Accounting System Audits

Before award of many contracts and during contract performance government auditors will likely conduct an accounting system audit where they review contractors’ cost accounting systems and practices.  New business system requirements have made an adequate accounting system a primary focus of government audits.  A negative accounting system opinion can definitely affect award selection chances if conducted before contract award and an accounting system audit resulting in an “inadequate” opinion often results in payment delays or withholds and inability to receive task or delivery orders until an “adequate” opinion is received.  A positive “adequate” opinion following an accounting system audit can be a strong discriminator in winning prime contracts and subcontracts where customers prefer doing business with those firms whose accounting system is “adequate.”

Our staff consists of former DCAA auditors and supervisors, CFOs and controllers, government compliance experts and ACOs so they understand thoroughly what an accounting system audit entails – what practices must be in place to receive an “adequate” opinion, what auditors will be looking for during their accounting system audits, how potential negative opinions may be addressed before an accounting system audit report is written and how adverse opinions can be responded to.  A common accounting system consulting engagement often involves our putting on “audit hats” to conduct a mock audit of your accounting system and practices, evaluate strengths and weaknesses of your accounting system and recommend and help implement necessary fixes to ensure you receive a positive accounting system opinion when an actual accounting system audit occurs.  Though areas of review vary by contractor an evaluation of your accounting system during one of our consulting engagement typically covers such areas as:

• Distinguishing between direct and indirect costs
• Screening unallowable costs
• Allocating indirect costs
• Timekeeping and labor charging
• Expense reporting
• Treatment of material costs
• Treatment of uncompensated overtime
• Adequacy of internal controls
• Tracing selected transactions through the accounting system to ensure job costs are reconcilable with billed costs and general ledger as well as “source documents” (e.g. timesheets, vendor invoices)
• Allocation of indirect costs through appropriate indirect cost rates
• Indirect cost rates are monitored during the year
• Ensuring you have adequate written policies and procedures