DCAA (Defense Contract Audit Agency) recently implemented a program to systematically review paid interim vouchers. DCAA, of course, has always had that authority and would sometimes endeavor to perform such reviews as part of a larger billing system audit. But now, the program is much more structured. If you haven't yet been subjected to one, you will.
The purpose of paid voucher reviews is to test contractors' compliance with contract terms. The program calls for testing a minimum of one interim voucher per year at every contractor. Larger contractors will have a minimum of one voucher review per quarter. Any known risk areas will most likely increase the number of vouchers to be reviewed. Reviews will be limited to cost billed for the period - usually one month - and not cumulative over the life of the contract.
Paid voucher reviews generally focus on three areas; payables, labor, and Materials & ODCs (Other Direct Costs).
Accounts Payable - The audit program calls for the auditor to verify that the contractor is not delinquent in the payment of costs in the ordinary course of business. The auditor will request an accounts payable aging schedule and make inquiries concerning significant amounts over 30 days old. They usually select five or more items charged direct to the contract and trace the amounts to evidence of payment. If a contractor is delinquent in paying costs in the ordinary course of business, they're not reimbursable.
Labor - The audit program calls for the auditor to select labor charges billed direct to the contract and trace the amounts from the interim voucher through the labor distribution system to the timecard (or electronic timekeeping system. Auditors are also directed to meet with or speak to the employee(s) and ask them to confirm the time charges. Finally, auditors will verify that direct labor charges agree with the contract requirements.
Materials and ODCs - Auditors are directed to select several ODC charges billed to the contract and trace the amounts from interim vouchers to accounting records and supporting documentation.
As we stated, this is a fairly new program area for DCAA and the auditors seem to still be finding their way on how to specifically address these objectives. Frankly, we've heard of a number of goofy audit requests coming out of these reviews - requests for information that have nothing to do with incurred costs and billing systems. Should you receive such a request, it is very appropriate to request the auditor to explain the purpose of the request and how it ties to their audit objectives. If the auditor cannot explain it to your satisfaction, it would be appropriate to talk with a supervisor.