The following blog is an article taken from our recent ReliAscent Quarterly Newsletter (Volume 5, Issue 3), published last week.Read More
DCAA Compliance Blog
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ReliAscent® LLC is the only government contract accounting firm that specializes in all aspects of government contracting compliance. From our DCAA compliant accounting services, to monthly government contract accounting for all government agency awards, contract management & administration, and financial services & planning, our goal is to ensure the success of our clients, and all small business government contractors and grantees.
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There has been a trend in the last 5 years that the DCAA is auditing fewer of the annual Incurred Cost Proposals (ICP's). This is based on the shear backlog as well as the risk factor to the government. Small firms are less risk and therefore fewer of their ICP's are being audited. As we all learned in physics class, for every action there is an equal and opposite reaction. In this case it looks like the reaction means there will be much more scrutiny on invoices and vouchers. We have learned that there has been a recent DCAA wide training relative to how to monitor vouchers and scrutinize them more closely. We have noticed that this is translating into more requests from auditors relative to the vouchers than ever before. Good advice to contractors at this point is to scrutinize the invoice thoroughly prior to submitting it. Math errors will raise a red flag and draw attention. This attention could then uncover other issues. Not only are math errors red flag warnings, but wrong attachments or incomplete attachments can cause a flag to go up. Also, carefully check calculations to make sure they are correct and have the proper basis.Read More
The Defense Contract Audit Agency was created in 1965 to help the Government assure that they are making the best use of taxpayer dollars on the contracts they enter into. As a result, they have been auditing contractors ever since for the Department of Defense (DoD) and even some other Government Agencies. Their audit services have grown to include all kinds of business system audits from Floorcheck Audits (timekeeping function) to full financial system audits. Last year the results of the DCAA were staggering, according to director Pat Fitzgerald:
It is surprising to me how the word audit can create such fear in people. I think either a previous bad experience or just hearing of someone else having a bad experience in an audit probably fuel that fear. Also, the conventional wisdom about IRS audits don’t help give the word a positive feel. I don’t think that an audit needs to be such an anxiety problem, if properly prepared for. Specifically, I want to talk about a DCAA Audit here. We have talked about this in the past in some of our blogs, and even have several tools on the website to help people prepare for this. I thought today we can expound on this to try and resolve or reduce some of the fear associated with the word itself.
Earlier this year I was asked to participate in a webinar to cover the difference between the DCAA and the DCMA as well as describe what each agency did. The audience was a group of companies that were Small Business Innovation Research (SBIR) award winners. I think this may get confused for a number of people that do business with the Federal Government and so worth a little time today to discuss. Both of these agencies originate from the Department of Defense and are primarily concerned with helping the Department of Defense handle their contracting business. So what are the differences?
At ReliAscent we have noticed lately several examples of the DCAA interpreting a regulation differently than they had in the past. This apparent shift in interpretation might catch an unsuspecting company by surprise and cause some heartache. What we have noticed is related to how the FAR addresses consultant and subcontractor costs in FAR 31.205-33. The issue seems to center around adequate documentation for consultants. The DCAA appears to be interpreting this regulation very literally now. The FAR requires monthly time reporting, monthly work product or similar to support the Consultant services. In many audits from the past, this type of proof was either not looked at or not required in many instances. I have heard of several instances where Incurred Cost submittals for up to as much as 7 years ago are just now being audited (this is another problem). The issue is that the DCAA is requiring companies on these audits to produce this documentation and in many cases it just doesn't exist since the work was completed a long time ago. I know of one case where the same consultant, working for the same company had their invoices passed in an ICE audit for the year 2006 but now (this year) when the 2007 ICE is being audited the DCAA is rejecting the consultant documentation. They have indicated that the consultant should be providing adequate time sheets for this time period and, in fact, this consultant may no longer be active or able to produce the time documentation. It would be a different story if the DCAA were timely and looking back only at last year but records 5 to 6 years old, for a small business and for a small business consultant are now being called into question. This just goes to show you how important it is to maintain all your records when you are contracting with the Federal Government, and keep them for a longer period of time than you might otherwise think prudent. In two other separate instances, companies are being audited for 2007 Incurred Cost submittals. In both cases the DCAA has disallowed nearly all of the consultant costs because of inadequate documentation by the consultants. Both companies have used the same procedures for many years (up to 20 years) and have been continuously audited by the DCAA without any consultant costs being questioned until now.
We have had some internal discussions lately here and think it might be helpful to share some of our experiences of signs that an accounting system is not compliant with DCAA requirements. This is based on experience of looking at a lot of different systems, participating in many DCAA audits, not only in past careers but for clients, and day to day experiences working with these systems.