The Government expects contractors to have written policies and procedures covering their billing system functions. As we wrote yesterday, the auditors will initially come in and scoop up whatever documentation contractors have regarding the billing policies, procedures, and practices. They will then review the policies to determine their adequacy and perform tests to see if those polices have been implemented and are working effectively. The question we receive most often is "what are adequate policies and procedures"? The answer to that could fill a book but lets take a look at one single aspect of billings; comparison of billed and paid amounts. You will recall from yesterday's posting that this is one of the objectives of DCAA's payment recapture audits.
Contractors should have written policies and procedures to identify and resolve contract overpayments in a timely manner. Under these policies and procedures, contractors should:
- Perform comparisons of amounts received to amounts billed at the invoice level (e.g. for each public voucher, progress payment request, performance based payment, and delivery invoice) to readily identify contract overpayments.
- Document timely notification of overpayments to the contracting officer and paying office.
- Document compliance with contracting officer and paying office instructions to resolve overpayments.
- Resolve overpayments within 30 days after the overpayment was made and document significant activities during the resolution process.
- Ensure that on contracts with progress payments, that the appropriate progress payment liquidation is applied against the delivery invoice when the delivery invoice is submitted. These procedures should include
- Brief the contract to identify the appropriate liquidation rate
- Apply the appropriate liquidation rate against the delivery invoices and record the net amount in the amounts receivable records.
- Identify payment variances as a result of differences in application of liquidations between the paying office and the contractor.
- Research payment variances to determine if overpayments exist
- Immediately refund overpayments due to liquidation errors and coordinate with paying office and resolve within 30-60 days.
The foregoing covers only one of the "payment recapture audit" objectives that auditors will review. We did not discuss the essential policies and procedures for reconciliations of recorded to billed costs, contract administration adjustments, demand letters, subcontractor billings (very critical), offsets, and refunds. Our advice to contractors is to review your billing systems before an audit to ensure adequacy. It will make the audit process smoother and avoid negative audit findings.
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