A DCAA audit is required when your federal contract puts financial risk on the government or crosses a statutory dollar threshold. The clearest triggers are a cost-reimbursement or time-and-materials contract of almost any size, a prime contract expected to exceed $2.5 million that requires certified cost or pricing data, and negotiated awards that pull you into Cost Accounting Standards coverage. Beyond those bright lines, a contracting officer can request an audit at any value when there’s a question about your accounting system or financial responsibility. So the honest answer to when a DCAA audit is required has two parts: mandatory triggers set by contract type and dollar value, and discretionary triggers set by the contracting officer’s judgment.
Contract Type Is the First Trigger
Before any dollar figure enters the picture, the structure of your contract largely decides whether DCAA gets involved. Cost-reimbursement contracts carry the highest audit exposure because the final price isn’t fixed at award. You bill the government for actual costs as you incur them, so DCAA needs to verify that every dollar claimed is real, allowable under federal cost principles, and allocated to the right contract. Time-and-materials and labor-hour contracts create similar exposure because the government is paying for hours rather than a finished product at a set price.
Firm-fixed-price contracts sit at the opposite end. The price stays the same regardless of your internal costs, so recurring DCAA audits are uncommon. Audits on fixed-price work typically happen only when the contract is modified significantly or when you’re required to submit certified cost or pricing data during negotiations. A firm-fixed-price contract awarded through full and open competition without certified cost data is exempt from Cost Accounting Standards entirely.1eCFR. 48 CFR 9903.201-1 – CAS Applicability
The practical reading: if you hold a cost-type contract, plan for audits. If you hold a firm-fixed-price contract awarded through competition, expect little routine scrutiny.
The $2.5 Million Certified Cost or Pricing Data Threshold
Under 10 U.S.C. § 3702, contractors must submit certified cost or pricing data for any prime contract expected to exceed $2.5 million, unless an exemption applies.2Office of the Law Revision Counsel. 10 USC 3702 – Required Cost or Pricing Data and Certification The threshold rose from $2 million to $2.5 million effective October 1, 2025.3Acquisition.GOV. Threshold Changes It also applies to subcontracts exceeding $20 million.
Certifying this data means representing that the cost and pricing information you’ve provided is accurate, complete, and current as of the date of agreement on price. Once you certify, DCAA can audit the underlying data — either during the proposal phase or after award through a defective pricing review. If the data turns out to have been inaccurate, incomplete, or out of date, the government is entitled to a price reduction covering any resulting overstatement, plus interest at the Treasury underpayment rate.4Acquisition.GOV. FAR 15.407-1 – Defective Certified Cost or Pricing Data Knowing submission of defective data adds a penalty equal to the overpayment itself.
Exemptions That Take You Below the Trigger
Four main exemptions remove the certified cost or pricing data requirement even above $2.5 million:
- Adequate price competition on the award
- Commercial products and commercial services as defined in FAR 2.101
- Prices set by law or regulation
- A waiver granted by the agency head
Even when an exemption applies, the contracting officer can still ask for information other than certified data to test price reasonableness.5Federal Acquisition Regulation. Subpart 15.4 – Contract Pricing That’s a lighter touch than a full DCAA audit, but it’s not nothing.
Cost Accounting Standards Thresholds
CAS adds a second layer of mandatory compliance tied to dollar amounts. Any negotiated contract above the certified cost or pricing data threshold is generally CAS-covered unless it falls into an exemption. Exemptions include sealed-bid contracts, small business contracts, contracts for commercial items, and contracts below $7.5 million where the business unit isn’t already performing a CAS-covered contract at or above that amount.1eCFR. 48 CFR 9903.201-1 – CAS Applicability
Coverage comes in two levels:
- Modified coverage applies to CAS-covered contracts under $50 million awarded to business units that received less than $50 million in net CAS-covered awards in the preceding cost accounting period. You must comply with four standards covering consistency in estimating and allocating costs, accounting for unallowable costs, and cost accounting periods.
- Full coverage applies when a single CAS-covered contract reaches $50 million or more, or when a business unit received $50 million or more in net CAS-covered awards during the preceding period. All 19 CAS standards in effect at award apply.6eCFR. 48 CFR 9903.201-2 – Types of CAS Coverage
The FY2026 National Defense Authorization Act directs an increase in the full CAS coverage threshold from $50 million to $100 million, with implementing regulations expected by mid-2026. Until those updates take effect, the $50 million threshold in 48 CFR 9903.201-2 controls.
Forward Pricing Audit Thresholds
When you submit a price proposal, contracting officers consider requesting DCAA audit assistance based on proposal size and contract type. The working thresholds are $10 million for fixed-price proposals and $100 million for cost-type proposals. Below those figures, the contracting officer typically handles the evaluation internally or with limited audit support. These aren’t statutory cutoffs — they’re practical guidelines that determine when DCAA gets pulled into evaluating your proposed rates and costs.
The Commercial Item Exemption Is Broader Than People Realize
If you’re selling a commercial product or commercial service as defined in FAR 2.101, you’re generally exempt from the certified cost or pricing data requirement regardless of dollar value.7eCFR. 48 CFR 15.403-1 – Prohibition on Obtaining Certified Cost or Pricing Data This is one of the broadest audit shields available. If the marketplace sets the price for what you sell, the government doesn’t need to audit your internal costs to judge whether the price is fair.
