Webinar: The Ultimate Compliance Test: Understanding GSA OIG Pre-Award Audits

The Ultimate Compliance Test:Understanding GSA OIG Audits

Jennifer Aubel and Hope Lane | April 5, 2017

http://blogs.aronsonllc.com/fedpoint/

2© 2017 | www.aronsonllc.com | www.aronsonllc.com/blogs |

AGENDA

1. The “Audit” You Know2. Common OIG Audit Findings3. Why Me? Risk Factors for Audit Selection4. What’s Actually Being Audited?5. What Data does the Auditor Request?6. The Audit Process7. Trickledown Impacts on Contractor Assessments8. Best Practices

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The “Audit” You Know







Contractor Assessment

Contractor AssessmentTiming Annual and end-of-termScope Process review and spot checksDuration Short assessment and quick turnaround (days-weeks)Focus Review of many compliance areasGoal EducateLegal No subpoena power







Contractor Assessment vs. OIG Audit

OIG Audit Contractor AssessmentTiming Pre-award or post-award Annual and end-of-termScope Complete review of

transactionsProcess review and spot checks

Duration Lengthy data collection and analysis (months-years)

Short assessment and quick turnaround (days-weeks)

Focus Compliance issues relevant to pricing

Review of many compliance areas

Goal Identify contractual issues EducateLegal Subpoena power No subpoena power







Common OIG Audit Findings







Most Frequent OIG Audit Findings

• Commercial Sales Practices (CSP) information was not current, accurate, or complete

• Price Reductions Clause protections were negated by ineffective basis of award customers

• Proposed labor rates were overstated• Schedule customers were overbilled for unqualified employees• Contractor did not have adequate controls to properly accumulate

and report schedule sales for IFF purposes• GSA schedule sales were underreported







Why Me?Risk Factors for Audit Selection







Why Me?

• Your contract is up for renewal• High sales volume– In the Top 20 of contractors up for renewal under the Schedule– 40-50 pre-award audits annually

• OIG Audit Plan Schedule Emphasis (Schedule 70)• Serious issues identified during Contractor Assessment

From April 1 – September 30, 2016, the OIG performed pre-award audits of 37 contracts with an estimated value of almost $9.5 billion and recommended over $324 million of funds be put to better use







Fiscal Year OIG Audit Plan

• FY Audit Plan and FY Audit Reports– 2017: Approximately 35 potential Pre-award Audits– 2016: Approximately 50 Pre-award Audits– 2015: Approximately 50 Pre-award Audits

• Settlements in excess of $280 million over the past three fiscal years (FY14-FY16)







What’s Actually Being Audited?







Elements Being Audited

• Commercial Sales Practices disclosed as part of the option renewal package

• Determine if contractor’s:– Commercial Sales Practices disclosures (CSP-1) are current, accurate

and complete– Pricing controls properly identify commercial transactions that trigger

the Price Reduction Clause (PRC)– Proposed prices are “fair and reasonable” prior to exercise of the

pending option period







Elements Being Audited

Determine if contractor is:• Offering schedule customers the contract price or lower and

extending all negotiated discounts• Accurately identifying and reporting GSA schedule sales• Providing qualified personnel (both employee and subcontractor)

under its GSA labor categories• Selling products that comply with the Trade Agreements Act (TAA)• Offering rebates, concessions, etc.







What Data does the Auditor Request?







What Can the Auditor Ask For?

• Examination of records clause included in GSA Schedule solicitations (552.215-71) does not give auditors carte blanche access

• GSA shall have access to and the right to examine any books, documents, papers and records of the Contractor involving transactions related to this contract for:– Overbillings, – Billing errors, – Compliance with Price Reduction clause, and – Compliance with Industrial Funding Fee and Sales Reporting clause

• If you feel the auditor is overstepping, you should consult with a GSA-focused attorney







The Audit Data Request: General Requirements

• 12 months of sales data that ties to audited financial statements• All commercial and government price lists in effect during the GSA

contract period• Support for reported GSA schedule sales• Identification of the basis of award customer(s) and Price Reductions

clause triggering mechanism / discount relationships since start of contract

• List of top volume non-GSA government customers and commercial customers, along with corresponding volume for each during the audit period







The Audit Data Request: General Requirements

• Current written policies and procedures for: – Reporting sales under the GSA contract– Order processing and billing systems– Price reductions monitoring– Pricing practices in effect during audit period, and to-date – Ensuring employees assigned to GSA orders meet the experience and

educational qualifications in the GSA contract*• List of Blanket Purchase Agreements (BPA), Teaming Arrangements,

and subcontractor agreements in effect during audit period• Chart of Accounts and relevant organizational charts







