Mandatory Annual Audit Requirements (MAARs) - Part V

Today we continue our discussion on MAARs, Mandatory Annual Audit Requirements. MAARs are minimum audit procedures that must be applied to reviews of contractors' annual incurred cost submissions. Anything short of these would render the audit non compliant with GAGAS (Generally Accepted Government Auditing Standards). If you missed any of the first four parts, you can read them here:

• Part I - Introduction
• Part II - Timing
• Part III - MAARs #1 - 4
• Part IV - MAARs #5 - 8

MAAR #9 - Payroll/Labor Distribution Reconciliation and Tracing. The purpose of this MAAR is to test the overall integrity of labor cost records at the general ledger and cost ledger levels, and to reconcile payroll accruals and disbursements to ensure that distribution entries trace to and from the cost accumulation records. Or, to put it another way, how does an hour charged on a timesheet, convert to dollars on a bill to the Government.

MAAR #10 - Adjusting entries and exception reports. The purpose of this MAAR is to identify adjustments and/or exceptions that require further audit analysis and explanation. The audit will evaluate the propriety of adjusting journal entries and exception reports for both direct and indirect costs.

MAAR #11 - Reserved. (At one time, MAAR #10 pertained to labor adjusting journal entries and MAAR #11 pertained to materials adjusting journal entries. These were combined into a single MAAR.

MAAR #12 - Auditable subcontracts/assist audits. The purpose of this procedure is to identify and request assist audits on "auditable" subcontracts. "Auditable" subcontracts are flexibly priced subcontracts awarded under flexibly priced prime contracts. It is the prime contractor's responsibility to perform subcontract audits but its the auditor's responsibility to ensure that those audits are adequately performed.

MAAR #13 - Purchases existence and consumption. The purpose of this MAAR is to test that materials were in fact received (exist or were consumed) and that services were in fact performed. The auditor will make physical observations and/or inquiries on a concurrent basis in addition to documentation verification of contract charges for purchased materials and services.

Tomorrow we will conclude this series by discussing the remaining MAARs.