Private Auditors Acting Like DCAA

NASA Joins Other Government Agencies in Awarding Private Accounting Firms Contract Auditing Work

Is there anything possibly worse than a DCAA audit? Unfortunately, some contractors may conclude that an audit by a non DCAA private accounting firm might be worse.

Why?

First, The standing orders and procedures DCAA should comply with during the audit are not required by a private audit firm. For example, a private audit firm is not required to follow the same or any management response procedures DCAA is required to follow.

Second, in a world where we struggle with DCAA’s loss of institutional knowledge, these private accounting firms often display almost no knowledge of government contracting. I worked an audit recently with one of the firms awarded a piece of this NASA contract. They actually scheduled and conducted a conference call where they asked why the rates on the incurred cost proposal were different from the billing rates. When I pointed out this was the actual core of an incurred cost proposal, they put us on hold, and grabbed their boss who got back on the line. He claimed they asked the question to determine our knowledge of government contracting. This was the beginning of several audits where I faced simple ignorance of government regulations and government contracting again and again.

Another example involved the auditors requesting a copy of a meal receipt and noticing that the expense report include an airline ticket. Instead of asking for a copy of the airline ticket paperwork to support the expense, the auditors concluded that the support was “missing” and demanded that the contractor not only reimburse the government for the cost of the ticket but an additional ‘calculation’ as they extrapolated the finding to increase it, multiplying the demand to thousands of dollars (five percent of 'questioned' costs in travel meant that five percent of ALL indirect costs, audited or not, were unallowable).

It took dozens of emails and finally an appeal to the DOE contracting officer to get the auditors to accept the receipt and withdraw their proposed finding, after their third attempt to impose it.

Third, unlike most DCAA auditors, these private accounting firms are billing by the hour. Although the NASA contracts may address this issue, other agencies have not.

Independence is always a problem with government auditors and even more so with private auditors who want the government to continue to employ them to audit you as often as they can. Compare this to DCAA average of 1.27 audits per auditor a year.

What is an Honest Contractor to Do?

• Demand the private auditor to agree in writing to follow all DCAA guidance (such as the DCAA Contract Audit Manual (CAM) and DCAA emerging replacements for the CAM (Selected Areas of Cost is the most recent example) and to act as if they were DCAA. This is absolutely critical or you are open to any actions or procedures they feel ‘proper’.

• Well, if you are going to demand they follow DCAA’s standing orders you should learn about them yourself and your rights as a contractor. Surviving a DCAA Audit provides significant resources for any DCAA or DCAA like audit.

Been There Done That

• Still uncomfortable? Drop us a line at mail@dcaacompliance.com . As you can tell we have been there and done that. We recently successfully supported a DOE contractor audited by a private accounting firm on over $33,500,000 in government contracting costs. We successfully argued against over $7,000,000 in auditor asserted ‘unallowable’ costs to a final report with less than $30,000 and only a couple of hundred dollars we did not argue against.