Lobbying Costs and Legislative Earmarks - Part 4

Today we're going to finish up this series on lobbying costs. As we indicated in our first post in this series, DCAA is increasing its oversight on this subject and has revamped its guidance for auditors when reviewing lobbying costs.

Any company with a "Washington Office" is almost automatically a target for a lobbying review. In the auditor's view, why would a contractor have a Washington office if not for lobbying activities? There was a big push to perform comprehensive reviews of contractors' Washington offices several years ago. Look for that to happen again.

Here are some specific procedures that auditor will perform.

• Plan appropriate audit procedures to determine whether the contractor properly identified and excluded unallowable lobbying and related costs from submissions to the Government. Recall from a previous post that these costs must be separately identified in the General Ledger and cannot be commingled with other accounts.
• Determine whether the contract is a registrant under the Lobbying Disclosure Act and if so, obtain copies of the quarterly reports filed by the contractor.
• Reconcile the quarterly report with the contractor's incurred cost submission.
• Ensure the list of employees and specific lobbying issued disclosed in quarterly reports are consistent with the incurred cost submission.
• Perform procedures to ensure the contractor has included directly associated costs.
• Consult the OMB website for appropriations earmarks.
• Consult the Taxpayers for Common Sense (TCS) website for appropriations earmarks (this should leave no doubt that auditors will check non-governmental sources for audit leads).
• For significant earmarks, contractors should be queried to determine the procedures used to identify and remove the costs associated with supporting earmarks from forward-pricing and incurred cost proposals.
• Look for "supporting costs" which may include program management, contracting, public relations, consultants and technical personnel.

Any unallowable lobbying costs found in a contractor's incurred cost submission are probably going to be subject to penalty. Additionally, if a contractor does not have documented policies and procedures for accumulating and identifying lobbying costs in its accounting system, the auditor will issue a deficiency report to the appropriate contracting authorities.