The exemption has edges. For DoD-funded acquisitions, minor modifications to commercial products stay exempt only if the total price of those modifications doesn’t exceed the greater of the certified cost or pricing data threshold or 5% of the total contract price at award. Sole-source contracts exceeding $25 million for items treated as commercial lose the exemption entirely.3Acquisition.GOV. Threshold Changes And if your service isn’t sold competitively in substantial quantities in the commercial marketplace, the contracting officer must make a written determination that you’ve provided enough pricing information to evaluate reasonableness before the exemption applies.
Contracting Officer Discretion Below the Thresholds
Dollar thresholds tell only part of the story. A contracting officer can request a DCAA audit at any contract value when there’s a question about a contractor’s financial capability or accounting practices. Before awarding any contract, the officer must make an affirmative determination that the contractor is responsible, which includes adequate financial resources and a satisfactory performance record.8eCFR. 48 CFR Part 9 Subpart 9.1 – Responsible Prospective Contractors For cost-reimbursement contracts, the officer will typically request a pre-award accounting system survey to confirm your systems can properly track costs.
This is where new government contractors most often get caught off guard. You might be bidding on a contract well under $2.5 million, but if it’s cost-reimbursable, expect DCAA to examine your accounting system before award. The contracting officer is personally responsible for that responsibility determination, and asking for a DCAA review is the easiest way to document due diligence.
One nuance worth knowing: DCAA reports are advisory. DCAA recommends; the contracting officer decides. When DCAA completes an audit, the resulting report goes to the contracting officer as an “advisory audit report,” and the officer is free to disagree with the auditor’s conclusions.9Acquisition.GOV. Part 42 – Contract Administration and Audit Services If the officer rejects any recommendation, the regulation requires documentation of the reasons in a negotiation memorandum. A negative audit finding is not automatically your final outcome.
Which Audit Applies, and When
DCAA doesn’t run one generic audit. Different types fire at different points in the contract life cycle. Knowing which one is likely helps you prepare the right records.
Pre-Award Accounting System Survey
Fires before award of a cost-type contract, at essentially any dollar value. Auditors walk through your accounting system against the Standard Form 1408 checklist to confirm it can properly segregate direct and indirect costs, identify costs by contract, and allocate indirect costs consistently.10Defense Contract Audit Agency. Pre-award Accounting System Adequacy Checklist The system must also meet the criteria in DFARS 252.242-7006, which cover general ledger control, reconciliation of subsidiary ledgers, documented adjusting entries, and internal management reviews.11Acquisition.GOV. DFARS 252.242-7006 Accounting System Administration
Forward Pricing Audit
Fires when you submit a proposal for a cost-type contract at or above $100 million, or a fixed-price proposal at or above $10 million — subject to the contracting officer’s judgment. Auditors examine the rates and cost estimates in your proposal to test whether they’re realistic and supported by historical data.
Incurred Cost Audit
Fires annually for any holder of a cost-reimbursement contract. You must submit an incurred cost proposal within six months after the end of your fiscal year, reconciling actual indirect costs against the provisional billing rates used throughout the year.12eCFR. 48 CFR 52.216-7 – Allowable Cost and Payment Missing that deadline is itself a risk indicator. If your proposal is more than six months overdue, auditors may recommend a decrement factor that reduces the costs you’re allowed to recover. Extensions require a written request and are limited to exceptional circumstances.
Floor Checks and Material Cost Audits
Fire on a scheduled or unannounced basis at contractors with cost-type or T&M work. Floor checks put an auditor on-site to observe employees, confirm that billed employees actually exist and are working on the contracts they’re charged to, and evaluate timekeeping controls.13Defense Contract Audit Agency. Common DCAA Audits – Floor Checks and Material Cost Audits Material cost audits verify that purchased materials were received, needed for the contract, purchased at reasonable prices, and properly accounted for.
Floor checks in particular catch contractors off guard because they test whether written procedures match what employees actually do. An auditor might interview an engineer about how they record time and compare that answer to your timekeeping policy. Gaps between policy and practice generate findings quickly, which is why timekeeping controls — daily entry, employee certification, supervisor co-signature, documented corrections — receive so much scrutiny.14Defense Contract Audit Agency. DCAAM 7641.90 – Information for Contractors
Putting the Triggers Together
Whether an audit is required in your situation usually comes down to three questions. First, what’s the contract type? A cost-reimbursement or T&M award pulls DCAA in almost regardless of size, and at minimum triggers a pre-award accounting system review plus annual incurred cost audits. Second, what’s the value? Prime contracts expected to exceed $2.5 million pull in certified cost or pricing data and, once negotiated, likely CAS coverage. Contracts at or above $50 million bring full CAS coverage today, with a scheduled move to $100 million once the FY2026 NDAA is implemented. Third, does an exemption apply? Adequate price competition and the commercial item exemption are the two most likely to remove the mandatory certified-data trigger, but the contracting officer retains discretion to seek information other than certified data and to request DCAA support at any value.
If none of the mandatory triggers apply and you’re on a competitively awarded firm-fixed-price contract for commercial items, formal DCAA audits are unlikely. If any one of them does apply, build your accounting system, timekeeping controls, and cost documentation on the assumption that DCAA will look — because at some point, it will.