Thursday, October 23, 2014

New Government Policies and Procedures for Billing Oversight - Part 4

This is the fourth and final installment in our series on the new procedures for performing audit oversight of contractor billings under cost-type contracts. Until 2012, DCAA (Defense Contract Audit Agency) reviewed and approved all public vouchers (i.e. billings submitted for reimbursement of costs under cost-type contracts) unless a contractor wanted to go through the laborious process of qualifying for the Direct Billing Initiative. Beginning in 2012, the Department of Defense decided that the audit process was not adding enough value for the cost involved so it made direct billing available to all contractors. In place of the requirement to review every public voucher, the Department came up with a risk assessment approach to reviewing vouchers. This entailed segregating contractors into high risk and low risk categories according to the criteria we discussed in an earlier post on this subject. For low risk contractors, a "sampling" table is loaded up into the WAWF (Wide Area Workflow) system and the system automatically selects a few vouchers for audit review. The system also identifies vouchers that are significantly above the norm and selects those for audit as well. For example, if a contractor has been submitting monthly vouchers for a contract in the $100 - $200 thousand range and all of a sudden submits one for $1 million, the system would probably flag it and send it over to the auditors for a look-see.

For high risk contractors, the auditors must perform a risk-assessment and develop a sampling plan that is unique to each contractor. This risk assessment is updated each year. Auditors are directed to consider the following risk factors:

  • Specific concerns of the ACO, the PCO, and the COR (administrative contracting officer, procurement contracting officer and contracting officer's representative)
  • Reported accounting or billing system deficiencies.
  • Audit leads or other significant risk factors identified in the permanent files within the past two years.
  • Improper payments identified in previous reviews of public vouchers.
  • Significant number of previously rejected public vouchers attributable to a situation that has not been fixed (e.g. a certain contractor employee that makes lots of mistakes).
After completing the risk assessment, the auditor must then devise a sampling plan. If there are no identified risk factors, the auditor could, presumably, rely on the table used for low-risk contractors. If there are identifiable risk factors, the auditor will need to sample more vouchers than would be required for low-risk contractors.

Contractors should know when one of their public vouchers have been selected for review because one of the review steps requires the auditor to trace the amount claimed back to the contractors accounting records. Unless they have on-line access to the job cost ledgers, the auditors will be knocking at the door. 

It is very important for contractors to accommodate auditor requests to trace billings back to accounting records very quickly. As we mentioned before, the auditors have only five days to perform their voucher reviews. If contractors don't make time available within these five days to accommodate this comparison, the auditor will, in all likelihood, reject the billing. Then it becomes necessary to resubmit the voucher and that will unnecessarily extend the time it takes to receive payment.

The text of the revised procedures can be read or downloaded here.

Previous posts in this series:
     Part 1
     Part 2
     Part 3

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