Government contractors face shifting oversight priorities as federal agencies modernize while managing limited resources. Recent updates at DCAA and DCMA reflect a renewed focus on efficiency, risk alignment with DoD priorities, and modernization through technology adoption. Contractors should anticipate changes in audit processes, reporting standards, and property accountability. Understanding these updates is necessary for contractors seeking to manage compliance risk, anticipate audit activity, and position their organizations for the year ahead.

DCAA: Organizational stability amid operational change

DCAA leadership has remained consistent, providing a measure of continuity as the agency navigates workforce, technology, and mission-related changes. In April 2025, DCAA announced a formal reorganization aimed at streamlining operations, improving mission alignment, and creating clearer lines of responsibility across audit centers and field offices. Structural changes that have been implemented reinforce the agency’s broader push toward modernization and standardization.

Staffing levels have remained relatively steady, though broader federal workforce disruptions, including shutdowns and furloughs, have affected audit throughput and timelines. In response, DCAA has exercised statutory authority to extend certain audit deadlines to account for lost time and mitigate backlog growth. One notable advancement has been the automation of incurred-cost submission adequacy checks, significantly reducing administrative effort and allowing audit resources to be redeployed to higher-risk areas. For contractors, this signals increased scrutiny where risk is highest and fewer delays tied to low-risk submissions.

Centralized audit functions and risk-based focus

DCAA has expanded its centralized audit model to better manage increasingly complex reviews. Under this approach, specialized audits – such as complex incurred cost, business systems, and CAS matters – may be centrally assigned rather than handled by individual field offices. Consistent with this risk-based approach, DCAA continues to prioritize audits with the greatest potential impact, including:

• Business systems audits
• CAS compliance
• Forward pricing audits

Lower-risk incurred cost audits are handled through streamlined procedures or by third-party auditors under interagency agreements, allowing DCAA to concentrate its internal resources on higher-risk, higher-complexity areas.

Business systems oversight: Reduced disruption, sustained accountability

A significant development for contractors is DCAA’s introduction of targeted follow-up audit programs for business systems. Historically, identified deficiencies often resulted in extensive re-audits, creating operational disruption for contractors and inefficiencies for the government. The new follow-up audit programs are designed to verify corrective actions and sustained compliance without re-performing entire system reviews. These follow-up procedures apply to key systems, including accounting systems, post-award accounting systems, estimating systems, and material management and accounting systems (MMAS). Contractors with previously identified findings should expect focused validation rather than full-scale re-examination, provided corrective actions are well documented and effectively implemented.

Audit reporting terminology and alignment with standards

DCAA has updated its audit reporting terminology to better align with generally accepted government auditing standards and broader financial reporting frameworks. Findings are now categorized using three tiers:

• Material weaknesses
• System deficiencies
• Less-than-material noncompliance

This change replaces prior terminology and reinforces alignment with Yellow Book and financial statement reporting conventions. Contractors should review internal reporting and remediation documentation to ensure alignment with this updated framework.

Executive compensation and internal controls

Executive compensation remains an audit focus, though DCAA has refined its compliance evaluation. Rather than duplicating detailed compensation testing across multiple audit types, the agency has shifted toward assessing the effectiveness of internal controls used to review, document, and appropriately exclude unallowable compensation costs.

Government property and financial statement accountability

A growing area of emphasis involves government-owned property held by contractors. Challenges associated with accurately valuing and reporting on property have broader implications for federal financial statement audits. As a result, DCAA and DCMA have increased attention to contractor property systems, inventory practices, and valuation methodologies. Contractors should expect heightened scrutiny in this area, particularly where commercial and government property are commingled or where historical oversight has been limited.

Audit performance metrics and backlog trends

Audit volume and cycle times remain largely consistent year over year. While incurred cost audits continue to average approximately 200 days to complete, termination and business systems audits are taking longer. Backlog levels have remained relatively stable, though recent policy changes lifting prior audit constraints are expected to enable additional progress in the current fiscal year. DCAA continues to evaluate how it measures return on investment from audit activity, particularly for business systems reviews where value is not always reflected solely in dollar recoveries.

DCMA initiatives and broader acquisition context

DCMA continues to operate with a significantly larger global footprint and budget, supporting contract administration and oversight across land, sea, and air domains. Workforce realignment, lease consolidation, and skill-set optimization remain ongoing priorities as the agency adapts to evolving DoD strategies and modernization goals. At the acquisition level, contractors continue to experience the effects of compressed procurement cycles, funding uncertainty, and delayed awards driven by continuing resolutions and the timing of appropriations. These dynamics contribute to slowed procurement activity, cash flow pressure, and shifting contract strategies across the contractor community.

Legislative and policy signals affecting contractors

Recent appropriations activity reflects selective funding progress alongside broader reliance on continuing resolutions. Defense-related funding remains a focal point, with ongoing policy discussions expected to influence acquisition strategy, contract structures, and compliance expectations. Additionally, contractors – particularly those supporting defense and technology programs – should closely monitor emerging policy initiatives emphasizing efficiency, commercial-first acquisition strategies, and modernization through technology adoption, including artificial intelligence. These priorities align with broader efforts to streamline procurement and reduce administrative burden, though they may also favor larger acquisition vehicles and consolidated contracting approaches.

What contractors should consider now

Considering these developments, government contractors should consider:

• Reviewing business systems documentation and corrective action sustainability
• Ensuring internal controls around executive compensation and indirect costs are well defined
• Assessing government property management practices and valuation processes
• Monitoring audit timelines and planning resources accordingly
• Staying informed on acquisition policy shifts, funding developments, and modernization initiatives

Proactive preparation and alignment with agency priorities can help contractors navigate ongoing oversight changes while positioning their organizations for future opportunities.

For a deeper dive, watch our webinar: Updates and Initiatives of DCAA and DCMA