The Defense Contract Audit Agency issued three new significant guidelines to its auditors recently.

1. Adequate Incurred Cost Proposal.  An internal task force concluded that incomplete incurred cost proposals were causing increased hours required to perform preliminary audit steps and the guidance states auditors should either request additional information or return the submittal as inadequate.  The following is a listing of information that is generally either not included or is inadequate:

•   Reconciliation of books of account (e.g. general ledger) to claimed costs
•   Reconciliation of total payroll to total labor distribution
•  Schedule of direct costs by contract and indirect expenses applied at claimed rates
•   Listing of auditable subcontracts and related information
•   List of costs billed/claimed on T&M/Labor Hours contracts
•  Schedule of cumulative direct and indirect costs claimed and billed (97-PPD-033(R)

2. Application of Non-DOD Agency FAR Supplements. Audit guidance was issued alerting auditors of the importance of ensuring that all applicable non-Department of Defense Agency FAR supplements are considered when conducting audits of non-DOD contracts.  Though stating the list is not all inclusive, the guidance includes a table identifying specific agencies, their FAR Supplement and categories of costs that are treated differently than the FAR Part 31 cost principles.  These include:

Agency for International Development (AIDAR): Compensation for personal services (FAR 31.205-6) and travel costs (31.205-46). In addition, two additional cost categories are addressed in the AIDAR – overseas recruitment incentives (731.205-70) and salary supplements for Host Government employees (731.205-71).

Department of Energy (DEAR):  Independent research and development/bid and proposal costs (31.205-18), Insurance and indemnification (31.205-19), Precontract costs (31.205-32), Professional and consultant services costs (31.205-33) and costs related to legal and other proceedings (31.205-47).

In addition several agencies treat precontract costs (31.205-32) differently than the FAR including Homeland Security (HSAR), Justice (JAR), Transportation (TAR),  NASA (NFS) and National Science Foundation (National Science Foundation) (07PAC-037(R).

3. Reporting Questioned Costs on T&M and Labor Hour Contracts. The guidance addresses questioned costs when an auditor determines that incurred labor hours do not meet the labor qualifications or requirements prescribed in the contract for the labor category billed. When reviewing contractor billings or claimed amounts under T&M or LH contracts, auditors are told to selectively evaluate billed/claimed labor hours to ensure employees meet the labor category qualification in the contract. If the employee does not meet the labor category qualification, the auditor is told to question that employee’s labor hours and dollars billed in total. For example, if the auditor determines a junior engineer is working and charging a T&M contract that calls for a senior engineer labor category, the auditor should question the hours and dollars billed by the junior engineer (07-PPD-038(R). 

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