DCAA Audits & Challenges in Review – 2018 GAUGE Report

The 2018 government fiscal year has drawn to a close and it’s the perfect time to learn from the past to plan FY 2019 - especially when it comes to DCAA audits. Unanet and CohnReznick surveyed government contracting executives to gather data about the strength of the industry and their predictions for the future. The findings are listed in the 2nd Annual GAUGE Benchmarking Report.

One topic that always seems to be on top of contractors’ minds is DCAA audits. The below chart displays the most common audits our respondents underwent:

 

most common dcaa audits.PNG

Source: Unanet and CohnReznick 2018 GAUGE Report

 

It was unsurprising to see incurred cost submissions as the most popular, with SF1408 not too far behind. The number of ICS audits carries an additional reason for optimism; according to the DCAA’s 2017 Report to Congress, the backlog of ICS audits was significantly reduced in 2017 to just 14.3 months on average. This has given many contractors, as well as the DCAA, a breath of fresh air as the overwhelming backlog and time between submission and approval has diminished.

 

Audit Challenges:

While things are looking up on the DCAA audit front, this doesn’t mean audit submissions weren’t without their challenges this past year.

 

biggest audit challenges.PNG

Source: Unanet and CohnReznick 2018 GAUGE Report

 

1. Indirect Rates:

Between respondents’ rating of their first and second challenges, indirect rates were overwhelmingly the biggest challenge. This is nothing new; indirect rates (and how to allocate them) often plague contractors, leading to delays in preparing their numbers for the DCAA at the end of the fiscal year. The relationship between the indirect cost pool and its allocation base is not always clear, leading to challenges in proper allocation and Incurred Cost Submissions. We dive a little deeper into ICS audits in our blog "ICS Audits & Challenges in Review - 2018 GAUGE Report."

2. Billing:

Combining respondents’ first and second-rated challenges, billing was the next biggest complication for audit submissions. Some organizations find balancing timing, accuracy, specificity, and completeness difficult.

3. Unallowable Costs:

Unallowable costs are often a point of contention for getting audits finalized. With so many FAR rules to keep up with and different scenarios in which a cost may be debated as allowable or unallowable, it’s no wonder this is high on the list.

4. Timekeeping:

Closely following unallowable costs is timekeeping. Even in today’s world where it seems everything is online, many organizations do not use electronic timekeeping software and therefore do not have full or accurate insight into their labor hours. When the DCAA comes knocking to check employee labor on the doors of employers without accurate timekeeping, it can cause major compliance issues.

5. Executive Compensation:

Because high-level executives often establish their own compensation and the compensation of the staff under them, it is crucial that the government ensures employee compensation is fair in audits. Though this was of less concern to our respondents come audit time last year, it was still worth noting that it is one of the top 6 audit challenges to have come out of our survey.

6. CAS Compliance:

Bringing up the rear of the audit challenges list but certainly worth exploring is CAS compliance. The FAR and CAS make up the foundation on which government contracting is built, so compliance is key. Keep in mind that indirect rates and unallowable costs (two of the biggest audit challenges) are part of CAS compliance, making it clear that accounting and CAS compliance still weigh heavily on the minds of contractors.

 

Improve Your Own Audit Experience with Unanet

As a contractor, your organization has no doubt experienced its own challenges during audit submission and approval, whether you identify with our respondents’ complications or have a unique set of your own.

While challenges will likely always slow down the audit process, an ERP solution like Unanet can give you the tools to create an easier path to compliance and a smoother experience come audit time.

Want to learn more about the government contracting climate? See how your organization stacks up and download your copy of the 2018 GAUGE Report today!

 

Sources:

The 2017 Report to Congress

Unanet & CohnReznick, the 2018 GAUGE Report

Kim Koster

Kim Koster

Kim is an experienced executive who brings over 30 years of experience in project management, project accounting, EVMS,  government contract and accounting compliance, and communications.

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