In the United States, the Defense Contract Audit Agency (DCAA) audits defense contractors’ costs and pricing information, but its findings do not by themselves decide that a contractor overcharged the government. Contracting officers resolve those findings and document their decisions. The Department of Defense Office of Inspector General (DoD OIG) checks both audit quality and how officials handle audit findings, while the Government Accountability Office (GAO) reviews agency programs and reports to Congress. A “questioned cost” is an issue for resolution—not automatically fraud, a final disallowance, or money recovered.
Who audits a defense contract—and who makes the decision?
Several agencies can examine different parts of the same oversight chain. Their responsibilities are related, but they are not interchangeable.
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- DCAA audits contractor costs and proposals for the Department of Defense. Its work can cover costs claimed after performance, proposed prices before award or modification, cost accounting matters, business systems, and other contract issues.
- Contracting officers, often working in the Defense Contract Management Agency or a military service agency, decide how audit findings affect the contract. They resolve the report, determine or negotiate allowable costs or prices as applicable, and document why they agree or disagree with the auditor.
- DoD OIG evaluates whether DCAA and contracting officials followed applicable rules and policies. It can review audit evidence and documentation, examine how contracting officers handled findings, and assess hotline complaints about audits.
- GAO evaluates broader agency programs and reports to Congress. Its reviews can examine DCAA’s processes and oversight arrangements rather than resolve a particular contractor’s bill.
What happens after DCAA identifies a problem?
The path depends on the question being audited. A review of a proposed price before an award is not the same as checking costs charged after work has been performed.
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1Fix the driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minute- Define the issue. The review may concern incurred costs, a price proposal, compliance with cost accounting standards, a contractor business system, or a complaint about the audit itself.
- Examine records against the applicable requirements. For incurred costs, DCAA assesses whether claimed costs are permissible under government regulations and the contract. For proposals requiring certified cost or pricing data, the Federal Acquisition Regulation (FAR) requires data to be accurate, complete, and current to establish fair and reasonable prices. DCAA may also identify gaps in proposal support or submission requirements.
- Report the result. An auditor may question specific costs or find that the available evidence is insufficient to express an overall opinion on a proposal. DoD OIG has noted that an inability to issue an overall opinion does not remove DCAA’s responsibility to report costs it determines are unallowable.
- Resolve the finding. The contracting officer evaluates the report, documents the basis for agreement or disagreement, and negotiates or determines the appropriate treatment as required. The audit recommendation itself is not the final government decision.
- Review the oversight. DoD OIG may sample audit reports and contracting actions to assess evidence, documentation, and follow-up. GAO may examine the administration of a wider program. A finding from a selected sample should not be treated as a rate for all audits or contractors.
How a pricing review differs from an incurred-cost audit
Both can expose cost or pricing concerns, but they occur at different stages and lead to different decisions.
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| Question | Pre-award or pre-modification pricing review | Incurred-cost audit |
|---|---|---|
| When? | Before the government negotiates a price or modification. | After the contractor has incurred and claimed costs for work performed. |
| What is examined? | Proposal support and, where required, certified cost or pricing data. | Accounting records and claimed costs, including direct and indirect costs. |
| What decision follows? | The contracting officer negotiates or otherwise establishes a fair and reasonable price. | The contracting officer resolves cost allowability and related indirect-rate matters. |
| What may follow? | Price negotiation or correction of proposal issues. | Cost disallowance, a penalty assessment where applicable, or recovery, depending on the determination. |
| What records may show the outcome? | The DCAA report, contracting-officer documentation, and any later watchdog review. | The DCAA report, contracting-officer documentation, and any later watchdog review. |
What watchdog reports have found—and what the figures mean
DoD OIG and GAO reports illustrate both weaknesses in contract oversight and the need to distinguish a questioned amount from a final outcome. The examples below concern different periods, selected samples, and different kinds of findings; their figures are not directly comparable.
