial and operational standards that contractors must meet when working with the Department of Defense or other federal agencies. The agency’s audits assess whether your accounting systems are aligned with government requirements, including:
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Accurate timekeeping and labor distribution
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Segregation of direct and indirect costs
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Compliant billing and invoicing systems
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Adequate documentation and internal controls
In short, the DCAA wants to ensure taxpayer funds are spent as promised. Non-compliance can result in delayed payments, disallowed costs, or worse—loss of eligibility for future contracts.
At Peter Witts CPA, we specialize in interpreting FAR (Federal Acquisition Regulation) and DFARS requirements so Massachusetts-based contractors can build compliant, audit-ready systems.
Why Massachusetts Contractors Should Pay Close Attention
Massachusetts is a hub for government contractors—especially in industries like defense manufacturing, biotechnology, aerospace, and IT. Federal agencies frequently audit contractors in this region due to the high volume and complexity of work.
If your business is located in Greater Boston, the Merrimack Valley, or even the Cape, chances are you’ve already encountered—or soon will—a federal contract that triggers a DCAA audit. Being prepared ahead of time puts you in the best position to pass with minimal disruption and risk.
How to Prepare for a DCAA Audit: A Step-by-Step Guide
Audit preparation isn’t just about checking boxes—it’s about creating systems and controls that align with DCAA expectations. Here’s how to get started:
1. Strengthen Your Accounting System
Your accounting software should be GAAP-compliant and capable of tracking and segregating all cost categories (direct, indirect, overhead, G&A, etc.). If you’re unsure whether your current system meets these standards, we recommend a formal accounting system review through our DCAA Accounting Services.
2. Implement Compliant Timekeeping Practices
Time tracking must be done daily, by the employee, with clear policies for corrections and approvals. Manual or retroactive entries raise red flags. We provide internal control guidance and employee training to help standardize your timekeeping system.
3. Maintain Proper Documentation
Keep detailed, organized records for labor costs, subcontractor payments, travel expenses, and overhead allocations. During a DCAA audit, undocumented costs may be disallowed—even if they were legitimate. Our Virtual CFO services can help you create a documentation framework tailored to DCAA requirements.
4. Conduct Internal Mock Audits
Don’t wait for the official audit notice. Regular internal reviews—whether in-house or conducted with your CPA—can reveal gaps before they become liabilities. At Peter Witts CPA, we run mock audits and compliance assessments that simulate real audit conditions.
5. Develop and Document Company Policies
A sound financial system is backed by written policies: timekeeping, billing, expense approvals, cost classifications, and more. Having these clearly defined will demonstrate internal consistency and control to the auditor.
Common DCAA Compliance Mistakes to Avoid
Even experienced contractors can fall short if systems aren’t consistently maintained. Watch out for these common issues:
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Improper labor charging: Assigning employees to the wrong cost pool or failing to document direct/indirect allocations.
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Non-compliant time tracking: Using spreadsheets or bulk time entries instead of daily reporting systems.
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Lack of training: Your staff can’t follow policies they don’t understand—training is key.
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Overlooking subcontractor compliance: If your subs aren’t following DCAA standards, it reflects poorly on your business.
Each of these errors can lead to questioned costs, audit findings, or longer payment delays—outcomes no contractor wants to face.
Benefits of Being Audit-Ready
While preparing for a DCAA audit requires effort, the benefits far outweigh the challenges. A compliant contractor enjoys:
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Faster payments and fewer invoice disputes
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Improved internal financial controls
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Stronger relationships with contracting officers
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A competitive edge when bidding for new work
Plus, when your financial house is in order, you’ll have more time to focus on strategic growth—and less time stressing over regulatory hurdles.
How Peter Witts CPA Helps Government Contractors Stay Compliant
With decades of experience supporting Massachusetts-based government contractors, our team understands the nuances of DCAA audits. We offer:
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Pre-audit assessments and system setup
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Ongoing DCAA Accounting Services
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Virtual CFO support for cost monitoring and financial strategy
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Timekeeping and billing policy development
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Training for employees and accounting teams
Whether you’re starting a new contract or managing a growing portfolio of federal work, our tailored solutions will keep your business compliant and confident.
Being ready for a DCAA audit isn’t about checking in when the notice arrives—it’s about building a proactive, well-managed system from the start. With the right support, audit preparation becomes part of your broader financial strategy, not a fire drill.
Ready to assess your DCAA compliance or upgrade your accounting systems?
Contact Peter Witts CPA today to schedule a no-obligation consultation. We’ll help you identify risks, implement solutions, and ensure you’re fully prepared—whether the DCAA knocks tomorrow or six months from now.