Contract Close-Out Process - Part 3

Back in the old days, DCAA (Defense Contract Audit Agency) audited final vouchers (or completion vouchers). These were not "audits" in the true sense of the word but auditors would trace direct costs back to contracts' job cost records and ensure that the contractor applied the appropriate indirect rates for each year. They would then check to see what the contractor had already been paid to date to ensure the difference between incurred and billed equaled the amount of the final voucher. DCAA would then issue a report to the ACO (Administrative Contracting Officer) stating that the amounts claimed on the final voucher agreed with the contractors books and records and it was up to the ACO to perform all of the other administrative closeout tasks, the most difficult usually being the reconciliation with Government disbursement records. Back then, Government finance records at anything below the contract level (e.g. CLIN, ACRN, etc) were notoriously inaccurate.

In 2011, FAR 52.216-7, Allowable Cost and Payment was revised to enhance the annual incurred cost reporting requirements. With the added submission requirements, the contractor annual incurred cost submissions contained all of the information necessary for the ACO to determine allowable, allocable, and reasonable costs charged to contracts. There was no longer any need for the contract auditors to perform specific close-out procedures for each contract ready to close. Schedules H, I, K, J, and O of the incurred cost submissions contained direct and indirect cost information and billing information. ACOs were told to refer to the incurred cost submissions for the data necessary to administratively close their contract(s).

So, while the reliance on incurred cost submissions worked well in theory, it hasn't worked well in practice. ACOs are finding that final vouchers (completion vouchers) seldom reconcile to the incurred cost submissions. There are many reasons for this but at the core, contractors and contract auditors have not paid too much attention to the accuracy of cumulative incurred costs. Audits generally focus on claimed indirect rates (indirect expense pools and their respective allocation bases) and very little effort is given to the build-up of cumulative allowable costs. Under DCAA's new policy of writing off low-risk incurred cost proposals, the problem is exacerbated because now, no one if validating the data. So, if a contractor fails to update cumulative costs for the impact of prior year negotiated indirect rates, no one on the Government side is the wiser.

Because of the discrepancies between final vouchers and incurred cost submissions, DCAA has found itself back in the business of assisting ACOs in closing out contracts. This assistance can range from helping the ACO understand the data already available in their files to full-blown reconciliations of contractor data. Perhaps that's a good thing because at least DCAA has something to do after having large chunks of their mission abrogated by DCMA (Defense Contract Management Agency) and other agencies over the past five years. Nevertheless, the final voucher work is administrative in nature and does not require the application of Generally Accepted Government Auditing Standards.

Tomorrow, what contractors can do to expedite the close-out process.