We've now come to the last of our five-part series on information considered supplemental to the annual incurred cost submission. FAR 52.216-7(b)(2)(iii) contains the 15 items that comprise an adequate incurred cost submission. The next section, 7(b)(2)(iv), contains 15 additional items that are not critical to the adequacy of the submission but may be required during the audit. We are often critical, and have been throughout this series, about the propensity of the auditors to insist on many of these optional items in order to perform an adequacy determination. DCAA is not consistent from office to office. Some have a good understanding of what the FAR requires while others seem to, almost haphazardly, demand more information than is necessary to determine adequacy.
Today we come to the last of the fifteen optional items: director minutes, claims, and contract briefings.
Minutes from board of directors meetings. When we were auditors, we dutifully requested to review director meeting minutes because there was a step in the audit program that required us to. However, sitting here today, we cannot think of a single instance where those meeting minutes yielded any information useful to our review of incurred costs. Perhaps somewhere in the annals of DCAA history they did. Sole proprietors probably wouldn't have any and even small companies (corporations, S-corps, and LLCs) wouldn't have anything more than perfunctory information (e.g. election of officers, selection of the IPA (Independent Public Accountant). If a contractor refused to provide minutes, we didn't really care because we didn't expect they would be useful in the first place. We simply documented our files and moved on.
Listing of delay claims and termination claims submitted which contain costs relating to the subject fiscal year. In certain claims and terminations, the contractor is permitted to claim settlement expenses. Settlement expenses are a special class of costs covered in FAR 31.205-42 that permit normally indirect costs to be claimed as direct costs. Therefore, the auditor wants to assure themselves that settlement expenses have been excluded from the indirect expense pools from where they were initially recorded. That's a legitimate audit step but one which will rarely be applicable since terminations and claims are relatively rare.
Contract briefings, which generally include a synopsis of all pertinent contract provisions, such as contract type, contract amount, product or services to be provided, contract performance period, rate ceilings, advance approval requirements, pre-contract cost allowability limitations, and billing instructions. When we prepare incurred cost submissions, we typically include contract briefs along with the required information. This is the only optional item we treat this way. The reason we do this is because we rely on contract briefs to prepare some of the required schedules. For example, it would be difficult to prepare Schedules I and O (following DCAA's standard labeling format) without contract briefs. Since we're already prepared them, its a simple matter to include them in the submission.
If you've missed any of the previous postings in this series, you can read them by clicking on the following links:
Part 1 - Comparative analysis and organizational information
Part 2 - Subcontracts, Accounting System Description, Procedures for Unallowables
Part 3 - Financial Statements, Management Letters, and Corrective Actions
Part 4 - Internal Audits, Audit Plans, Tax Returns, and SEC Filings