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Surviving a Government audit

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

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Surviving a Government audit

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  1. 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

  2. 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

  3. 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

  4. 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

  5. Types of audits • Other • Termination • Billing system • Floor checks

  6. 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

  7. 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

  8. 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

  9. Biggest problems • Timekeeping • General requirements • Signed by employee and supervisor • Prepared in ink • Changes crossed out • Field employees • Electronic • Training

  10. Biggest problems • Billing doesn’t reconcile to books Different classification on books from invoice to AID • Timing differences

  11. 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

  12. Biggest problems • Similar costs treated differently • Telephone • Travel • Home office expenses

  13. Biggest problems • Improper accounting system set up • Poor chart of accounts • Job costing • Audit trail • Timekeeping • Systems available • Quickbooks • Deltek • Peachtree

  14. 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

  15. 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

  16. 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

  17. 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

  18. Steps to avoid audit issues • Reputation • Auditors talk to each other • You are better off with a reputation for being cooperative

  19. 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

  20. Determining exposure • Ceiling Rates • Cost type contracts

  21. Surviving a Government AuditDetermining Exposure

  22. Contract Costs After Disallowances

  23. Surviving a Government AuditDetermining Exposure

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