Bobby Unser once said, “Success is where preparation and opportunity meet.” Clearly, he had done his homework that day.
If you are prepared, you’re halfway there. Then, grasp any opportunity that comes your way and harness the information you already gathered.
This is just as true now in the GovCon world, as it was in automobile racing in the 1970s. Being prepared is also the best way for your GovCon firm to overcome your dread of the Defense Contract Audit Agency (DCAA) process and turn it into a market advantage.
CAVU provided an overview of DCAA audits in a previous blog. Now we reveal insider tips on the most common audit types to help you navigate the process more smoothly and come out the other end a better business. When you pass muster with the DCAA, your financial systems are stronger for it.
Uncle Sam Wants a Fair Deal
DCAA protects the federal government’s wallet and taxpayers’ interests by reviewing GovCon accounting systems, policies, and procedures. The DCAA evaluates these business systems to ensure that agencies pay a reasonable price for goods and services. The main emphasis is on GovCons properly tracking costs throughout the acquisition process.
In years past, DCAA faced a backlog, causing delays for certain types of audits. That backlog has now been cleared, so your firm should be prepared at all times to pass an audit.
Systemwide Design to Invoice Details: Get All Your Ducks in a Row
The DCAA conducts dozens of different types of audits to accomplish a variety of goals. Below is a breakdown of the main types and how they can affect your business:
Accounting System Reviews
- The contracting officer (CO) requests this audit for cost-type contracts to evaluate whether your accounting system properly collects and bills costs in accordance with the Federal Acquisition Regulations (FAR). The Accounting System Reviews must be successfully completed before your company can be awarded a Cost Reimbursable contract or subcontract.
- A pre-award audit examines policies, procedures, and accounting system design for the ability to handle cost-type contracts. Pre-award audits are generally high-level, although they may delve into some process verification.
- A post-award audit occurs after you have been performing under your contract for a period of time. The process involves detailed testing of the flow of transactions through the accounting system to the project ledger and billing.
- Accounting system reviews are complex. DCAA guidance, including the Standard Form (SF) 1408 Pre-Award Survey of Prospective Contractor Accounting System checklist, can help you prepare.
Proposal Audits and Reviews
- DCAA occasionally conducts these audits at the pre- or post-contract award stage to verify the adequacy of your firm’s contract proposal.
- Be prepared to substantiate all proposed costs, indirect rates, and/or markups.
- The best preparation is to calculate these numbers carefully when you develop a proposal and to document the data used and assumptions made when preparing the proposal
Incurred Cost Submission Audits
- If your cost-type or time and materials contract with a federal agency includes requirements under the Allowable Cost & Payment Clause (FAR 52.216-7), you are required to submit an incurred cost submission (ICS) six months after the close of your fiscal year (for details, see CAVU’s ICS blog).
- An ICS audit verifies the costs claimed and submitted in this annual process. DCAA also verifies that the indirect rates you finalized for the year are accurate.
- Once DCAA finishes the audit and issues a letter for final rates, your firm can submit final rate adjustment vouchers. These are required by the deadline specified in your rate agreement letter.
Voucher Reviews
- DCAA uses this audit process to review invoices submitted under the Department of Defense’s Wide Area Workflow (WAWF) system. WAWF is a web-based tool that allows GovCons to submit and track invoices and receipt/acceptance documents.
- A voucher audit may even be triggered for contractors that have direct submit invoices—those that are automatically approved and do not go to DCAA for review. The process can become as involved as a mini accounting system audit and include many of the same request items, such as billing policies and procedures, billing backup, and contract data.
- Prepare for a voucher review by having your policies and procedures up-to-date and all billing documentation available.
Floor Check Audits/Reviews
- DCAA uses these procedures to verify timesheet data and accuracy, and confirm that employees listed in the contract actually exist.
- In the pre-COVID environment, DCAA conducted these reviews in person. An auditor showed up at a work location and reviewed timesheet data. The official often quizzed employees about their charge code authorization, who gave the authorization, and work duties.
- Under pandemic procedures, DCAA now verifies employees’ identity with driver’s licenses, HR records, and reaching out to workers directly via phone or email to conduct reviews.
- To ace these audits, it is critical that your staff keeps timesheets up-to-date with daily entries and understands the company’s timekeeping policy. Your program manager—not your accounting department—must give charge code direction so employees can adequately respond to DCAA inquiries.
Are you still unsure that your firm is prepared to satisfy DCAA requirements? CAVU’s depth of experience with government audits can help your accounting team fill in the cracks or help you prepare for a DCAA review from the bottom up. Audit prep can help fine-tune your business processes so that you not only pass your review with flying colors but boost your profitability with a more efficient, responsive operation.