Jan 7, 2011

Nicole Mitchell

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Survival Tactic #5 Financial Compliance

In 2011 contractors can expect continued focus in the area of compliance, due to the emphasis on transparency and oversight of the current administration.  Not only will the technical expertise and bottom line cost impact your ability to win awards, but also the status of your back office.  An approved accounting system seems to be the buzz these days and becoming a necessity to win in the Federal marketplace.

The Department of Defense (DoD) announced on October 18, 2010 that the agency increased the limit imposed for contracting officers’ to request DCAA audit assistance (Fixed-Price proposals exceeding $10 million and Cost-Type  proposals exceeding $100 million)  as a part of their efforts to appropriately align DCAA audit resources.   Most thought this sounded like good news less oversight, but the reality is this just shifts the work from DCAA back to the contracting officer.  DCAA pre-award audits triggered by contracting officers were an easy way of determining reasonableness of price and verifying the contractor’s accounting system.  With this new alignment of resources the contracting officers will rely more on approved accounting systems rather than pre-award audits and those contractors who lack the approved accounting system may find themselves “out of the game.”

What should and can contractors do to properly position themselves?  Since you cannot trigger your own DCAA accounting system review you should at least be prepared so when the glorious day arrives you will pass the review with flying colors. Here are our survival steps:

1. Ensure you have all of your financial compliance filing in order, as required by your contracts
   1. Submit 2011 provisional rates as soon as feasible
   2. Complete 2010’s incurred cost filing by June 30, 2011
2. Review DCAA’s website to prepare for a review
   1. Download and read the workprograms under standard audit programs; DCAA publishes their procedures it is almost as good as a take home test.
   2. Download and review DCAA’ s Informational Guide for Contractors, this is a great guide from price proposals to incurred cost audits
3. Conduct a “mock review” of your own records
   1. Print DCAA’s accounting system review and see if you pass the test
4. Make sure common “exposure” areas are properly documented; do NOT leave low lying fruit for an auditor
   1. Document your bonus plan
   2. Evaluate executive compensation for reasonableness
   3. Verify labor charges are adequately supported (NO journal entries without corrected timesheets)
   4. Verify expenses are adequately supported (PLEASE remember a credit card statement is NOT  adequate support, a detailed receipt is required)

Finally, if you are ready and can pass the steps above it may be time to contact your Administrative Contracting Officer (ACO).   Your ACO can initiate a DCAA review.  Hopefully you will get the “golden ticket” of an approved accounting system in 2011!

We hope you found this survival topic insightful and that it will enable you to perfect the nature of your business.  Contact Nicole Mitchell at Aronson LLC at 301-222-8231 or nmitchell@aronsoncompany.com with questions or comments.