Dealing with DCAA audits can be tricky at best - especially in today’s environment, if you do not take the necessary steps to ensure that you understand, manage and respond appropriately to audits. In this brief article, we will look at what steps can be taken by contractors prior to, during and after a DCAA audit.
When getting the news of a pending audit, a key to planning and preparing for the audit is to understand the rights you have as a government contractor, and how DCAA should conduct themselves in dealing with your company:
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DCAA must conduct the audit in accordance with audit programs in the DCAA Contract Audit Manual (DCAAM),
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DCAA’s audit findings should be adequately documented, presented with a balanced narrative of the area being audited, and appropriately reported in the audit report,
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DCAA should provide adequate opportunity for the contractor to respond to preliminary findings both orally and in writing,
It is important that contractors understand and obtain knowledge of the various types of audits their company may be subject to. Contractors can gain an understanding of the various types of audits by going to DCAA's website (www.dcaa.mil). In this website, there are three important sources of information under the tab Guidance:
- The “Audit Guidance Memos" (MRDS), which provide real-time guidance to DCAA auditors not yet incorporated into the Defense Contract Audit Agency Manual (DCAAM). The key here is that the memos can provide the contractor with insight into new directions DCAA is proposing for audits and more importantly changes in DCAA policies dealing with contractors as well as the impact of recent court rulings on the audit approach. For example, contractors have the right to designate a liaison to be the point of contact for DCAA before, during and after the audit; however recent memos show that DCAA does not consider this as a contractor right and are pushing back when contractors insist that DCAA work through the company liaison.
- The Audit Process Overview, which provides information useful to understanding the process followed, an overview of the types of audits, links to checklist and what to expect in an audit.
- The DCAAM, which provides the guidance that DCAA follows in conducting their audits. Knowledge of this guidance helps the contractor ensure that DCAA does not stray from its intended audit purpose, which they have a tendency to do outside the scope of the planned audit.
The next important step is to determine your company's classification status:
- Are you a small, medium or large contractor?
- What are your contract types: Fixed Price, cost reimbursement, negotiated, competitively awarded, etc.?
- Are any of your contracts subject to the Cost Accounting Standards (CAS)?
The knowledge obtained from these steps will help in determining what type of audits your company is subject to and how best to plan and prepare.
Once a contractor identifies the types of audits they are subject to, and DCAA has announced in writing that an audit is forth coming, the planning process should include at minimum the following steps:
1) First and foremost, insist on an entrance conference to discuss not only the audit scope but also the duration. You should:
a) Obtain a clear understanding of the audit scope from DCAA.
b) Determine the functional areas the audit will cover.
c) Understand the start and potential completion date of the audit fieldwork --in other words, how long DCAA will be at your facilities.
However, the entrance conference will not give you a clear picture as to when the audit report will be drafted, when you will have an opportunity to respond to preliminary findings or when the final report will be issued.
2) Determine who within your company has adequate knowledge of the company operations, business structure, government regulations and DCAA. It is important to appoint the appropriate lead for the project as your liaison or point of contact for DCAA. This liaison is the company’s conduit through which DCAA will conduct its audit.
3) Once the audit scope has been determined, assemble a team of managers that represent the areas to be audited. This team will be responsible for managing the audit process within their areas of responsibility, which includes ensuring that DCAA has access to the appropriate individuals who can correctly answer DCAA audit questions. Your manager must ensure that when DCAA conducts an interview with a company employee, a company representative is present at all times to take notes.
4) As a government contractor, the most important fundamental is maintaining accurate and adequate records. Having adequate, sufficient evidence is the key to not only a successful audit, but also success as a government contractor. Access to those records to be audited helps the audit process to go smoothly. It also allows the contractor to respond timely to DCAA audit request.
5) We recommend maintaining a detailed record of all DCAA requests for data and interviews, and the documented company’s response should include data and documents submitted, the date of the requests, the date you submitted the data and the specific DCAA representative(s) to whom the data was provided. It is very important to maintain this log not only during, but after the audit is completed. The company liaison/point of contact should be responsible for this function.This protects the company in the event that DCAA loses the data provided, misinterprets that data or the auditor records of data obtained is inaccurate.
6) Insist that the management team have an opportunity to review and comment on DCAA’s preliminary findings. Do not pass up the opportunity to provide your comments to DCAA audit findings, their accuracy or inaccuracy, that are included in the audit report. Foregoing this step could invite trouble later.
Redstone Government Consulting regularly provides assistance to large, medium and small government contractors before, during and after DCAA audits. Our 300 years of DCAA experience allows us to assist our customers to mitigate risk and issues with DCAA and avoid issues that often trigger problems that may result in costly findings.
