Wednesday, August 28, 2013

Access to Records Issues - How the Government Resolves Them

Government auditors have an insatiable appetite for data - they want to see or have the ability to access everything in a contractor's facility. Contractors on the other hand, are reluctant to grant such wide and unfettered access, reasoning that they'll support the cost estimates required by a proposal or the incurred costs incurred under certain types of contracts, but no more. Usually these differences are resolved at the local level but sometimes there's no meetings of the minds and the contract auditors will report the disagreement as an access to records issue. We mentioned this a couple of days ago in the context of access to contractor employees. DCAA's guidance to its auditors is to report and escalate any real or perceived restrictions on talking with contractor employees.

What gets reported? Where does the report go? Who has the obligation or responsibility to resolve the issues? We'll try to answer these and other questions.

The following is recorded in the DCAA Contract Audit Manual.
When contractor personnel deny or unreasonably delay access to records needed for audit, auditors should immediately notify and thoroughly discuss the issue with responsible contractor officials authorized to make decisions. Reasonable effort should be made to resolve the issue in a timely manner at the lowest possible DCAA and contractor management level. If access is denied following the initial conference with the contractor, the auditor should follow the procedures cited in DCAA Instruction No. 7640.17. 
When implementation of DCAA Instruction No 7640.17 does not resolve contractor denial of access to records, then the regional office should consider requesting Headquarters to subpoena the records in accordance with DCAA Regulation No. 5500.5. The DCAA Director is authorized to subpoena contractor documents and records needed to audit costs incurred under flexibly priced Government contracts and subcontracts, and to audit the accuracy, completeness, and currentness of certified cost or pricing data used for negotiated Government contracts and subcontracts. 
As a practical matter, the Agency will not be issuing any subpoenas. They tried a couple of times and failed to enforce it.

Now for the consequences. If the issue is not resolved, auditors are instructed to take the following arbitrary and unilateral actions.
When the contractor denies the auditor access to records/data, the costs affected by the denial should be questioned under price proposals. Such costs should also be questioned on progress payments and suspended under cost-reimbursement contracts.
A contractor's denial of access to records may be so extensive that it is impractical to perform any audit or determine an amount affected by the denial. In such a case, immediately notify all procurement and contract administration activities that may be involved with the subject audit and request their assistance.
In addition, the auditor should recommend suspension of payments on all affected contracts until the access to records problem is resolved. 
These measures can severely disrupt a contractor's cash flow and could imperil contract performance. Contractors do not want to take "access" issues lightly.

Tomorrow we will look at DCAA Instruction No. 7640.17 in more detail. This instruction provides the specific steps for documenting, elevating, and resolving access issues.


  1. Can DCAA request records that are not charged to government contracts

  2. Yes and No. The first thing we always ask is why the records are necessary for the purposes of the audit. What audit objectives is the auditor trying to achieve? Sometimes, access to records related to non-Government jobs is necessary. For example, in evaluating the allocating base for an indirect rate, it may be necessary to ensure that all of the work of the contractor, both Government and commercial, has been included. If the records relate to indirect costs that are not claimed, it would be difficult for the auditor to make a case for access. One example might be if the auditor were trying to assess whether there were any directly associated costs related to unallowable costs. Any any event, always ask the auditor 'why'. What audit objectives are being tested. If they cannot answer that, they've got a problem.