INQUIRY: How do I determine if my cost or pricing data is adequate, or not deficient? RESPONSE: There is no set formula for determining when cost or pricing data is deficient enough to be reported to the contracting officer by an auditor.  However, the following are some examples of cost or pricing deficiencies that should be checked prior to submitting data:

(1) Significant amounts of unsupported costs.

(2) Significant differences between the proposal and supporting data resulting from the proposal being out of date or available historical data for the same or similar items not being used.

(3) Significant differences between the detailed amounts and the summary totals (e.g., the bill of material total does not reconcile with the proposal summary).......

Overview - Paul, I am an audit consultant doing some benchmarking.  I came across your web site via a web search.  You have a lot of useful information on your site.  Might you be able to provide some guidance on the following 5 queries?

1.     Query: When the DCAA reviews a contractor’s financial system on a pre-award basis, do they general review all modules of the system, i.e., everything from A to Z (Accounts Payable, Payroll, GL, Fixed assets, Timekeeping, etc.) or just segments thereof?

Response: The areas of focus by the DCAA vary depending on the government procuring office or a prime contractor’s request.The pre-award audit can be a general overview of the accounting system to determine if the prospective contractor can track, record, and invoice at the level of detail required for a “specific contract”. 

FAR 31.205-6(a)(6)(ii) states compensation to owners must be reasonable for the personal services rendered, and not be a distribution of profits. Therefore, it appears that distribution of profits is not an allowable contract cost. However, payments made to owners are Not Automatically Unallowable if the payments are a distribution of profits on the accounting records of the enterprise. How is that for confusion! What option does the DCAA (Defense Contract Audit Agency) provide to auditors for the smaller firm?

For those of my colleagues who may not know what may be requested for an accounting system review, below is a copy of several DCAA auditor's actual request for information from contractors in preparation for an accounting system review. Review the request so you do not have to be caught unprepared or off guard.

Let's talk about how advance agreements can protect you.  Due to the many different types of accounting systems and varying contract situations that arise, determining the reasonableness, allocability, and the allowability of certain costs may be difficult to determine.  So to avoid possible subsequent disallowance or dispute based on unreasonableness, unallocability or unallowability, contracting officers and contractors (you and I) should seek advance agreement on the treatment of special or unusual costs, especially if you are in construction or A&E.  It's just good business sense!  Let's talk about this a little more...........