Dcaa audits without tears final
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The document provides an overview of the Defense Contract Audit Agency (DCAA), its audit rights, and the auditing process related to DOD contracts. It outlines key areas of focus for audits, such as incurred costs and forward pricing, and the importance of preparing for these audits effectively. Additionally, it emphasizes how Unanet's ERP solution can assist companies in navigating DCAA audits while maintaining compliance.
![What can DCAA Examine?
• “… books, documents, accounting procedures and practices,
and other data, regardless of type and regardless of whether
such items are in written form, in the form of computer data,
or in any other form.”
• “… all of the Contractor’s records, including computations and
projections…”
• “… all records and other evidence sufficient to reflect properly
all costs claimed to have been incurred … directly or indirectly
… [to] include inspection of the Contractor’s plants …”
FAR 52.215-2
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Dcaa audits without tears final
- 1. Amy Hernandez, CPA, JD, Principal at Strategic FAR Advisors, LLC Donna Kilbourn, EVP Customer & Partner Success, Unanet DCAA Audits Without Tears Copyright © 2017 Unanet
- 2. Agenda • What is the DCAA? • DCAA’s Audit Rights • Audits performed by DCAA • 2017 NDAA • Current DCAA trends • Focus on certain audits • Preparing for and navigating DCAA audits • How Unanet can help with its compliant Project ERP solution
- 4. What is the DCAA? • DCAA was established by DoD for the purpose of performing all contract auditing services and providing accounting and financial advisory services in connection DoD contracts and subcontracts. • DCAA also furnishes contract audit service to civilian Federal agencies where it is in the Government’s interest. • More than 4,000 employees in over 300 offices around the world. • Headquarters – Ft. Belvoir, VA Copyright © 2017 Unanet
- 5. What is the DCAA? • Audits must be conducted in accordance with GAGAS and the DCAA Contract Audit Manual (CAM) (available online at dcaa.mil/cam.html) • Important to remember that DCAA is strictly advisory! • The CO/ACO has the final authority to allow/disallow costs
- 6. DCAA’s Audit Rights Multiple sources of authority exist granting the Government audit rights. • PRIMARY SOURCE: – FAR 52.215-2 – Audit and Records -- Negotiation • Inserted into most contracts over $100k (excluding commercial item and utility contracts). • Grants the Government authority to examine and audit contractors' books, records, documents and other evidence and accounting procedures and practices, regardless of form or type. Copyright © 2017 Unanet
- 7. DCAA’s Audit Rights Other regulatory sources of audit rights: • 10 U.S.C. 2313(a) – Examination of Records of Contractor • 10 U.S.C. 2306a – Truth in Negotiations • 41 U.S.C. 422(k) – Cost Accounting Standards • FAR 15.408 – Instructions for Submission of a Contract Pricing Proposal. • FAR 52.215-20 and 52.215-21 – Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data • FAR 52.230-2 and 52.230-3 – Cost Accounting Standards • FAR 52.216-4 – Economic Price Adjustment - Labor and Material • FAR 52.232-16 – Progress Payments Copyright © 2017 Unanet
- 8. DCAA’s Audit Rights Net result: • Virtually every contract exceeding the simplified acquisition threshold ($150k) and not for commercial items or utility services grants the Government some level of audit access. Copyright © 2017 Unanet
- 10. Poll Question #3
- 11. What can DCAA Examine? • “… books, documents, accounting procedures and practices, and other data, regardless of type and regardless of whether such items are in written form, in the form of computer data, or in any other form.” • “… all of the Contractor’s records, including computations and projections…” • “… all records and other evidence sufficient to reflect properly all costs claimed to have been incurred … directly or indirectly … [to] include inspection of the Contractor’s plants …” FAR 52.215-2 Copyright © 2017 Unanet
- 12. Audits Performed By DCAA Pre-Award – Pre-award Accounting System Survey – Price Proposals – Forward Pricing Rates Post-Award – Incurred Cost Submissions – Systems of Internal Controls – Post-award audits (“defective pricing”) – Equitable Adjustment Proposals and Claims – Compliance with CAS and Disclosure Statement adequacy Settlements – Contract Closeout – Contract Termination
- 13. Systems Audits Performed by DCAA • Control Environment and Overall Accounting System • Indirect and ODC System • Labor System • Billing System • Estimating System • Purchasing System • Budget and Planning System • Compensation System • IT System • Material Management Accounting System (MMAS)
- 14. Poll Question #4
- 15. 2017 NDAA • Creation of new Defense Cost Accounting Standards Board, effective October 1, 2018 – Will be required to recommend changes to the CAS Board – Implement CAS to achieve uniformity on DoD contracts – Possibility for differences in implementing compliance with CAS under DoD and non-DoD contracts • Requires CAS Board to meet at least quarterly and report to Congress on its progress to ensure the CAS conform to GAAP • CAS waiver threshold raise to $100 million
- 16. 2017 NDAA • Companies may submit indirect rate audit results from outside CPA firms to DCAA – CPA firms must comply with “relevant commercial” accounting and auditing standards – No guidance on how differences with CAS and “commercial” auditing standards should be resolved – DCAA does not have to rely on the audit results from outside CPAs if the company or business unit has a “predominance of cost-type contracts” Copyright © 2017 Unanet
- 17. Current DCAA Trends • DCAA continues to use a risk based approach to selecting proposals for audit • Forward Pricing and Incurred Cost are still considered the highest priority areas • Lower staffing levels means that DCAA may not be able to eliminate the incurred cost backlog in FY 2018 as planned • Multi-year incurred cost audits are probably here to stay • Timeliness for forward pricing audit reports still an issue
- 18. Poll Question #5
- 19. DCAA Audit Focus Areas • DCAA continues to focus resources on three main audit areas: – Incurred Cost – Pre-Award Accounting System Surveys – Forward Pricing • Unless DCAA is able to increase its staffing above 5,000, it is doubtful many business system and CAS compliance audits will be performed in FY 2018
