For government contractors, auditing is a matter of when – not if. Yet many contractors still panic when they receive the inevitable audit request from the Defense Contract Audit Agency.
If you have been preparing from the start of your contract, you should be in good shape to withstand an audit. Yet, even if you have been so busy running your business that all thought of audits fell to the back burner, there are steps you can take before and after the auditors arrive to manage the process successfully.
The DCAA Audit Letter and Data Call
To initiate an audit, DCAA auditors will send an audit letter that includes:
- A description of the type of audit they plan to perform.
- A list of systems and records they want to examine (known as a data call).
- A deadline for your response.
Once again, take a deep breath. Then begin developing a plan of attack for dealing with the audit.
- Examine the audit letter to see what auditors are looking for and what the agency’s agenda might be.
- Pull the Contract Audit Manual for guidance.
- Appoint someone as the primary point of contact between your company and the auditors. Ideally, you should appoint someone who is familiar with your overall business operations and who has a thorough understanding of government contracts, federal regulations and the DCAA audit process.
- Establish a chain of command for responding to the audit. Ensure that any employees likely to be involved in the audit understand their roles and responsibilities.
- Begin gathering requested data.
- Small business contractors often lack the in-house expertise to prepare for audits and represent themselves through the audit process. An experienced CPA will be an invaluable asset to you during the audit process. Your expert can serve as a buffer between you and the auditors. Ideally, you should appoint a CPA with the knowledge and experience to expedite the audit process and to push back against overly aggressive auditors if needed.
The Entrance Conference
Once you’ve put a preliminary plan in place, schedule an entrance conference with the DCAA auditors. Goals of the conference include:
- Introduce the auditors to your point of contact.
- Clarify the purpose of the audit.
- Agree on the audit scope. Nail down specifics. Do not accept a broad scope such as, “an audit of the contractor’s facilities.”
- Specify the types of records and data the auditor intends to review. Remember, the DCAA auditors have the right to review any documentation that supports a cost charged and recovered on a federal contract, grant, or cooperative agreement.
- Set the auditor’s level of access to documents, information and personnel.
- During the Audit
While auditors are at your business, your goal should be to assist them in completing their task as quickly as possible while protecting your company’s interests. Here are some tips for managing the audit process and avoiding needless disruption to your operations.
- Be courteous and professional. The auditors represent one of your biggest clients, the federal government. Make sure to treat them accordingly.
- Know your rights. By law, auditors are only entitled to access specific records required to assess costs. They must follow Generally Accepted Government Auditing Standards to determine which records are relevant.
- If possible, provide auditors with a designated office or work area. Bring any requested documents to them rather than allow them to roam throughout your company.
- For floor checks, have your designated point of contact or another company manager accompany the auditor during interviews with employees.
- Ask auditors to make data requests, in writing, to your designated point of contact. Although DCAA auditors are not required to make written requests, these are very helpful in evaluating, tracking and prioritizing their requests.
- Review and log all documents before providing them to auditors.
- Auditors will ask clarifying questions. Answer them – but make sure you are only answering their specific questions. Do not volunteer additional information. This is where an experienced government contracts CPA can be especially helpful.
- Hold interim conferences as needed to manage the audit process. These will allow you to address any perceived deficiencies or mistakes in your data.
- If the auditors discover something wrong, remedy the issue before they leave your site, if possible.
In our next blog post, we’ll discuss The Exit Conference and Audit Remediation.
In the meantime, if you have questions about DCAA or DCMA audits and your business, please call or email Robert E. Jones at (614) 556-4415 or Robert@LeftBrainPro.com.