Ensure your accounting practices are ready for a contract audit

With the US Government spending billions of dollars on contracted expenditures, such as DCAA assessed defense contract with businesses, audits by government entities are commonplace to justify those expenditures. It is important to know the details and where to get help when your business is audited. A recent article in The National Law Review talked about the DCAA’s fourth annual report demonstrating some improvements in decreasing the length of its audits and attempts to further changes that would allow more access to government contractor information, internal audits, and resources. Read on for some helpful resources related to government contract audits.

Government Contract Audit Defined

According to the AICPA a governmental audit is defined as:

“Governmental audits include audits performed under the Single Audit Act Amendments of 1996 and OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations (referred to as single audits), program specific audits… and other compliance audits and attestation engagements performed as required by federal, state, or local laws and regulations.”

Stages of an SBA based audit

In the U.S. Small Business Administration’s S.O.P. (Section 90 10 5), entitled Audit Program, the procedures for conducting an audit are presented in detail. This includes the kinds of audits conducted by the organization. There are two kinds of audits: Internal Audits, which are financial, performance-based and audits of programs, and External Audits, which center on contracts, preaward, incurred cost rates, close out, claims and defective pricing audits.

In particular, there are two sections of Section 90 10 5 that are useful for business to review. Chapter 3 of the online document spells out the stages of an audit. This provides a comprehensive overview of what to expect throughout the audit process, including:

• Audit selection
• Survey
• Developing the audit program
• Review phase
• Report writing
• Incorporation of management comments
• Report issuance
• Management decision and action

DCAA Information for Contractors Manual

Along with their website, The Audit Process Overview, the Defense Contract Audit Agency or DCAA provides a detailed guide to better understand what is involved for its government contract audits. The section entitled ”Information for Contractors” states that “This manual applies to all contractors interacting with DCAA auditors, as a result of doing business with the U.S. Government.” This useful resource includes link to the manual, contact information for small business contractors, and reference document links to main DCAA audit topics such as accounting system requirements.

Audit Helps to Demonstrate Financial Practices for Securing Government Contracts

A May 27 article in Spaceflight Now discusses how an audit of SpaceX was a central component of securing a contract with the Air Force to build rockets hauling GPS navigation satellites to orbit. SpaceX disputed the award to its competitor, United Launch Alliance or ULA, and was able to successfully prove that they would be able to deliver better pricing, likely supported by the results of their 2013 government contract audit.

While a government contract audit may be daunting, your company or organization may want to initiate one on your end to support your government contract. The resources linked in this article provide many details on what you need to know about surviving a governmental audit. If you would like to know more or are considering an outside source for helping to ensure your accounting practices are in order, or are at the onset of a request for audit, CJA can help. Visit our Government Contract Accounting page and contact CJA to get started today.