The Defense Contract Audit Agency issued internal guidance on changes to two of its audit programs:

Preaward surveys.  The audit program has been tailored to address the requirements of Standard Form 1408.  SF 1408 is essentially a checklist of accounting requirements a contractor needs to demonstrate it can comply with before starting work on a contract that requires reporting of contract costs – e.g. segregation of costs, direct costs by contract, proper allocation of indirect costs, adequate timekeeping, exclusion of unallowable costs, etc.  The new guidance explains that (a) the survey is an examination of the contractor’s accounting system before contract award (b) it is initiated by a request from the CO and (c) a financial capability audit should not automatically be set up but should be conducted only if the CO requests it.

Postaward Audits of Nonmajor Contractors.  The guidance explains that (a) this audit of the accounting system at a nonmajor contractor will be conducted after contract award (b) the major objective is to determine whether the contractor’s accounting system is adequate for accumulating and billing costs (c) the audit is usually performed at the request of the CO when either a follow-up to the preaward survey is requested or when a preaward survey was not conducted but the CO has decided one is now needed to support contract requirements (d) auditors may self-initiate an audit if it believes there is sufficient audit risk (e) completion of the audit will determine whether the contractor is eligible for direct billing (i.e. submitting interim vouchers directly to the disbursing office).  Though quite similar to the preaward audit where, for example, reported expenditures are traced through the system to source documents, the post award audit focuses on the accuracy of billings.  Auditors are told that the scope of the postaward audit is not sufficiently detailed to express an opinion on the contractor’s adequacy of accounting or billing internal controls (MRD 03-PAS-059(R).

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