Friday, March 6, 2015

How to Facilitate an Audit

Government contract audits (like audits from DCAA (Defense Contract Audit Agency) or KPMG (if you're a DOE contractor)) are different than tax audits (i.e. income tax, B&O tax, sales tax, unemployment tax, worker's compensation, etc) and definitely different than financial audits (e.g. audits of profit and loss statements and balance sheets). Contract audits arise because of some action that you (the contractor) initiated. You decided to pursue Government contracts and as a result, you've agreed to abide by the terms and conditions of the contractual instrument which, in many instances, requires audits. Contract auditors don't just show up based on some randomization. They show up because the contract and the procurement regulations require that they do so. If you've submitted certified cost or pricing data in support of a bid, the auditors may be requested to audit the proposal. If you have a cost reimbursable contract, the auditors will most likely audit the incurred cost to determine whether claimed costs are allowable, allocable, and reasonable. Its really a simple equation. If you don't want contract auditors poking around, don't pursue the type of work that requires them to delve into your books and records.

As far as the speed at which audits progress, the goals for both the auditor and the contractor are the same - get in and get out as efficiently as possible. For contractors, the presence of auditors disrupt the normal day-to-day routines of the office. Time spent with the auditor is time that cannot be allocated to perform other work. It is to the contractors advantage to facilitate the audit process. For the auditor, there is nothing more frustrating than to sit around waiting for data that should be readily available. Auditors also want to get in and get out and move on to their next assignment.

With this in mind, here are a few tips for facilitating an audit.

  • Keep in mind at all times that the auditor is not there by happenstance. He/she has been requested to perform a specific review or is required by regulation to come in and perform an audit. Don't act "put upon".
  • Always respond to auditor questions and queries in a timely manner. Also make certain that the answers are responsive, clear, and precise. Auditors will always have questions about documentation provided. It is best to answer all the questions while the auditor is on the premises. Answering them later by phone or email is less efficient and susceptible to misunderstanding.
  • Designate a representative that is familiar with the subject of the audit. If the auditor is performing a review of the timekeeping system, the designated interface should be someone intimately familiar with the timekeeping system and the related system of internal controls. Don't choose the project manager of the contract to be the interface.
  • Keep all books and records well organized and ensure that they can be readily accessed. It is embarrassing for contractors and frustrating for auditors to wait around while someone searches for a spreadsheet that a former employee put together to document this or that. "So and so prepared that spreadsheet, she's on maternity leave right now, her computer is password protected, we'll have to get hold of her, get her password, and see if she can recall where on her hard drive she might have saved that file".
  • If for some reason you cannot provide the requested information during the audit, make certain that before the auditor leaves, you have an agreement as to what information is yet to be provided and the time frame in which it is to be provided. And then, stick to your end of the agreement.

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