What a DCAA Auditor Actually Checks

This checklist comes from DCAA's own audit program, the internal document auditors follow when they evaluate your accounting system before a contract award. Check what you already have ready.

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1.GAAP-based accrual accounting
What the auditor verifiesThe system follows GAAP: accrual basis, double-entry, a general ledger costs post to, and the ability to produce basic financial statements.
What you need to have readyYour GL and a recent P&L and balance sheet produced by the system.
SF-1408 Section II, 1 · Audit Program C-1, Step 1I have this
2.Segregation of direct and indirect costs
What the auditor verifiesThe system precludes charging indirect expenses to contracts and charging direct contract costs to indirect pools.
What you need to have readyA chart of accounts that separates direct and indirect accounts, and a written policy defining each.
SF-1408 Section II, 2a · Audit Program C-1, Step 2I have this
3.Direct costs accumulated by contract
What the auditor verifiesA subsidiary job cost ledger accumulates costs by contract, at the level of detail used in your proposal.
What you need to have readyA job cost report (or P&L by contract) matching your proposal structure.
SF-1408 Section II, 2b · Audit Program C-1, Step 3I have this
4.Indirect cost pools with a written basis
What the auditor verifiesIndirect costs accumulate in logical pools (e.g., Fringe, Overhead, G&A), allocated on bases that reflect benefit to cost objectives, with a written description of pool and base contents.
What you need to have readyA written description of your pools and allocation bases.
SF-1408 Section II, 2c · Audit Program C-1, Step 4I have this
5.Job cost ledger reconciles to the general ledger
What the auditor verifiesThe job cost ledger reconciles and posts routinely to GL control accounts (direct labor, materials, subcontracts, ODCs).
What you need to have readyA reconciliation of job cost totals to GL totals for a recent period.
SF-1408 Section II, 2d · Audit Program C-1, Step 5I have this
6.Compliant timekeeping
What the auditor verifiesLabor charges to cost objectives come from timesheets, and written policy requires employees to complete and certify their own timesheets and supervisors to approve them.
What you need to have readyYour timekeeping policy plus sample timesheets showing employee certification and supervisor approval.
SF-1408 Section II, 2e · Audit Program C-1, Step 6I have this
7.Labor distribution reconciles to payroll and GL
What the auditor verifiesLabor cost distribution records reconcile to payroll records and to labor accounts in the GL.
What you need to have readyA labor distribution report for one payroll period, tied to the payroll register and GL labor totals.
SF-1408 Section II, 2f · Audit Program C-1, Step 7I have this
8.Monthly posting of contract costs
What the auditor verifiesContract costs post to the books at least monthly.
What you need to have readyEvidence of a monthly close: dated postings or a close checklist.
SF-1408 Section II, 2g · Audit Program C-1, Step 8I have this
9.Exclusion of unallowable costs
What the auditor verifiesA documented plan to identify and exclude unallowable costs (FAR 31.205) from government billings.
What you need to have readyUnallowable accounts in your chart of accounts and a written screening policy.
SF-1408 Section II, 2h · Audit Program C-1, Step 9I have this
10.Interim indirect rates you can actually calculate
What the auditor verifiesInterim indirect rates can be readily calculated from the books and are routinely monitored (limitation of costs, FAR 52.232-20).
What you need to have readyA current indirect rate calculation produced from your books.
SF-1408 Section II, 3a · Audit Program C-1, Step 12I have this

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An audit today would be rough, but every item on this list is buildable.

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Download the actual DCAA audit program

Get the official DCAA document (Audit Program 17740), the exact program an auditor follows when reviewing your accounting system.

Source: DCAA Master Audit Program 17740, Version 9.3, June 2025.

Want to check your accounting system against the SF-1408 criteria? Try our SF-1408 self-assessment.