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Mandatory Annual Audit Requirements (MAARs) 6 (labor) and 13 (material purchases) are two of DCAA’s mandatory annual audit requirements performed for incurred cost audits. These MAARs, established decades ago, have customarily been performed on a “real-time” basis within the year in which the costs were incurred. However, DCAA has recently revised their audit guidance in a Memorandum for Regional Directors (MRD) titled “Revised Procedures for Real-Time Audits of Labor and Purchase Existence and Consumption.”
What are the Significant Changes in the New DCAA Guidance?
DCAA issued new guidance based on changes in technology, best practices, and lessons learned during the pandemic. These best practices and lessons learned create more flexibility for the auditors and align resources with the appropriate risk levels. Several of the significant changes that DCAA outlined in their guidance is:
- Removing mandatory annual audit requirements from real-time labor audits and purchase existence and consumption audits.
- Establishing procedures for audit teams to determine when to perform these real-time audits using a risk-based approach.
- Creating flexibilities for audit teams to conduct real-time labor audits on a scheduled or unannounced basis based on specific risk considerations.
- Establishing best practices for using alternate interview and floor check techniques, such as telephone or video conferencing, to increase efficiency.
- Creating flexibilities for audit teams to conduct real-time audits on an interval basis throughout the year or at a specific time based on specific risk considerations.
The MRD also advises auditors to leverage the results from current accounting system and material management audits to increase audit efficiencies.
What Does This Mean to Me as a Government Contractor?
For long-standing companies with established policies, procedures, and internal controls for recording costs and submitting timely incurred cost submissions, the guidance may ease your burden in supporting the auditor if you have good internal controls and labor and material management systems. The guidance does state that virtual testing can be performed, so if you have the technology to support the virtual labor and material floor check, on-site visits by DCAA may be less likely. However, the MRD does remind the auditors that the revision to the guidance is intended to create audit efficiencies but maintains a preference for conducting in-person interviews and floor checks to the maximum extent possible.
New contractors that have not yet engaged with DCAA or have been assessed a high level of risk associated with your policies, procedures, or processes for recording labor and material costs will likely have on-site visits by DCAA, as virtual testing would not be appropriate per the guidance for your current situation. Therefore, you can expect periodic visits (scheduled or unannounced) from your friendly DCAA auditor.
Redstone Government Consulting, Inc, with its experienced accountants and lawyers, can assist contractors through the facts and evidence collection, preparing a rebuttal to an audit finding, as well as Government contracting discussions. Make us part of your team!
Mary Beth Jackson is a Director with Redstone GCI and brings over 30-years of experience and subject matter expertise to our team. She is an experienced industry veteran with a combination of direct experience working for the government, extensive industry experience in large accounting, IT and compliance organizations, as well as experience providing consulting services for many of the largest government contractors. Her combination of experience in senior-level accounting, compliance and IT roles provides for a wealth of background experience and knowledge in regulation (FAR, CAS, DFARS, and other agency supplements), Sarbanes-Oxley, NIST IT and Information Security and many other areas. She frequently assists our clients with strategic initiatives within the accounting, finance, IT and compliance areas include assessment of internal control design and effectiveness, evaluation of DFARS Business Systems, M&A support and post-acquisition integration, and other projects uniquely suited to her background and experience. Professional Experience Mary Beth began her career working with DCAA in 1988 and spent nine years with the agency working on incurred cost audits, forward pricing proposals and rate audits, accounting, estimating, and material management and accounting system audits, cost accounting standards, and disclosure statement reviews. Following her tenure at DCAA, Mary Beth migrated to a large Fortune 500 company where she served in various roles including Compliance Manager for the Defense and Aerospace Division, IT Financial Systems Integration Manager, and Director of IT Governance. In her role as Compliance Manager, Mary Beth spearheaded process improvements to eliminate deficiencies noted by DCAA in the areas of material management and accounting system, estimating system, general accounting system, and cost accounting standard compliance. As IT Financial Integration Manager, Mary Beth designed and implemented global financial applications to enhance the overall financial posture of the company. In 2005, Mary Beth was promoted to Director of IT Governance where she managed the control activities for the IT organization to comply with the Sarbanes Oxley Act. She managed the control framework, which was comprised of IT general controls, application control, security, change management, logical access, and software quality assurance. Most recently, prior to joining Redstone GCI, Mary Beth was the Enterprise Controller for a major aerospace and defense contractor. Mary Beth was responsible for overseeing the implementation of accounting policies and procedures, producing accurate financial statements, establishing and maintaining the internal control environment while ensuring compliance with US GAAP, applicable standards, and statutory requirements. Her role included maintaining of oversight of complex indirect rate structure, establishment and monitoring of the internal controls framework, and subject matter expert in FAR/CAS. Her diverse range of experience in working for DCAA and in the industry at various levels of management provides a unique perspective for our clients and affords her the ability to objectively view unique challenges of our clients and provide practical advice. Education Mary Beth earned Bachelor of Science Degree in Accounting from The University of Alabama in Huntsville. Affiliations Information Systems Audit and Control Association (CISA)