A DCAA audit includes a real-time labor evaluation to determine the accuracy of labor charges in regard to contracts, indirect accounts and other costs. Learn what is involved in these evaluations to ensure your accounting procedures will pass the test.
Part of your DCAA auditor’s job is to evaluate your labor costs. This is performed in several parts, all of which are unannounced ahead of time. These include:
The evaluation serves the purpose of:
The auditor is also responsible for collecting data that will be used to support incurred costs audits performed later in the audit process. The auditor is charged with determining the accuracy of your labor charges to all cost objectives.
Labor audits are conducted on a real-time basis to avoid memory lapses on the part of employees and collect current data.
Because real-time labor audits are unscheduled, you need to keep your accounting and human resources paperwork updated. To be prepared, keep a list of current employees and their assigned workstations and a copy of your timekeeping procedures. If you have multiple locations, ensure that each location has copies of the appropriate paperwork. Each of your locations will also need a point of contact and alternate point of contact in case of absence. If you employ any telecommuters, you’ll need to provide the procedures they use.
For every work location, the main objectives for the auditor are to:
The auditor will use various methods of data collection but will primarily be conducting interviews with employees at their workstations and then asking questions to clarify or confirm information obtained from the interviews. Auditors may question direct supervisors, other management or your accounting personnel to clarify and confirm information. For multiple locations or contractors with many employees, a team of auditors may be present in order to make the interview process go faster.
When the auditor arrives on site, he will request to meet with your point of contact. Next, the auditor will ask for a list of employees and workstations and request to interview your employees at their assigned workstations. Interviewees will be asked for:
Employees may also be asked for employee identification numbers, written timekeeping procedures, and written descriptions of projects or authorization procedures. The focus of the employee interview is to verify the employee’s understanding and use of correct timekeeping and charge number procedures.
Because the evaluation is meant to be conducted in real time, auditors are required to conduct follow-up evaluations for unavailable or absent employees. They must also verify employee time charges for the pay period checked and obtain explanations for any and all questionable procedures or practices observed.
If you employ telecommuters or implement a work-from-home program, your off-site employees will also be interviewed. Unlike the employee interviews on site, your auditor will ask to speak with the telecommuting or work-from-home employee’s supervisor first. This is to verify not only that the employee exists, but also that adequate supervision is taking place. The auditor will then conduct an interview with the employee by phone to discuss:
The auditor may request a follow-up visit.
When the interviews and audit are complete, the auditor will discuss the results with you via an exit conference. If deficiencies exist, you’ll receive a draft version of the findings. You’ll also be given an opportunity for a written or oral response, which will be included in the audit report.
Some of the common deficiencies reported are:
According to Law360, a leading legal news consortium, contractors can prepare for audits and correct deficiencies by following these steps:
By preparing from the start and keeping your accounting records up-to-date, your first real-time audit can proceed smoothly.
Sources:
http://www.dcaa.mil/DCAAM_7641.90.pdf
http://www.law360.com/articles/689963/fraud-indicators-provide-valuable-lessons-for-contractors