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Join Jerrold Rosenberg, CPA, CFP from Gelman, Rosenberg & Freedman, as he provides essential insights into surviving government audits. This session covers various audit types, including incurred cost and proposal audits, and discusses key strategies to prepare effectively. Learn about common pitfalls, the importance of proper documentation, and the role of employee training. Understand how to engage with auditors and ensure compliance with regulations. Equip your organization with the tools needed to navigate the complexities of government auditing successfully.
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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
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
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
Types of audits • System Survey • System must be in place • Auditors expect a lot from small contractors • Job costing • Purchase order system • Financial Capability • Company assets • Bank commitments • Mobilization • Receivable financing • Owner’s assets • Debt vs. equity
Types of audits • Other • Termination • Billing system • Floor checks
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
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
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
Biggest problems • Timekeeping • General requirements • Signed by employee and supervisor • Prepared in ink • Changes crossed out • Field employees • Electronic • Training
Biggest problems • Billing doesn’t reconcile to books Different classification on books from invoice to AID • Timing differences
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
Biggest problems • Similar costs treated differently • Telephone • Travel • Home office expenses
Biggest problems • Improper accounting system set up • Poor chart of accounts • Job costing • Audit trail • Timekeeping • Systems available • Quickbooks • Deltek • Peachtree
Steps to avoid audit issues • Policies and procedures • Establish and follow • Formal or informal • Employee handbook • Don’t get caught not following one of your own procedures
Steps to avoid audit issues • Pre-audit • Focus on high dollar items • Labor • Travel • Subcontracts • Internal staff • Outside parties • DCAA auditor access to pre-audit findings
Steps to avoid audit issues • Employee training • Expense coding • Consistency between employees • Consistency in contracts • Huge problem • Costs treated differently between contracts • Home office expenses • Rent • Customer doesn’t understand problem • Contract terms can impact on cost recovery
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
Steps to avoid audit issues • Reputation • Auditors talk to each other • You are better off with a reputation for being cooperative
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
Determining exposure • Ceiling Rates • Cost type contracts
