Wednesday, October 22, 2014

New Government Policies and Procedures for Billing Oversight - Part 3

This is the third in our series on the new policies and procedures brought about when DoD eliminated the need for contractors to obtain DCAA's (Defense Contract Audit Agency) provisional approval of billings before they could be submitted for payment. This change occurred in 2012, was long overdue, and there were many both inside and outside of DCAA who questioned whether the audit agency was providing any real value to the process. Under cost-reimbursable contracts, all costs are subject to final audit so the only risk to the Government was the time-value of money on possible overpayments. It was "interesting" and sometimes humorous to watch auditors quibble over a point or two on a provisional indirect billing rate as if they had better insight than the contractor as to what the final rate would be for the year. It was also frustrating as well because billings were sometimes held up pending resolution/agreement of those provisional billing rates.

Even though DCAA has been taken out of the billing loop, so to speak, there is still a need for audit oversight. DCAA has devised a risk-based approach to rendering that oversight. Essentially, it divides contractors into high-risk/low-risk. High risk contractors are those that bill for more than $250 million per year and those that have had questioned costs in previous incurred cost audits (those questioned costs must meet certain percentage thresholds as we explained yesterday). Billings from low-risk contractors are randomly selected for a pre-payment review. For high-risk contractors, billings are also sampled but the process is a bit more complex and there will probably be more billings (percentage-wise) selected at high-risk than at low-risk contractors.

Once an interim public voucher (i.e. a billing or an invoice) is selected, the auditor has only five days to make an evaluation. The steps involved in that evaluation include:

  • Does the voucher have the correct contract number and CAGE code?
  • Do the contract number, voucher number, and dollar amount on the voucher agree with the attached supporting documentation?
  • Are billed costs with the period of performance?
  • Does the voucher include current and cumulative billed amounts?
  • Does the Contracting Officer or the Contracting Officer's representative have any specific concerns related to the contract or voucher?
  • Are costs/fee billed in accordance with contract provisions?
  • Did the contractor use appropriate billing rates?
  • Do the current and cumulative billed costs reconcile to the contractor's accounting records?
  • If the voucher contains significant subcontract or supplies and service costs, are they in accordance with the requirement that the be paid within the terms and conditions of the subcontract or invoice (normally within 30 days)?
  • Are the fees and costs claimed within the contract funded and/or ceiling amounts?

From the preceding listing, you can see that there is only one step that involves the contractor;  Do costs reconcile to the contractor's accounting records. Everything else should be on-file in the audit office, including a provisional billing rate approval letter. So that's the substance of the auditors' reviews. Contractors with a single contract that bill monthly can expect one of its public vouchers to be reviewed under this new procedures. That could add up to five days from the time the voucher is submitted to the time it is paid. However, it is also likely that it will not add any time to the process because the five day audit cycle is normally built into the 30 day period in which the Government must pay.

Click here to read Part 4.

Previous posts in this series:
     Part 1
     Part 2

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