Wednesday, September 14, 2016

Auditor Testing of Paid Vouchers

Back in 2012, the authority for determining a contractor's eligibility for direct billing - submitting vouchers without having them first approved by a contract auditor - was taken away from DCAA (Defense Contract Audit Agency) and correspondingly, all defense contractors were automatically eligible to bill their costs without DCAA pre-approval. This greatly streamlined the billing process, allowed contractors to be paid more quickly, thus ensuring improved cash flows.

While the pre-approval requirement or authority to grant direct billing status was eliminated, DCAA was and continues to be responsible for ensuring that contractors are billing allowable costs and that they comply with the terms and conditions of their contracts. To accomplish this responsibility, DCAA has developed a "paid-voucher" testing program - testing to see whether billings tie back to the books and records and comply with contract terms and conditions.

DCAA is in the process of phasing in its paid voucher review program. By next year at this time, the Agency will require testing on at least one voucher per year at ever contractor that submits vouchers, and more often than yearly at major contractors and those deemed to be high risk. Many contractors are already suffering through paid voucher reviews.

DCAA has developed an audit program for paid voucher testing. It can be downloaded here. Over the next few postings, we will highlight some of the factors that auditors will be considering when testing the propriety of billings. The audit program itself is nine pages but only pages 6 through 8 contain specific analytical steps relating to contractor books and records. Today we begin with a discussion of payments for materials.

FAR 52.216-7, the Allowable Cost and Payment Clause, authorizes the reimbursement of allowable costs for recorded (booked) costs that have been paid for at the time the voucher is submitted. It also authorizes reimbursement of accrued costs provided payment is made in the ordinary course of business - usually 30 days.

The auditor is going to test whether any amounts billed are compliant with these provisions - either actually paid for at the time the billing was submitted or accrued and paid within 30 days. One method of testing this is to review the accounts payable aging schedule and inquire about any significant payables that exceed 30 days. If there are delinquent payables, there could be reasonable explanations as to why payments become delinquent but delinquent payments could also be a risk factor that requires additional audit testing.

Contract auditors will also request a minimum of five material items that have been charged to the contract and test to see whether vendor payments were made prior to voucher submission to the Government or paid within 30 days of the date of the invoice.

If a contractor is delinquent in paying costs in the ordinary course of business, the costs are not (yet) reimbursable under Government contracts and auditors are advised to prepare and issue a DCAA Form 1 to suspend the costs and recoup the overpayment.

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