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DCAA Common Deficiencies / Real-World Audit Findings

Date fetched: 2026-05-23 Scope: Recurring audit findings, accounting system inadequacies, and pre-award survey failure reasons documented by DCAA, GAO, industry consultancies, and ASBCA / court decisions.

For each finding: title, SF-1408 criterion tie-in, specific behavior flagged, and source.

1. Weekly (non-daily) time entry​

SF-1408 tie: 2(e) Timekeeping Behavior: Employees enter time on Fridays for the entire week (or worse, retroactively at month-end), reconstructing labor charges from memory rather than recording contemporaneously. DCAA's position is that weekly batch entry is reconstruction, not contemporaneous timekeeping, and is per se inadequate. One 2025 case (Virginia-based defense contractor, unnamed) involved $23M in questioned costs and an 18-month suspension because the contractor relied on weekly entry. Cited regulatory authority: 48 CFR 31.201-4, CAS 418 (48 CFR 99.418), 10 USC 2324(f)(1). DCAA's stated rule: daily entry with supervisory approval within 72 hours. Source: https://www.hourtimesheet.com/2025/08/19/dcaa-rejected-weekly-timekeeping-systems/

2. Supervisor alters timesheets without employee acknowledgment​

SF-1408 tie: 2(e) Timekeeping Behavior: Supervisor edits an employee's time entries (changing charge codes, hours, or projects) without notifying the employee or obtaining electronic acknowledgment. No audit trail of pre-change vs. post-change state. Persistent finding across multiple DCAA accounting system audits. Sources: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit; https://www.accountingdepartment.com/blog/common-dcaa-audit-findings-and-how-to-avoid-them

3. Failure to record total time (uncompensated overtime over 40 hours)​

SF-1408 tie: 2(e) Timekeeping, 2(f) Labor distribution Behavior: Exempt salaried employees record only 40 hours regardless of actual hours worked. This skews labor distribution because uncompensated overtime hours that should be allocated across contracts (or contracts + indirect) are instead all allocated to whatever charge code the 40 hours hit. Reaffirmed by the U.S. Court of Appeals for the Federal Circuit in January 2022, which reversed an ASBCA Raytheon decision and held that after-hours work cannot be disregarded for cost allocation purposes. Sources: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit; https://www.forvismazars.us/forsights/2023/01/timekeeping-q-a-what-government-contractors-need-to-know

4. Direct/indirect inconsistency for the same labor category across contracts​

SF-1408 tie: 2(a) Cost segregation Behavior: Program manager salary charged direct on Contract A but indirect (G&A or overhead) on Contract B, with no documented rationale, no consistent application of the contractor's CAS Disclosure Statement, and no policy explaining when each treatment applies. This is a CAS 402 (consistency in allocating costs incurred for the same purpose) violation. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

5. Failure to exclude unallowable costs from indirect pools​

SF-1408 tie: 2(h) Exclusion of unallowable costs Behavior: Indirect cost pools contain (a) executive compensation above the SES cap, (b) entertainment, (c) lobbying, (d) alcohol, (e) bad debts, (f) fines and penalties — costs that should have been excluded BEFORE the pool was allocated to contracts. The contractor relies on a year-end percentage scrub rather than transaction-level identification. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

6. Percentage-based unallowable scrub instead of specific identification​

SF-1408 tie: 2(h) Exclusion of unallowable costs Behavior: Contractor flags 5% (or any blanket percentage) of meal expenses as unallowable rather than identifying each transaction as allowable or unallowable. FAR 31.201-6 and CAS 405 require specific identification of unallowable costs. Percentage scrubs are also vulnerable to under-disallowance if the actual unallowable ratio is higher than the percentage chosen. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit; https://www.accountingdepartment.com/blog/common-dcaa-audit-findings-and-how-to-avoid-them

7. Failure to make at least monthly posting of costs to contracts​

SF-1408 tie: 2(g) Interim cost determination Behavior: Contracts are not costed monthly. Job cost ledger lags general ledger. Project status reports produced quarterly or only at year-end. Project managers cannot identify cost overruns until well after they occur. Per DCAA's published pre-award survey common findings: "failure to make timely interim (at least monthly) determinations of costs through routine posting to the books of account." Source: https://www.dcaa.mil/Portals/88/AccountingSystemRequirementsPreAwards.pdf (URL listed; fetch HTTP 403 on 2026-05-23); confirmed in https://www.vsinghcpa.com/blog/common-dcaa-findings-and-how-to-avoid-them-a-practical-guide-for-govcons/