• Customer Information• Contract Number and Type• Order Number and Date• Invoice Number and Date• Item Description

– Part number– Labor category title– Travel and living, ODCs– Labor rate type

• List and Sale Price• Quantity Billed

• Extended Price• Net Discount • Additional Charges and Offsets

– Sales tax– Freight– Rebates– Promotions

• Employee/Subcontractor Name• Payment Terms• Payment Date• Applicable SIN

The Audit Data Request: Sales Transaction Data







The Audit Data Request: Services Requirements

• Summary of task orders under the GSA contract for audit period• Summary of task orders for all other federal, as well as commercial

and state and local government customers, for audit period• Mapping of corresponding GSA labor categories to any non-GSA title

labor categories on GSA task order billings







The Audit Data Request: Services Requirements

• Detailed data of billable labor rates by individual for all personnel working on services and related contracts during the audit period

• List of internal labor categories and related descriptions, as well as experience and education qualification requirements

• Copies of any DCAA audit reports or letters over the last two years covering billing, ordering, accounting systems, direct labor, and indirect rate reviews, etc.







The Audit Process







Data Sampling

• Upon receipt of initial data submission, GSA’s audit team will chose a representative sample of transactions to look at more closely

• Contractor should expect to produce additional documentation related to its:– Largest orders of all types (commercial, GSA, and federal)– Most sold products and labor categories / services– Blanket Purchase Agreements (BPA)– Subcontractor agreements– Reseller or dealer agreements







The Audit Site Visit

• Site visit is generally scheduled for one week. Auditors may return for additional days later in the process

• Visit begins with entrance conference and concludes with exit conference

• As a best practice, provide auditors with their own work area that is as segregated from the rest of the office as possible

• Be aware of government limitations on gifts – most auditors will not even be comfortable accepting a cup of coffee







Audit Trend: Cost Build-Up Price Analysis

• In every professional services audit Aronson has supported in the past four years, the auditors have tried to move their pricing analysis to a cost build-up methodology

• In many cases, this is the auditor’s default position, regardless of the contractor’s volume of commercial sales

• If the contractor uses an accounting system that generates indirect rates, even if the system and the rates have not been audited, it will be very difficult to convince the auditors to rely on commercial rates







The Waiting Game

• Try to establish a good rapport with the auditors, they may give you a “preview” of any findings they plan to report

• Expect to receive a few more questions and requests for additional documents here and there

• This can be the hardest part of the process – waiting for the draft audit report

• Don’t read into how long it takes to issue the audit report







After the Audit Report is Released

• Once the audit report is issued to your Contracting Officer, you are entitled to request a copy

• It is important to remember that the auditor can only make recommendations; ultimately, all decisions are made by the Contracting Officer

• If you disagree with any of the findings on the audit report, prepare a detailed response and submit it to the Contracting Officer







After the Audit Report is Released

• Audit report is primarily a tool for the Contracting Officer to use in negotiating the option period renewal

• Expect that Contracting Officer will seek to lower contract rates; prepare a negotiation strategy







Trickledown Impacts on Contractor Assessments







Impacts on Contractor Assessments

• Résumé reviews on GSA task orders• Significant increase in the amount of sales data being requested,

especially on virtual assessments• Continued emphasis on validating GSA sales reporting and IFF

remittance• More frequent assessments for contractors with higher sales







Best Practices for Navigatingan OIG Audit







Audit Best Practices – Before Data Submission

• Dedicate the resources to prepare for and respond to audit• Do NOT submit the option renewal package or CSP before

completing a detailed analysis of the sales data you will be submitting to the auditors

• Understand what the data says before submitting to the auditors







Where are the bodies buried?

• GSA Schedule policies and procedures – do you have them? do you follow them?

• High dollar value GSA and non-GSA contracts• Highest sales concentrations of products, services / labor categories• Utilization of subcontractors• Insufficient pricing controls• Non-standard discounting practices• Labor qualifications• Identifying and reporting GSA sales







Audit Best Practices – After Data Submission

• Questions can be a good indicator of potential trouble spots you should be prepared to address during the site visit

• As a best practice, keep a log of all additional documents requested by the auditor and questions

• Note the date and content of all responses• Remember, it is up to the Contracting Officer to act on any findings

from the audit report• Know when to consult outside counsel







QUESTIONS







About Aronson LLC

Aronson LLC provides a comprehensive platform of assurance, tax, and consulting solutions to today’s most active industry sectors and successful individuals. For more than 50 years, we have purposefully expanded our service offerings and deepened our industry specialties to better serve the needs of our clients, people, and community. From startup to exit, we help our clients maximize opportunity, minimize risk, and unlock their full potential.







