ICS Audits & Challenges in Review – 2018 GAUGE Report

Unanet and CohnReznick have released the 2018 GAUGE report, which provides government contractors with valuable benchmarking data and industry insights. To compile this data, Unanet and CohnReznick surveyed government contracting executives. In a previous blog, we explored the most common DCAA audits our respondents underwent and the challenges of getting them processed. ICS audits were overwhelmingly the most common, taking up a whopping 35% of audits processed. This is not only unsurprising, but a source of good news in the GovCon world. The DCAA's 2017 Report to Congress states that the infamous backlog of ICS audits was reduced to just 14.3 months on average in 2017. Another reason for optimism is the reduction of questioned costs, which we will also explore in this blog. First, we take a closer look at the biggest ICS audit challenges.

 

Challenges in Finalizing ICS Audits

Although contractors have found comfort in the reduced backlog, they didn’t get here without some teeth-grinding and sleepless nights. Our survey respondents reported the biggest ICS audit challenges they faced:

Challenges in Finalizing Your ICS Audits

Source: Unanet and CohnReznick 2018 GAUGE Report

 

1. Auditor Delays

Although the DCAA’s backlog has been reduced, it certainly still exists. Delays on the DCAA’s end were the biggest pitfall of our respondents’ ICS processing. The hiring freeze was lifted in April 2018, and while this likely alleviated some problems now, we hope to really enjoy the full effects of this in 2019 with even fewer delays. For now, though, significant delays have still complicated the process.

2. Lack of Resources

The DCAA focuses first on the audits that can affect the government the most, meaning there isn’t always enough resources left for the remaining audits. According to the DCAA's 2017 Report to Congress, the DCAA’s biggest priorities last year were forward pricing audits, then incurred cost. After all the forward pricing audits and high-priority ICS audits, some contractors may have found themselves in the pile of lower priority ICS audits and experienced delays or other complications.

3. Contracting Officer Delays

Human error will always be part of the audit equation. Sometimes the audit slowdown is in part caused by contracting officers (CO) themselves as opposed to the DCAA’s overwhelming backlog and prioritization process. This may occur due to uncertainty over auditing policies or disagreement over audit completion date, for example.

4. Issues Resolution

When issues arise during audit finalization, the DCAA and CO must work together to overcome them. DCAA delays and CO delays on their own are already two of the biggest ICS challenges in our survey—combining these two parties to resolve issues also serves as its own unique challenge.

5. Management Understanding

Mention of the DCAA itself is enough to make many contractors’ knees shake, as audits can be a long, nerve-wracking process. It gets even worse when management and executive staff do not understand the audit process or the reason for an audit, or do not have adequate pricing policies established for ensuring compliance. This common issue was certainly reflected in this year’s DCAA report.

 

Reduced Questioned Costs – Another Cause for Celebration?

Another interesting element to consider here is a reduction of questioned costs on ICS audits.

 

Amount of Questioned Costs on ICS Audits

Source: Unanet and CohnReznick 2018 GAUGE Report

 

Questioned costs of just $0 to $10,000 made up the vast majority, meaning fewer of our respondents had to stare down the barrel of a $50,000+ audit. There still were the unlucky few that had $100,000+ of questioned costs, but this is still a good change of pace.

These lower levels of questioned costs can indicate a few things. First, it could be a sign that contractors are using more tools that make it easier for them to maintain compliance or have refined their accounting processes. This also indicates more contractors are aware of and making great strides toward achieving and maintaining compliance, which strengthens the industry as a whole. These findings offer a refreshing possibility and likely also helped contribute to the significant backlog reduction.

 

See How Your Organization Stacks Up With Unanet’s 2018 GAUGE Report

Where does your organization stand when it comes to your ICS audits? Was your biggest ICS challenge CO delays or lack of resources? What about questioned costs? The Unanet and CohnReznick 2018 GAUGE Report provides crucial data from our surveyed respondents that you can use to see where your business fits in to the industry. Download the 2018 GAUGE report now!

Want a roadblock-free ICS audit process? An ERP solution like Unanet can provide the tools you need to establish compliance policies and keep your costs in one place. View our on-demand webinar, "Understanding the Incurred Cost Submission" to learn more.

 

The 2019 GAUGE Report is coming, and we need your help! The data we report on in each edition of the GAUGE is provided by government contractors. We’d love to have you be a part of the 2019 Report. Please take a few minutes to fill out our survey and tell us about your experience in the GovCon industry!

 

Sources:

The DCAA 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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