As you may know, one of our founders Russ Farmer is serving on a joint committee of the National Defense Industry Association (NDIA) and the Small Business Technology Council (SBTC) to work with the Defense Contract Audit Agency (DCAA) to help discuss and resolve issues critical to small business. A guidance memorandum (13-PAC-026(R) came out of the DCAA office this week as the result of the committee that Russ heads up.
There has been concern from many small businesses in the last couple of years that the DCAA was questioning expenses and, in many cases, disallowing expenses from consultants to contractors. The issue seemed to be most onerous when the DCAA applied current trends to ICP audits, some of which were 6 or 7 years old. The memo from the DCAA Assistant Director to all Regional Directors and other management within the DCAA. This memo calls for new guidance on how auditors should look at consultant costs, and specifically, how to apply FAR Part 31.205-33(f). While the guidelines still give a lot of latitude to the auditors, the memo does outline specific guidelines on how the regulation should be interpreted and applied. This should serve to help make the way DCAA looks at consultant expenses, and the documentation of these expenses for audit purposes, more consistent. It should also ease some of the problems that companies were having with audits of old ICP's.
One significant item from the DCAA memo that I think all small businesses should pay attention to is the guidelines about evidence for consultants. The guideline outlines several things that the contractor should maintain for evidence in an audit and those include:
- An agreement that explains what the consultant will be doing for the contractor
- A copy of the bill for the actual services rendered, including sufficient evidence as to the time expended and the nature of the services provided to determine what was done in exchange for the payment requested, and that the terms of the agreement were met. This documentation does not need to be included on the actual invoice and can be supported by other evidence provided by the contractor
- Explanation fo what the consultant accomplished for the fees paid - this could be information on the invoice, a drawing, a power point presentation, or some other evidence of the service provided.
If you have any questions on how to interpret any of the guidelines in this memo, please don't hesitate to contact us. This is exactly what ReliAscent does.