| Source and scope | Reported finding | What the figure does—and does not—establish |
|---|---|---|
| DoD OIG, 2019: 21 selected DCAA reports that disclaimed an opinion while questioning $750 million. | Contracting officers inadequately documented disagreement with $219 million in questioned costs in two reports. | The report said contractors may have been reimbursed up to that amount for costs that were not allowable. It is a potential amount in those reports, not a finding that $219 million was finally disallowed or recovered. |
| DoD OIG, 2014: a selected cross-section of 16 DCAA audits completed from October 2011 through February 2013. | Thirteen audits had one or more significant inadequacies, involving issues such as planning, evidence, working-paper documentation, supervision, and cost or pricing data. The OIG made 96 recommendations associated with the 13 audits. | This describes a selected historical sample, not a current or agency-wide error rate. |
| DoD OIG, 2014: one substantiated hotline complaint. | The OIG found insufficient evidence for a field office to conclude that subcontract costs were unsupported. The office used an arbitrary, unsupported 20-percent decrement and questioned $6.6 million. | This case shows that auditors’ work is also subject to review. The OIG recommended removing the questioned costs in that report; the questioned amount should not be described as a final recovery. |
| DoD OIG, 2017: 22 selected incurred-cost audit reports. | The OIG identified eight instances in which contracting officers did not address $305 million in direct costs questioned by DCAA. It also identified missed penalty actions, inadequately documented disagreements, and untimely follow-up. | The figure is questioned direct costs in selected reports, not a final amount recovered. |
| DoD OIG, 2018: 23 contractor price proposals negotiated by the military services and Defense Logistics Agency. | DCAA considered all 23 proposals, valued at $6.4 billion, inadequate under FAR Subpart 15.4. Contracting officers took appropriate action on the inadequacies, but in nine cases they did not adequately document those actions. | The $6.4 billion is the value of the proposals, not an overcharge finding. |
| GAO, 2025: a nongeneralizable sample of 10 task orders covering 57 incurred-cost audits of DCAA’s use and oversight of independent public accountants. | GAO noted that DCAA had largely eliminated its incurred-cost backlog by the end of fiscal year 2018, before independent public accountants began conducting certain audits in fiscal year 2020. DCAA transmitted its assessment of the program to Congress in March 2026; GAO said it would reassess the program annually. | The selected task orders do not establish results for all audits. The backlog timing also means its reduction preceded the use of those accountants for certain audits. |
Does a questioned cost mean the contractor overcharged the government?
Not on its own. “Questioned” means the auditor has raised a cost for resolution; it does not establish that the government has made a final decision to disallow it, recovered it, or proved intentional wrongdoing. The contracting officer’s documented resolution is a separate step. A watchdog report may identify a failure to justify rejecting a questioned cost, but that is not the same as reporting a final recovery.
When reading a report about alleged overcharging, separate these stages:
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- Questioned cost: an auditor identifies an issue that requires review or resolution.
- Sustained finding: the responsible decision-maker upholds the issue after considering the evidence.
- Disallowance or recovery: the government formally denies reimbursement or obtains repayment, as established by the relevant record.
- Criminal fraud finding: a distinct law-enforcement outcome, not something established merely by an audit adjustment or questioned cost.
For a specific case, ask what the auditor questioned, what evidence supported it, what the contracting officer decided and documented, and whether the cited record establishes a disallowance, recovery, or criminal outcome. If a report states only a potential exposure or recommendation, it does not establish a later result.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Who investigates the auditors and the contracting officers?
DoD OIG can examine both sides of the process. Its reviews assess whether DCAA’s conclusions were supported by sufficient evidence and whether contracting officers followed the FAR, DoD instructions, and internal policies when resolving findings. One hotline review found an unsupported audit adjustment, while other evaluations identified contracting officers’ failures to document or act on questioned costs. Oversight is therefore not simply a search for contractor wrongdoing: it also tests whether government auditors and decision-makers did their work properly.
Criminal investigations are a separate law-enforcement track. The reviewed public findings establish audit and oversight examples, not the procedures for criminal cases or a particular criminal prosecution. An audit finding should not be presented as a criminal investigation unless case-specific evidence supports that description.
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