Welcome to Survival Guide for a USAID-Incurred Cost Audit ... · • DCAA is reimbursed for USAID audits and has a large footprint in place ... o Audit firm promised an agenda 1 day

Welcome to Survival Guide for a USAID-Incurred Cost Audit Performed by a Commercial

Accounting Firm

Presented by: Gelman, Rosenberg & Freedman CPAs andMorris, Manning & Martin, LLP

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Webinar Objectives

Learning ObjectiveTo understand the USAID incurred cost audits

Instructional Delivery MethodsGroup Internet-based

Recommended CPE1.0 CPE Credit

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How to Survive a USAID-Incurred Cost Audit Performed by a

Commercial Accounting Firm

Presented by:

March 7, 2019

Paul H. Calabrese

Principal

Gelman, Rosenberg & Freedman CPAs

Andrew J. Mohr, Esq.

Partner

Morris, Manning & Martin, LLP

C. Kelly Kroll, Esq.

Of Counsel

Morris, Manning & Martin, LLP

John R. Pace, CPA, CVA

Partner and Director

Gelman, Rosenberg & Freedman CPAs

Presenters Moderator

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Andrew Mohr, Esq.

MMM Partner

Paul H. Calabrese

GRF Principal

Speakers


MMM Of Counsel

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Sources

• DCAA Contract Audit Manual -

https://www.dcaa.mil/Home/CAM?title=DCAA%20policies%2C%20procedures%2C%20guidance

%20and%20auditing%20techniques

• USAID ADS (Automated Directives System) 590 and 591

• Federal Acquisition Regulations (FAR) - https://www.acquisition.gov/browse/index/far

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https://www.dcaa.mil/Home/CAM?title=DCAA policies, procedures, guidance and auditing techniques

https://www.acquisition.gov/browse/index/far

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Overview

• USAID incurred cost audits

• Client problems with commercial firm audits on behalf of USAID

• DCAA best practices interfacing with contractors during the audit process

• Audit survival checklist

• How do you respond to a Contracting Officer’s decision and the appeals process with USAID

o How does the Contracts Dispute Act work

o What is a valid claim

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USAID Incurred Cost Audit Performed by Commercial Firm

Poll Question #1

Have you been/will be audited by USAID using a private public accounting firm for an incurred cost audit instead of DCAA?

A) Yes

B) No

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Incurred Cost Audits with USAID

• Incurred cost audits are an annual settlement of indirect rates and direct costs by contract

• With USAID, a civilian agency, they have had a MOU since 1998 to use DCAA to perform audits per

ADS 590.3.4.3

• In recent years DCAA was backlogged in performing their own audits, much less USAID and NDAA

required them to suspend helping other agencies, which has been repealed

• USAID in the funding of these audits per ADS 591.3.5 states either DCAA or by independent public

accountants (commercial) firms

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Client Experience with Commercial Firms

• DCAA is reimbursed for USAID audits and has a large footprint in place

• Commercial firms must perform within their contracted rates or price

• Seems like the commercial firms have:

o A strong CPA who oversees the entire audit process as a Q/C

o A fairly experienced manager to run the audit

o Less experienced or inexperienced auditors to perform the work, i.e. seniors

o Retainage of seniors is difficult and could lose portions of the team during the audit

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Poll Question #2

Our biggest concern with commercial firms is the auditors:

A) communication during the audit process

B) wait until the end to inform us of unsupported costs

C) give us a week or less to respond to their findings

D) did not perform a “walk-through” to understand the process

E) did not provide sufficient details of their findings

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Dysfunctional Audit

• Multi-year incurred cost audit

• Notified November 2016

• Fieldwork:

o Private firm started in March 2017 with a 3-day

entrance conference (4 months later)

o No interaction until a 1-week visit in July 2017

(4 months later)

o Another 1-week visit in August 2017 (1 month later)

o Changed entire audit team in August 2017

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Dysfunctional Audit

• Changed procedure for notifying auditees

o Summary of draft findings within a week after the field visit

o No findings provided until the completion of all rounds of internal reviews within private firm with no specific timeline

• Did not receive any notification from private firm for 6 months until March 2018

o Wanted to have an exit conference with 3 days notice

o Audit firm promised an agenda 1 day before exit conference

o No communication of findings for 12 months since first initiated fieldwork

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Continued

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Dysfunctional Audit

• Exit conference

o Conference call with audit team, not in person nor video

conference

o 1 day before exit conference they received the summary of findings

o First time they heard about any findings and questioned cost

• None of the findings had any detail as to:

o Not sufficiently descriptive

o How the questioned amounts were determined

o Client unable to respond to findings/questioned cost in a

meaningful way

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Continued

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Dysfunctional Audit

• Post Exit conference

o Had 7 days to respond to several findings

o Client chose not to respond to auditor but to USAID directly based on final audit report

o Client requested audit workpaper schedules for the basis of findings from auditors