8. Job cost subledger not reconciled to general ledger​

SF-1408 tie: 2(d) GL control Behavior: The job/project cost ledger does not tie to the GL — typically because adjustments (write-offs, reclasses, accruals) are posted to GL but not reflected in the project ledger, or vice versa. This breaks Criterion 2(d) outright and undermines billing accuracy. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

9. Lack of documented approval authority for accounting entries​

SF-1408 tie: Control Environment / 2(d) Behavior: No written delegation-of-authority matrix for who can approve journal entries, invoices, billings, contract awards. Auditors find journal entries with no preparer / no approver, or the same person both preparing and approving. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

10. Failure to perform internal audits / management reviews​

SF-1408 tie: Monitoring component Behavior: Contractor performs no internal compliance reviews, no floor checks, no indirect rate variance analysis. Even if processes are designed adequately, the absence of monitoring means deficiencies go undetected. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

11. Failure to follow up on internal findings​

SF-1408 tie: Monitoring component Behavior: Internal audit or external CPA identifies a finding; the finding is not assigned an owner, no remediation plan, and the same finding recurs in subsequent reviews. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

12. Invoice includes costs in excess of contract ceiling or funding​

SF-1408 tie: 3(a) Limitation of cost / 3(b) Progress payments Behavior: Contractor bills cumulative costs that exceed funded value or contract ceiling, without first submitting the FAR 52.232-20 limitation-of-cost notification. Often the result of the accounting system not surfacing the funding cap to billing personnel in real time. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

13. Wrong (unapproved) provisional billing indirect rates used​

SF-1408 tie: 2(c) Indirect cost allocation / 3(b) Progress payments Behavior: Billing applies indirect rates that were not approved by the cognizant ACO/DCAA — either using the prior year's final rates instead of current provisional, or using internal forecast rates that exceed approved provisional. Generates rate-true-up obligations that often go unaddressed. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

14. Failure to file adjustment invoices after rate revisions​

SF-1408 tie: 2(g), 3(b) Behavior: Provisional billing rates are revised mid-year, or final indirect rates are established via incurred-cost audit, but the contractor does not submit adjustment invoices to retroactively true up prior billings. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

15. Invoice costs not reconciled to job cost ledger / GL​

SF-1408 tie: 2(d), 3(b) Behavior: The invoice amount cannot be tied back to a specific set of GL transactions or job cost entries. Source detail (timecards, vendor invoices, expense reports) cannot be retrieved for the specific costs billed. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

16. Delinquent subcontractor payment (>30 days after billing the government)​

SF-1408 tie: 2(b), FAR 52.216-7 Behavior: Contractor bills the government for subcontractor costs and then delays paying the subcontractor beyond 30 days. Violates FAR 52.216-7 (paid-to-cost rule) and Prompt Payment Act flowdowns. DCAA picks this up during incurred-cost audits and disallows the cost or seeks repayment. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

17. Missing contract briefs for cost-reimbursement / T&M contracts​

SF-1408 tie: Information & Communications Behavior: No documented contract brief summarizing key terms (period of performance, funding ceiling, billing rates, labor-category mapping, contract clauses). Project staff and billing staff make billing decisions without a single source of truth on what the contract actually permits. Source: https://info.redstonegci.com/blog/common-deficiencies-that-dcaa-reports-in-an-accounting-system-audit

18. ODC / travel detail not retained or reviewable​

SF-1408 tie: 2(b), Information & Communications Behavior: Other-direct-cost (ODC) and travel costs are charged direct but the underlying support (receipts, vendor invoices, conference agendas) is not retained in a way that ties to the specific direct charge. When DCAA asks for support, the contractor cannot produce it. Source: https://www.vsinghcpa.com/blog/common-dcaa-findings-and-how-to-avoid-them-a-practical-guide-for-govcons/

19. Pool/base definitions not written down​

SF-1408 tie: 2(c) Indirect cost allocation Behavior: Contractor knows informally which accounts belong to which indirect pool, but has no written pool/base definition. Costs migrate between pools across years without documentation. CAS Disclosure Statement (where applicable) does not match practice. Source: https://www.vsinghcpa.com/blog/common-dcaa-findings-and-how-to-avoid-them-a-practical-guide-for-govcons/

