Tuesday, October 9, 2012

What are "walk-through's"?

Government contractors are becoming increasingly familiar with one of DCAA's (Defense Contract Audit Agency) new buzzwords; the "walk-through". The term is being integrated into many of DCAA's standard audit programs as they go through their periodic updates. A "walk-through" is simply a meeting where the contractor identifies the basis and the supporting data/documentation for whatever proposal it has submitted or for an internal control system, or for any other "assertion" the contractor has made. It is nothing new. Its not a different approach to audit. It is certainly not innovative as auditors have been asking for these kinds of briefings ever since Senator Harry S. Truman drove his Plymouth around the country looking for waste at Military contractors. The only difference now is the requirement is being codified into standard audit programs.

In a forward pricing proposal situation, the purpose of a walk-through of the proposal is to gain an understanding of the basis of the proposal and related supporting documentation. As part of the walk-through, a contractor might be asked to

  • explain the basis of estimate for significant costs, indirect rate pools and allocation bases, and cost elements
  • explain the process used to develop estimates and the internal controls/policies and procedures related to those areas
  • demonstrate how the number/amounts for the significant areas of costs are derived
  • demonstrate how historical trend data was considered
  • demonstrate the homogeneity of pool costs and allocation bases used are appropriate

Prospective contractors should plan on putting a fair amount of effort into these walk-throughs for the simple reason that it should help expedite the audit process. Listen carefully to auditor questions and any feedback they might provide. These might indicate potential weaknesses in your proposal or in the level of supporting detail that might need to be addressed.

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