Consult Granite

DCAA audits come with the territory for government contractors.  Everyone has stories of their interactions with the DCAA, some positive…and some not so positive.  It’s important to remember that regardless of one’s past experiences with the DCAA, they are like any other organization e.g. they have their current priorities. 

What to Expect

Although deciphering the DCAA’s yearly hot button issues can be somewhat of a fortune telling exercise, there are some basics that never go out of fashion.  There are also some emerging issues that we can reasonably forecast given recent significant audit reports.  Based upon our decades of reviewing and remediating DCAA findings (and having been real life DCAA auditors ourselves) here are some issues to watch for this year:

The Three Things

Unsupported Costs

Historically failure to adequately support claimed costs has been DCAA’s greatest source of questioned costs.  Our experience has been that DCAA assertions of unsupported costs fall into three categories:

Unreasonable requirements for supporting documentationFailure to have, follow, or properly execute a record retention policyInconsistent DCAA policy on use of electronic support

When you support your costs with evidence other than what the auditor asked for, you need to explain how the documents are sufficient and appropriate.  For example, if the auditor questions airfare because there was no paper boarding pass, you can present the receipt for the airfare and the receipt for the ride to the airport on the date and time for the flight.  With this supporting documentation, you can generally convince a reasonable person that the flight was taken.

Also note that DCAA’s policy for accepting scanned documents may be reasonably interpreted at the agency management level, however it may not be reasonably interpreted at the branch or auditor level.  Make sure that local DCAA management knows and accepts your use of electronic support.  Consider obtaining an advance agreement.

Time and Materials Labor Qualifications

Internal controls that reasonably ensure that the people performing on T&M contracts meet the specified qualifications for the task they are performing is a must.  If you have a competent person that does not meet the qualifications specified, get the specifications changed or get the Contracting Officer’s documented approval to use that person on the task.

Legal and Professional Services

Auditors have also been aggressive in questioning costs of proceedings that they assert are not in the Government’s interest.  Make sure that your attorneys understand the need to support legal costs and that you understand the need to maintain legal privilege.  There may be some middle ground that allows you to both support the costs and maintain the privilege, but that decision is your attorney’s.

Bottom line: Be prepared

Being a government contractor is not easy and DCAA audits (or the anticipation of maybe getting audited) is not a fun experience.  In addition, we all have our day responsibilities that keep us more than busy.  The best thing we can do is put in place some simple common-sense controls and fixes today.  Not only does the 80/20 (Pareto) rule tell us that this will help us dramatically come audit time, but it will also give ourselves and our executives confidence that we have prepared properly.