Transcript B’nai Brith Youth Organization

Surviving a Government audit
Presented by
Jerrold Rosenberg, CPA, CFP
Gelman, Rosenberg &Freedman, CPAs
4550 Montgomery Avenue
Suite 650 North
Bethesda, MD 20814
301-951-9090
www.grfcpa.com
1
Types of audits

Incurred cost audits – primary focus
May cover multiple years
 Based on incurred cost submission
 May be most time-consuming
 Sample incurred cost submission is on
DCAA web site

2
Types of audits

Proposal audits
Organization is key
 Provide “scientific” support for projected
amounts
 Direct costs – history and projection
 Indirect cost rates
 GSA schedule – conflict between GSA and
DCAA

3
Types of audits

System Survey


System must be in place
Auditors expect a lot from small contractors
o
o

Job costing
Purchase order system
Financial Capability


Company assets
Bank commitments
o
o


Mobilization
Receivable financing
Owner’s assets
Debt vs. equity
4
Types of audits

Other
Termination
 Billing system
 Floor checks

5
Dealing with the auditor

Company contact
One or two key employees
 Make sure that other employees are aware
that they are not to communicate with
auditor


Inconsistency between auditors
Level of experience – DCAA now losing
auditors to retirement
 Levels of knowledge

6
Dealing with the auditor

Opening conference




Why are auditors there
Lay out policies for dealing with company
employees
Assure auditor that you will cooperate
Closing conference




Get opportunity to provide additional information
before the auditor has prepared their report
Face to face meeting is preferred
Required
Access to audit reports
7
Dealing with the auditor

Monitoring access to records
Pull information for the auditor
 Copy any information requested by the
auditor
 Maintain a list of information provided
 Document when the auditor requested the
information

8
Biggest problems

Timekeeping

General requirements
o
o
o
Signed by employee and supervisor
Prepared in ink
Changes crossed out
Field employees
 Electronic
 Training

9
Biggest problems

Billing doesn’t reconcile to books
Different classification on books from invoice
to AID
 Timing differences
10
Biggest problems

Unallowable costs not identified
Reasonable – “Does not exceed that which
would be incurred by a prudent person in
the conduct of a competitive business”
 Allocable – assignable or chargeable
 FAR 31 / Cost Accounting Standards
 Contract terms
 Accounting system should segregate
 Directly associated cost - materiality

11
Biggest problems

Similar costs treated differently
Telephone
 Travel
 Home office expenses

12
Biggest problems

Improper accounting system set up
Poor chart of accounts
 Job costing
 Audit trail
 Timekeeping
 Systems available

o
o
o
Quickbooks
Deltek
Peachtree
13
Steps to avoid audit issues

Policies and procedures

Establish and follow
o
o

Formal or informal
Employee handbook
Don’t get caught not following one of your
own procedures
14
Steps to avoid audit issues

Pre-audit

Focus on high dollar items
o
o
o
Labor
Travel
Subcontracts
Internal staff
 Outside parties
 DCAA auditor access to pre-audit findings

15
Steps to avoid audit issues

Employee training



Expense coding
Consistency between employees
Consistency in contracts


Huge problem
Costs treated differently between contracts
o
o


Home office expenses
Rent
Customer doesn’t understand problem
Contract terms can impact on cost recovery
16
Steps to avoid audit issues

Monitoring of indirect rates and contract
ceilings
Avoid making large adjustments at year end
 Indirect rates can also serve as a budget
 Balance costs to avoid ceilings
 Allocation of shared services

17
Steps to avoid audit issues

Reputation
Auditors talk to each other
 You are better off with a reputation for
being cooperative

18
Steps to avoid audit issues

DCAA Contract Audit Manual
Available from Superintendent of
Documents for $60 each year
 Contains audit procedures for several types
of audits and selected areas of cost
 Includes FAR 31.205 selected costs


Information for Contractors

Available from DCAA web site,
www.dcaa.mil
19
Determining exposure

Ceiling Rates

Cost type contracts
20
Surviving a Government Audit
Determining Exposure
Surviving A Government Audit
Determining Exposure
Basic Facts
Contract
Type
DL
Fringe
Subtotal
Overhead
XXXA
CPFF
$ 250,000 $
BBBD
CPFF
350,000
113,750
463,750
119,184
CCCA
T&M
500,000
162,500
662,500
ABCD
FIXED PRICE
450,000
146,250
596,250
Total
Indirect Rates Prior To Audit
Auditor Disallowance
Audited Indirect Rates
ODC
81,250 $ 331,250 $ 85,131 $ 25,000 $
Subtotal
G&A
Total Cost
441,381 $
48,993 $
490,375
15,000
597,934
66,371
664,304
170,263
400,000
1,232,763
136,837
1,369,599
153,236
100,000
849,486
94,293
943,779
$ 1,550,000 $ 503,750 $2,053,750 $ 527,814 $ 540,000 $ 3,121,564 $ 346,494 $ 3,468,057
32.500%
25.700%
$ 35,000
23.996%
11.100%
$
15,000
10.619%
21
Contract Costs After Disallowances
Contract Costs After Disallowances
Contract
Type
DL
XXXA
CPFF
$ 250,000
BBBD
CPFF
CCCA
ABCD
Fringe
Subtotal
Overhead
ODC
Subtotal
G&A
Total Cost
$81,250 $ 331,250
$79,486 $ 25,000 $ 435,736
350,000
113,750
463,750
111,281
15,000
590,031
62,658
652,689
T&M
500,000
162,500
662,500
170,263
400,000
1,232,763
136,837
1,369,600
FIXED PRICE
450,000
146,250
596,250
153,236
100,000
849,486
94,293
943,779
Total
Actual Cost of Disallowances
$46,273 $ 482,009
$ 1,550,000 $ 503,750 $ 2,053,750 $514,266 $ 540,000 $ 3,108,016 $ 340,061 $ 3,448,077
$13,548
$6,433
22
Surviving a Government Audit
Determining Exposure
Surviving A Government Audit
Determining Exposure
Contract Costs With Ceilings
Contract
Type
DL
Fringe
Subtotal
XXXA
CPFF
BBBD
CPFF
350,000
113,750
463,750
CCCA
T&M
500,000
162,500
ABCD
FIXED PRICE 450,000
146,250
Total
Overhead
$ 250,000 $ 81,250 $ 331,250 $
ODC
85,131 $
Subtotal
G&A
Total Cost
25,000 $ 441,381 $
48,993 $
490,375
119,184
15,000
597,934
66,371
664,304
662,500
170,263
400,000
1,232,763
136,837
1,369,599
596,250
153,236
100,000
849,486
94,293
943,779
$1,550,000 $ 503,750 $ 2,053,750 $ 527,814 $
540,000 $ 3,121,564 $
346,494 $
Indirect Rates Prior To Audit
32.500%
25.700%
11.100%
Contract Ceiling Rates on CPFF Contracts
35.000%
23.500%
10.800%
Costs Over Ceilings
$
17,490
$1,876
Actual Cost of Audit Disallowance
$
-
$4,557
3,468,057
23