In August of 2023, the Defense Contract Audit Agency (DCAA) changed what is used to refer to as Mandatory Annual Audit Requirements (MAARS) 13 audits to Real-Time Audits of Purchase Existence and Consumption. This change was to eliminate the mandatory part of the requirement and introduce greater flexibility based on the auditor’s risk assessment of the contractor.
Real-Time Audits of Purchase Existence and Consumption are a critical aspect of compliance for government contractors, particularly concerning the management and reporting of material costs. Drawing insights from the DCAA’s approach, this article provides an in-depth look at what government contractors can expect during material cost audits in a Real-Time Audit of Purchase Existence and Consumption.
Understanding Material Costs in Real-Time Audits of Purchase Existence and Consumption
Material costs are a significant component of many government contracts. Real-Time Audits of Purchase Existence and Consumption focus on ensuring that these costs are accurately reported and that contractors are managing them in compliance with government standards.
Material Cost Audits
Material cost audits are conducted to verify that the costs charged to the government for materials are reasonable, allocable, and allowable. These audits involve:
- Review of Procurement Records: Auditors examine records related to the procurement of materials, including purchase requisitions, purchase orders, receipts, and vendor contracts.
- Verification of Cost Allocation: They assess how material costs are allocated to government contracts, ensuring that the allocation methods are consistent and comply with applicable regulations.
- Evaluation of Internal Controls: The audit includes an evaluation of the contractor’s internal controls over material costs, checking for processes that prevent and detect errors or fraud.
Preparing for Material Cost Audits
Best Practices for Contractors
- Accurate Record Keeping: Maintain detailed and organized records of all material purchases and allocations.
- Consistent Cost Allocation Methods: Ensure that the methods used for allocating material costs to contracts are consistent and compliant with government standards.
- Internal Audits and Reviews: Conduct regular internal audits to review material costs and procurement processes.
- Training and Compliance: Train staff on proper procurement procedures and compliance with government regulations.
During the Real-Time Audits of Purchase Existence and Consumption
What to Expect
- Documentation Requests: Be prepared to provide auditors with extensive documentation related to material costs.
- Interviews and Inquiries: Auditors may interview procurement and material management
- Detailed Analysis: Expect a thorough examination of how material costs are recorded, allocated, and reported.
- Existence: The auditor is going to want to see the material.
Best Practices During the Audit
- Transparency and Cooperation: Provide clear and complete information to auditors and cooperate throughout the process.
- Prompt Responses: Respond quickly to requests for information or clarification.
- Proactive Communication: Keep auditors informed about your processes and challenges in managing material costs.
- Just-in-Time Material Management: If you employ just-in-time material management, work with the auditors so they can select samples of material that they can examine before it is consumed in the production process.
What is the Best Way to Prepare for Real-Time Audits of Purchase Existence and Consumption?
Government contractors must prepare for and successfully navigate the material cost aspect of Real-Time Audits of Purchase Existence and Consumption. By maintaining accurate records, employing consistent cost allocation methods, and fostering a culture of compliance, contractors can demonstrate their commitment to responsible and transparent material cost management. Even if DCAA has risked away these procedures, it is a best practice to continue your own internal reviews as part of an adequate accounting system.
Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations. This includes assisting with government contract compliance and policies and procedures or training.
