In April 2026, the Defense Contract Audit Agency (DCAA) released its Annual Report to Congress summarizing the Agency’s audit activities for Fiscal Year (FY) 2025. The report addresses DCAA’s audit performance and priorities across key audit areas, including Forward Pricing, Incurred Cost, Claims and Terminations, Business Systems, and audits related to Cost Accounting Standards (CAS) and Truthful Cost or Pricing Data (TINA).
In FY 25, DCAA examined approximately $788.4 billion in contract costs, a 31.4% increase from FY24. They issued 2,480 audit reports, supported by an additional 7,047 audit memoranda. DCAA identified $18.8 billion in audit exceptions during the fiscal year, which is $2.9 billion more in exceptions than those identified in FY24, and reported net savings of approximately $5.3 billion (questioned costs sustained, minus the aggregate cost of performing the audits), an increase of 3.9% from FY24. Based on the cost of performing audits, this resulted in a return on investment (net savings/aggregate cost) of $7.50 for every $1 spent on audit activities, an increase of 4.2% from FY24.
DCAA also tracks the extent to which its audit exceptions are sustained by contracting officers as a key indicator of audit effectiveness. In FY 25, contracting officers sustained approximately $5.0 billion of $10.3 billion in audit exceptions, representing an overall sustainment rate of 48.8%, which is a slight decline from the sustainment rate of 48.9% in FY24, Notably, the sustainment rate for incurred cost audit exceptions increased to 42.6% in FY 25 from 31.4% in FY24, reflecting enhanced scrutiny of final indirect cost submissions and improved alignment between audit findings and contracting officer determinations.
The following table summarizes FY 25 audit exceptions, sustainments, and sustainment rates by audit type.
During FY 25, DCAA implemented several initiatives to improve audit effectiveness and support Department of Defense acquisition priorities. The Agency executed an organizational reorganization, replacing legacy regional structures with mission‑focused directorates aligned to land, sea, and air acquisition commands, and established a centralized audit function to focus on complex, high‑risk, and enterprise‑level audits. DCAA also continued to leverage independent public accountants to support contract closeout efforts and incurred cost audit task orders to supplement internal audit resources.
Looking ahead, the FY 25 report highlights DCAA’s continued focus on forward pricing and Truthful Cost or Pricing Data audits, expanded reviews of government property in contractor possession, and increased use of data analytics and technology to enhance audit efficiency. For contractors, the FY 25 results underscore the importance of maintaining effective internal controls, well‑supported incurred cost submissions, and sustained readiness for DCAA audit activity.
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