Contractors that have been awarded a contract with the federal government may be subject to a number of post-award audits.
These audits are often conducted by the Defense Contract Audit Agency (DCAA) and commonly include, but are not limited to, audits of costs incurred during contract performance to validate that these charges comply with Federal Acquisition Regulations (FAR).
The following are some of the most common post-award audits DCAA will conduct for contractors, depending on the contract type and value.
1. Public Voucher Audit
DCAA conducts public voucher audits to determine the accuracy of bills to the government. During a public voucher audit, compliance with billing instructions, rates, and terms of the contract are assessed.
For cost plus contracts, reconciling billed costs to accounting records and verifying timely payments from the contractor to vendors and subcontractors are performed, as well as determining whether the contractor is properly applying established provisional billing rates.
2. Floor Check
A floor check audit is a real-time post-award audit in which DCAA arrives on contract site unannounced, with an objective of assessing compliance of the contractor’s timekeeping methods, including controls on labor charges and the accuracy of worker time records. The auditor will focus on interviews with employees and compare actual practices to policies, procedures, and internal controls the contractor has implemented.
During a floor check audit, expect:
- labor interviews to ensure duties among employees are segregated and labor costs are documented correctly
- review of the segregation of duties
- review of timekeeping training and policies
- observation of work areas
The main purpose of a floor check is to ensure labor costs are accurately identified as direct or indirect, and that the contractor’s accounting system is properly posting to contracts and indirect pools.
3. Provisional Billing Rate Audit
DCAA will audit projected indirect rates a contractor estimates for the upcoming year in what is known as a provisional billing rate audit. During this audit, DCAA will review the contractor’s submitted calculation estimate of billing rates. Once accepted, these rates are used until final rates for the fiscal year are determined.
Under FAR guidelines, contractors must accurately estimate provisional billing rates, which will then be authorized for billing the contract according to contract type (flexibly priced or fixed-price). Once the final rates have been established, an adjustment will be made for variances between billed provisional rates and final actual rates when the incurred cost proposal is submitted
During a provisional billing rate audit, DCAA will review the information contractors submit with their provisional billing rate proposals, which includes:
- Pool and base proposed billing rate calculations with a brief justification
- Prior fiscal year pool and base costs
- Current fiscal year-to-date pool and base costs
- Current fiscal year budget pool and base costs (if available)
- Comparative analysis with an explanation of significant differences
4. Incurred Cost Audit
DCAA conducts incurred cost audits to determine if the costs charged to flexibly priced government contracts are allowable, allocable, and reasonable according to the contract’s terms, generally accepted accounting principles (GAAP), cost accounting standards (CAS), and applicable government acquisition regulations.
During the audit, DCAA will verify costs incurred by a contractor, including both direct and indirect costs, and will look for any unallowed or unreasonable costs that might be charged to the government.
Prior to an incurred cost audit, contractors submit an incurred cost proposal (ICP), which details actual expenses incurred by a contractor during a calendar year. DCAA will use an ICP to compare actual contract costs to those billed using provisional billing rates.
During an incurred cost audit, DCAA will ensure the contractor complies with the following:
- All costs are applied to a final cost objective.
- Direct costs are segregated from indirect costs.
- Accounting is accurate for subcontract costs.
- Charges have been effectively evaluated and are allowable, reasonable and allocable.
- Separate and well-allocated indirect pools have been maintained.
To ensure an incurred cost audit goes smoothly, contractors are encouraged to monitor and manage actual and provisional rates throughout the fiscal year.
5. Contract Closeout
Once a contract has been completed and all actions finalized, DCAA will conduct a contract closeout audit. For a contract closeout audit to take place, any disputes must be resolved and final payments completed.
DCAA auditors will ensure all actions have been completed. FAR mandates that contracts be closed according to the type of contract they are, so completion deadlines can vary.
Prior to a contract closeout audit, the contract administration office must review funds status and notify the contracting officer of any excess funds the office may deobligate.
Contractors can help the contract closeout process go smoothly by maintaining timely incurred cost proposals, IT backups, and accurate records.
Learn More About Common DCAA Audits
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