Pre-Award Audits

The Government Accountability Office (U.S.GAO) issued an 80 page document (GAO-08-857) in July 2008 that effectively identified the DCAA as having a lack of independence by working too close to the contractors they audit and not utilizing the accepted industry standards in their reports.

The DCAA responded to the report by modifying the grading scale for audit reports. The new scale is either Pass or Fail. This replaces the old scale that identified ‘levels of compliance’. It is now more difficult for contractors to meet the standard since they are now required to be completely FAR / CAS compliant.

In December of 2008 the DCAA released a new audit guidance document titled ‘Audit Guidance on Significant Deficiencies / Material Weaknesses and Audit Opinions on Internal Control Systems’. This document informs that government contractors are now required to have 100% FAR / CAS compliance in order to capitalize government procurement funds. This is the most extreme position DCAA has taken in twenty years. It is not only paralyzing, this could be a death trap for contractor failures and bankruptcies.

DCAA Pre-Award Audit Requirements

Segregate direct costs from indirect costs
Accumulate contract costs by cost element by contract, project, task or cost objective for each cost element (labor, materials, subcontracts, other direct costs, fringe, overhead and G&A)
Maintain an adequate timekeeping system
Maintain adequate labor and accounts payable distribution systems
Account for unallowable costs and exclude such costs from billings, claims and proposals
Make certain direct costs and indirect costs are controlled by the general ledger
Capture pre-contract costs separately
Maintain homogeneous indirect cost pools and allocate indirect costs to contracts, projects, tasks or cost objectives based on a beneficial, causal and equitable basis
Comply with financial clauses like the Limitations of Costs/Funds and Progress Payments clauses
Make interim accumulation of costs in the books of account, at least monthly
Track costs by contract line item and Provide reliable historical accounting data for follow-on procurements

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