20. Unrecorded liabilities at year-end (incomplete accruals)​

SF-1408 tie: Criterion 1 (GAAP), 2(g) Behavior: Year-end accruals for invoices received but not yet processed, for accrued vacation/PTO, for accrued bonus, for accrued pension, are not booked. Indirect rate calculation is understated. Discovered on incurred-cost audit when prior-year accruals must be unwound. Source: https://www.accountingdepartment.com/blog/common-dcaa-audit-findings-and-how-to-avoid-them

21. Charging interest on borrowing to government contracts​

SF-1408 tie: 2(h), FAR 31.205-20 Behavior: Bank loan interest, credit-line interest, or factoring fees included in indirect pools or as direct charges. Unallowable per FAR 31.205-20 (except cost of money under 31.205-10). Source: https://www.accountingdepartment.com/blog/common-dcaa-audit-findings-and-how-to-avoid-them

22. ASBCA / Federal Circuit — Raytheon total-time accounting reversal (2021-2022)​

SF-1408 tie: 2(e), 2(f) Behavior: ASBCA initially sided with Raytheon (Feb 2021) holding that Total Time Accounting was not required because Raytheon's existing policies were adequate. U.S. Court of Appeals for the Federal Circuit reversed in January 2022, holding that uncompensated overtime hours worked "after hours" cannot be disregarded for cost allocation purposes. The Federal Circuit ruling reaffirmed DCAA's long-standing position and is binding precedent. Sources: https://www.forvismazars.us/forsights/2023/01/timekeeping-q-a-what-government-contractors-need-to-know; https://govcontractassoc.com/response-to-dcaa-timekeeping-finding/

23. GAO findings on DCAA audit quality (GAO-08-857, GAO-09-468, GAO-10-163T)​

SF-1408 tie: Meta — affects how findings are documented and reported Behavior: GAO substantiated allegations that DCAA failed to comply with Government Auditing Standards (GAGAS) at multiple locations. Specific issues included supervisory auditors dropping findings after contractor objection, working papers not supporting opinions, and a production-oriented agency culture. Notably: in one case involving a major DoD contractor working in Iraq, DCAA initially identified 8 significant deficiencies in the contractor's accounting design and operation — and after contractor objection, supervisory auditors dropped 5 deficiencies and downgraded 3 to "suggestions for improvement," ultimately reporting an "adequate" opinion. Relevance for Arcvue: this is documented evidence that contractor accounting systems often DO have significant deficiencies even when ultimately rated adequate. Sources: https://www.gao.gov/products/gao-09-468; https://www.gao.gov/assets/gao-08-857.pdf

24. Missing or inadequate cost-purpose descriptions on GL transactions​

SF-1408 tie: 2(d), Information & Communications Behavior: GL transactions, especially journal entries and credit card transactions, are posted with no description, with generic descriptions like "various" or "miscellaneous," or with descriptions that don't identify the business purpose. DCAA cannot determine allocability/allowability. Source: https://www.vsinghcpa.com/blog/common-dcaa-findings-and-how-to-avoid-them-a-practical-guide-for-govcons/

25. Charge codes available to employees not assigned to project​

SF-1408 tie: 2(e) Timekeeping Behavior: Timekeeping system shows ALL project codes to every employee, allowing an employee to charge to a project they aren't authorized to work on (or to charge to a project that's been overrun and needs the costs moved off). Best-practice control: restrict each employee's available charge codes to projects they're assigned to. Source: https://www.vsinghcpa.com/blog/common-dcaa-findings-and-how-to-avoid-them-a-practical-guide-for-govcons/

Findings ranked by Arcvue accounting backend priority​

Drawing on the above, the deficiencies that an AI-native accounting backend can most directly engineer away (rather than relying on procedural controls):

  1. Daily timekeeping enforcement with full audit trail (#1, #2, #3, #22) — system-enforced, not policy-enforced.
  2. Specific-identification of unallowable costs at transaction entry, not at year-end (#5, #6, #21) — chart of accounts + AI-classifier on every transaction.
  3. Continuous reconciliation of job cost ↔ GL ↔ subledgers (#8, #15) — engine, not month-end manual tie-out.
  4. CAS 402 consistency enforcement — same labor category, same treatment (#4) — schema-level rule, surface inconsistency at posting.
  5. Live funding ceiling visibility surfaced in billing UI (#12) — block invoice creation when costs would exceed funding.

Sources (full list)​