- 20. Incurred Cost Audits • FAR 52.216-7 – Requires adequate final indirect cost rate proposal to the Contracting Officer (or cognizant Federal agency official) and auditor within the 6- month period following the expiration of each of its fiscal years – Extensions, for exceptional circumstances only, may be requested in writing by the Contractor and granted in writing by the Contracting Officer • What happens if an incurred cost proposal is not submitted on time? – The Government can revoke the privilege of direct billing under the notion the accounting system is not adequate if it can not produce the rate submission in a timely manner – The Government can issue a “Flash Report” to state the accounting system is Inadequate, which will limit the company’s ability to obtain new contracts Copyright © 2017 Unanet
- 21. Incurred Cost Audits Information needed to prepare incurred cost proposals: • Detailed indirect rate calculations • Individual project cost ledgers for ALL contracts (cost plus, T&M and fixed price) including government and commercial contracts • Subcontract information including cost incurred in the current fiscal year • Previous year submission – Used to complete the cumulative allowable cost worksheet • Contract billing information – Used to calculate the amount over/under billed • Summary of hours and amounts per labor category on T&M contracts • Quarterly Form 941 tax return – Used to complete the reconciliation of labor dollars to payroll • Summary of any accounting or structure changes during the reporting year • Contract briefs
- 22. Pre-Award Accounting System Surveys General requirements for adequate accounting system • Conforms With Generally Accepted Accounting Principles, (GAAP) • Produces equitable results - Verified • Applicable to the contemplated contract(s) • Is capable of being consistently followed
- 23. Pre-Award Accounting System Surveys Standard Form 1408 criteria • Proper segregation of direct and indirect costs • Identification & accumulation of direct costs by contract • Consistent allocation of indirect expenses • Costs under general ledger control • Adequate timekeeping system • Labor distribution system • Interim determination of costs • Exclusion of unallowable costs • Identification of costs by contract line item if required • Segregation of pre-productions costs if applicable Copyright © 2017 Unanet
- 24. Forward Pricing • Forward pricing refers to estimates for future costs – Price proposals – Forward pricing rate proposals – Provisional billing rates • Refer to FAR 15.408, Table 15-2
- 25. Forward Pricing Vital Elements of a Cost Proposal • Summary - Total Cost Elements • Consolidated Bill of Materials – Types, Quantities, Cost – FAR 15.408, Table 15-2 II.A. • Breakdown of Labor (FAR 15.408, Table 15-2 II.B.) – Hours – Rates and Costs by Appropriate Category • Details: – How Indirect Costs Are Computed – How Indirect Costs Are Applied – Cost Breakdowns, Trends, and Budgetary Data (FAR 15.408, Table 15-2 II.C.) • Identification-Other Direct Costs (ODC) by Category and Basis for Pricing (FAR 15.408, Table 15-2 II.C.) • Rationale for Proposed Profit Copyright © 2017 Unanet
- 26. Preparing for and Navigating DCAA Audits • DCAA audits do not have to be painful! • Advance preparation is key – Have a strategic plan, know when your company might be subject to audit – Initial audit preparation can take months to get systems adequate and new/revised policies and procedures in place • Understand purpose of the audit – Know the regulatory requirements
- 27. What makes a DCAA audit successful? A successful DCAA audit has: • Audit procedures that are applied consistently and correctly • Audit findings that are documented appropriately and presented in a clear manner • Audit performance is efficient and minimizes impact to company operations • No significant findings
- 28. Audit Liaisons • Choosing the right person to act as your DCAA audit liaison is paramount • Excellent audit liaisons: – Have strong understanding of company operations – Knowledgeable regarding company product/service offerings – Have first hand experience with DCAA audits – Keep detailed log of all auditor requests and information provided
- 29. Record Keeping and Documentation • Understand the record keeping requirements at FAR 4.7 • Adequate record keeping systems – Comply with the minimum retention time frames required at FAR 4.7 – Clearly identifies the records available – Location of records is identified – Retrieval of records can be accomplished in a timely manner
- 30. Entrance and Exit Conferences • Insist DCAA hold entrance and exit conferences • Entrance conferences will ensure understanding of the audit scope as well as what information and persons are needed to support the audit • Exit conferences allow the company to understand the basis for audit findings and will facilitate timely written response for inclusion in the audit report
- 31. Keep DCAA within their audit scope! • Determine which audit type the auditor is performing – Complete audit programs are publicly available at www.dcaa.mil – Keep a list of areas to be covered by the audit – Involve the auditor’s supervisor and/or branch manager if auditor repeatedly strays outside the established scope of the audit • Do not develop analyses or compile documentation that your company does not normally maintain.
- 32. Copyright © 2017 Unanet 32 The Unanet Solution Scenarios Opportunities Revenue Skills Budgets Project Status Earned Value GL, AR, AP Backlog Cost Pools Utilization Performance Margin Metrics & KPIs Dashboards Expenses Timesheets Approvals Invoicing CRM & Teamwork
- 33. Customer Success Story Copyright © 2017 Unanet “Unanet shone during our DCAA audit”. - Bob Deegan Senior Vice President and CFO As a leading IT products and services firm with 350 employees, Array Information Technology needed an accounting system that would support DCAA Compliance and be user friendly. They also wanted a system that would provide real- time data and reporting to all 15 branches to make informed company decisions. Deltek GCS did not fulfill their requirements, so they looked to Unanet for help.
- 34. DCAA Resources in Unanet Copyright © 2017 Unanet
- 35. Questions?