• USAID sent a letter

o One for direct costs questioned from Contract Audit Management Team

o One for indirect costs question from Overhead, Special Cost and Closeout Team

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Continued

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Dysfunctional Audit

• Settlement

o Almost 3 years from the initial notification

• Other Client Settlement with same commercial

audit firm

o Same commercial firm questioned $1,445,000

o Settled with zero cost questioned

• Another firm improperly audited a T&M contract by

treating it as CPFF

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Continued

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Formalizing the Audit Process

• Control the engagement

• Control the scope

• Non-Disclosure Agreement (NDA) with

commercial audit

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DCAA Best Practices

• Entrance conference – DCAA Contract Audit Manual (DCAM) 4-302

o Explain the purpose of the audit

o Overall plan for the performance of the audit

o Estimated duration

o The types of records and data required to perform the audit

• Perform a “walk-through” during the entrance conference

o Contractor fully explains the incurred cost submission to allow the auditors to ask questions so that there is a good

understanding as they start the audit

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Interfacing with Auditee

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DCAA Best Practices

• Interim Conferences – DCAM 4-303.1

o Throughout the audit, the auditor should discuss matters with the contractor as necessary to obtain a full understanding and

the basis of each part of the incurred cost submission

o The auditor should discuss preliminary audit findings

To ensure that audit conclusions are based on a complete understanding of pertinent facts

These discussions do not impair auditor independence

Are necessary to obtain sufficient evidence to support audit conclusions/questioned costs

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Interfacing with Auditee (continued)

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DCAA Best Practices

• Exit Conference– DCAM 4-304.1

o Upon completion of fieldwork, hold an exit conference

To discuss the audit results

Obtain contractor’s views concerning the findings,

conclusions, questioned cost, recommendations

To be included in the audit

The auditors will comment on the contractor’s

response to the audit results

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DCAA Best Practices

• Exit Conference– DCAM 4-304.1

o Invite requestor/USAID audit group

o Even if there are no deficiencies or questioned cost, it is a

courtesy to hold an exit conference

o Information provided to the contractor or in anticipation

of the exit conference

Draft report

Provide concurrently with the requestor and

contractor

o No specified time requirement for contractor’s response

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Audit Survival Checklist

1. Realize you cannot control the auditor or the audit

2. Formalize the audit process

3. Establish a prime and alternate point of contact, to interface with the auditors

4. Know the audit process in order to keep the auditors on track

5. Document the audit

6. During the entrance conference, obtain the name, title and contact information for the person

who is in charge of the audit, i.e. audit manager, for potential problems

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Audit Survival Checklist

7. Take contemporaneous notes during all meetings with the auditors, record the date

8. Be very proactive with the auditor during all phases of the audit

9. If the auditor will not agree or permit the inclusion of your facts, USAID will

10. Your response to findings or questioned cost should be well-organized

11. Retain consultant agreements

12. Maintain top level, well-organized, well-preserved records and documents

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Continued

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Contract Disputes Act (CDA)

• Contracting Officers can negotiate and enter

into settlement agreements. This is true at any

time including after the submission of a claim

• If the parties can’t agree then the CDA and the

Disputes Clause at FAR 52.233-1 come into play

• FAR 52.233-1 outlines the minimum

requirements for submitting a claim

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Poll Question #3

If you have audit findings, are you having difficulty preparing a response?

A) Yes

B) No

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FAR 52.233-1

A claim must:

• Be in writing to the contracting officer

• Seek, as a matter of right, the payment of money in a sum

certain, the adjustment of contract terms, or other relief

arising under the contract

• Include the required certification language if the claim

exceeds $100,000

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Timelines

• Claims must be submitted to the contracting officer within six years after “accrual”

• Do not wait, however

• After submission, there is a 60 day period to reply or ask for more time

• After 60 days if there is no response this is considered a “deemed denial” from which an appeal can

be taken

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Appeals

• 90 days to file to the appropriate

Board of Contract Appeals or within

12 months to the United States

Court of Federal Claims

• ADR

• Pros and Cons associated with each

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FAR Subpart 33.2

Questions

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Bethesda, MD 20814

301-951-9090 | www.grfcpa.com

1401 Eye Street, N.W., Suite 600

Washington, D.C. 20005

202-408-5153 | www.mmmlaw.com

Andrew Mohr, Esq.

Partner

[email protected]

Paul H. Calabrese

Principal, Outsourced Accounting and Advisory Services

[email protected]


Of Counsel

[email protected]


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Documents

Welcome to Survival Guide for a USAID-Incurred Cost Audit ... · • DCAA is reimbursed for USAID audits and has a large footprint in place ... o Audit firm promised an agenda 1 day