About Aronson LLC

• Thinking ahead for clients for more than 50 years• 225+ professionals located in Rockville, MD• 80+ professionals dedicated to supporting government contractors • Aronson helps clients rethink the way they approach their business

through innovative, industry-specific services and advice:– Audit, Assurance and Tax– Deltek Systems and Outsourcing– Financial and Contract Compliance– GSA Schedules

• www.aronsonllc.com/blogs/fedpoint/ – News and trends and insight for today’s savvy government contractor



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Awards / Accolades / Affiliations

The Gazette of Politics & Business Exceptional 53 Business Award In 2012, Aronson received the PB53 award for the third year in a row. The program acknowledges the top businesses and organizations in Maryland based on criteria that includes the company’s annual revenue, employee growth, noteworthy product or service innovations, community service efforts and more.

Accounting Today Top Firm In 2013, Aronson was once again named to Accounting Today’s list of the top 100 firms in the country. Accounting Today is a leading provider of online business news for the tax and accounting community.

Washington Business Journal Top 25 Aronson is ranked #12 on the Washington Business Journal’s Top 25 Accounting Firms in the DC Metropolitan area.

INSIDE Public Accounting Top 100 Once again, Aronson has earned a spot in the top 100 of this prestigious list, released by INSIDE Public Accounting. This is the longest running, most comprehensive and accurate independent analysis focusing on management and operations of America’s large local, regional and national firms.

Washington Business Journal Best Places to Work Aronson has been recognized five times as one of the Metro area’s “Best Places to Work.” The award recognizes a company’s achievements in creating a positive work environment that attracts and retains employees through a combination of employee satisfaction, working conditions and company culture.

Montgomery County Chamber Corporate Social Responsibility AwardIn 2010, Aronson was honored to receive the MCCC’s Corporate Social Responsibility Award based on the depth and breadth of the company’s energetic commitment to support young people, in the areas of education, housing and health.







Jennifer Aubel is a principal consultant in Aronson LLC’s Government Contract Services Group. She works with clients to tailor GSA Schedule solutions that meet organizational needs by developing scope and pricing strategies, maintaining compliance, providing audit support, and improving the profitability and versatility of the GSA Schedule contract. Additionally, Jennifer frequently speaks on GSA Schedule topics at both Aronson and industry-sponsored events and is an active member of the National Contract Management Association (NCMA).

Jennifer has 20 years of experience in the federal contracting market, working for contractors and as a consultant to GSA Schedule contract holders. Prior to working with Aronson, she managed a multi-million dollar GSA program for a mid-tier integrator.

Jennifer graduated summa cum laude from the University of Maryland University College with a bachelor’s degree in Legal Studies.

Principal Consultant, Government Contract Services Group

301.231.6253

[email protected]

Jennifer N. Aubel







Hope A. Lane, CPA, leads Aronson LLC's Government Contract Consulting practice. With more than 20 years of broad-based experience in the government contracting arena, she is well-known as one of the industry's most knowledgeable thought leaders in contract-related financial compliance and contract administration.Exclusively focused on government contracting, Hope possesses in-depth understanding and hands-on expertise. Prior to joining Aronson, she served in financial management positions with several regional federal contractors. Often described by her peers as forward-thinking, Hope is able to go beyond what a client asks for to deliver precisely what they need.As an avid advocate for the government contracting industry, Hope is a guest speaker and lecturer for associations and industry trade groups and a featured speaker at Aronson's executive briefings. She also serves as editor-in-chief of Aronson's Fed Point blog. As a leader in the firm, Hope advocates for continuous growth and mentorship and encourages others in the practice to innovate for the benefit of their clients.Hope earned her bachelor's degree in accounting from the University of North Carolina at Charlotte and is actively involved in professional organizations like the Professional Services Council, National Contract Management Association and Women Impacting Public Policy.

Partner at Aronson LLC, Government Contract Services Group

301.231-6266

[email protected]

Hope A. Lane, CPA



http://blogs.aronsonllc.com/fedpoint/





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Contact Jennifer Aubel / Aronson LLC

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Contact Hope Lane / Aronson LLC

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Webinar: The Ultimate Compliance Test: Understanding GSA OIG Pre-Award Audits