It is anticipated that other transactions are sometimes awarded to contractors already doing business with the government. It is presumed that the contractor will utilize the same accounting system used for other government contracts and this presumption should be verified. The auditor is asked to perform "necessary steps" to determine if incurred costs (i.e. direct labor, material, other direct costs, indirect rates) were accounted for using normal accounting practices. If the contractor did not use its normal government accounting practices (for example, it did not use its normal approved indirect rates), then the auditor is to conduct "limited transaction testing" such as:

1. Direct Labor. If the contractor utilized its normal labor cost distribution system and a recent review was performed and found adequate, no further testing of labor costs is necessary. If the normal system is used and a recent review of the labor system has not been performed or was deemed inadequate, the auditor is to judgementally select 30 labor transactions to trace through the labor distribution system. If the normal labor distribution is not used, the contractor will be asked to identify any differences and calculate the cost impact.

2. Direct Material/Other Direct Costs. The auditor is to determine whether direct charges to other transactions are consistent with established practices by judgementally selecting 10 large transactions for verification to source documents like invoices. If assets like equipment, facilities, or land were purchased and direct charged to the OT the auditor is to determine if the contractor shared in the cost of these assets in accordance with the other transaction cost sharing ratio. If established practices were not utilized, auditors will request the contractor identify any differences and calculate the cost impact, if any.

3. Indirect Rates. Auditors are to determine if government approved rates were applied and if not, determine the basis for the indirect rates used and calculate a general dollar magnitude estimate of the difference.

Payments Based on Milestones. Rather than incurred costs, some other transaction billings are based on payable events or milestones. Since the billed costs are based on a payment schedule rather than incurred costs, the auditor is instructed to compare billed costs by milestone with incurred costs by milestone to determine if any significant differences exist. The auditor will also compare total billed costs to total incurred costs to determine if there is any significant difference. The auditor will also attempt, on a selective basis, to verify the milestone was accomplished before the associated costs were billed.

Even though the guidance discusses effort as "audits", "audit steps", etc. the efforts are really "agreed-to procedures" which are distinctly different efforts under audit standards. The audit report expressly states an "audit" was not performed and hence no audit opinion can be issued. Rather, the report states that agreed-to procedures were followed. Those procedures are enumerated (e.g. determining accounting practices applied, determining incurred costs and billed amounts) and then the findings of applying these procedures are disclosed. These disclosures then become statements that identify evaluations and questioned costs not unlike the results of an "audit".

The audit guidance does not specifically address this category of contractor who does not do business with the government, whether it be a commercial contractor with little or no government experience or a commercial facility/division of a government contractor.

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