Strategic Consulting Solutions, Inc.

Preparing for a DCAA Audit: Pricing and ICS Audits

Contracting with the Federal Government grants the DCAA authority to audit your accounting system. The DCAA conducts audits depending on whether this is a Pre-Award Review (before receiving a contract award) or a Post-Award Review (after receiving a contract award). Either way, it is critical to ensure that your accounting system is compliant with DCAA standards when preparing for an audit.

When reviewing your policies and procedures, reference the Standard Form 1408 to make certain that your system is current and consistent. It can also be helpful to review your higher-risk accounts (such as travel expenses, business meals, and bank service charges) to confirm that you are not treating any unallowable costs as allowable. Read more about unallowable costs versus non-billable costs here.

For smaller contractors, there are several types of audits performed by the DCAA. Today, we will take a closer look at two of these types: Pricing Audits and Audits of Incurred Cost Submissions.

Pricing Audits

A pricing audit is a way for the DCAA to ensure that your accounting system has regular and consistent pricing procedures in place. This type of audit requires each proposed cost to be supported by adequate data. If your business is in the Pre-Award Review stage, it can be beneficial to conduct an internal pricing audit. Review your pricing strategies to ensure effectiveness, efficiency, and alignment with corporate objectives. When considering the estimated costs associated with the contract, make sure each direct cost is properly supported by vendor quotes and assumptions. Direct labor is one of the elements of a pricing audit that requires proper documentation — it should be supported with either a Wage Determination, Union Agreement, or salary survey. Another element, indirect rates, must be substantiated with indirect rate calculations for the past 1-2 years, as well as projections for the fiscal years covered in the contract.

Audits of Incurred Cost Submissions

An Incurred Cost Submission (ICS) is a financial representation (in the form of spreadsheets) of the work your business has done as a government contractor. An ICS is used to compare estimated costs to actual billed costs to determine your fringe and overhead rates. This type of audit can be more difficult to prepare for due to the length of time between preparing the ICS and the actual audit. To save yourself from losing this important supporting documentation, make notes on any assumptions when creating the initial ICS and keep documents in a well-organized filing system. That way, information is easily procurable when it comes time for the audit.

As a government contractor, it is essential for your business to possess a DCAA compliant accounting system. Maintaining proper documentation, keeping detailed records of assumptions, and conducting internal audits are best practices that can aid you in future audits. Visit the DCAA website for more information on the DCAA auditing process, as well as a detailed checklists that can help you prepare for your next audit. If you should require further information or help with DCAA audits, please don’t hesitate to contact us!

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