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SIGNIFICANT GUIDANCE ISSUED BY DCAA IN LAST YEAR: Risk Alerts on Current Economic
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Risk Alerts on Current Economic and Financial Conditions
DCAA has issued guidance reminding its auditors to be on the lookout for unfavorable or adverse financial conditions that could affect cash flow, produce inefficiencies and impede contractors’ ability to perform their contracts. (Editor’s Note. The guidance points to CAM 14-300 and we also refer our readers to prior articles we have written on contractors’ financial risk – use our search function at govcontractassoc.com.) Auditors are told to be continuously alert to any indication of unfavorable financial conditions that would especially arise in progress payment audits, annual testing of eligibility for direct billing, billing system reviews and interim voucher reviews. Examples of possible unfavorable financial conditions include (1) increases in aging and amounts of accounts payables (2) defaults on loan and line of credit agreements (3) denial of usual trade credit from suppliers (4) restructuring of debt with higher interest rates (5) noncompliance with loan/line of credit covenants (6) loss of principle customers or suppliers (7) unpaid or late payments of state, local or federal tax liabilities (8) deteriorating bond ratings (9) failure to fund pension plans (10) loans from employees or issuing stock in lieu of salary (11) significant unpaid debts or other liabilities (12) unusual progress payments or other billing concerns or (13) poor physical condition of facilities. When these or other indicators of financial risk are present, auditors are told to initiate a financial condition risk assessment (08-PPD-036(R)).
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