Please join Amy Hernandez, CPA, JD, Principal at Strategic FAR Advisors, LLC, as she provides invaluable insight on navigating the DCAA waters. On this webinar you will hear the topics below: 1. Trends in DCAA audits 2. Why certain audits are performed 3. Discussion on the top three audits types Pre-Award to include the Accounting System audit Forward Pricing Incurred Cost 4. How to approach an audit should you have one upcoming 5. How Unanet helps companies by providing a compliant purpose-built Project ERP solution

1. Amy Hernandez, CPA, JD, Principal at Strategic FAR Advisors, LLC
Donna Kilbourn, EVP Customer & Partner Success, Unanet
DCAA Audits
Without Tears
Copyright © 2017 Unanet

2. Agenda
• What is the DCAA?
• DCAA’s Audit Rights
• Audits performed by DCAA
• 2017 NDAA
• Current DCAA trends
• Focus on certain audits
• Preparing for and navigating DCAA audits
• How Unanet can help with its compliant Project ERP solution

3. Poll Question #1

4. What is the DCAA?
• DCAA was established by DoD for the purpose of performing
all contract auditing services and providing accounting and
financial advisory services in connection DoD contracts and
subcontracts.
• DCAA also furnishes contract audit service to civilian Federal
agencies where it is in the Government’s interest.
• More than 4,000 employees in over 300 offices around the
world.
• Headquarters – Ft. Belvoir, VA
Copyright © 2017 Unanet

5. What is the DCAA?
• Audits must be conducted in accordance with GAGAS and the
DCAA Contract Audit Manual (CAM) (available online at
dcaa.mil/cam.html)
• Important to remember that DCAA is strictly advisory!
• The CO/ACO has the final authority to allow/disallow costs

6. DCAA’s Audit Rights
Multiple sources of authority exist granting the Government
audit rights.
• PRIMARY SOURCE:
– FAR 52.215-2 – Audit and Records -- Negotiation
• Inserted into most contracts over $100k (excluding
commercial item and utility contracts).
• Grants the Government authority to examine and audit
contractors' books, records, documents and other
evidence and accounting procedures and practices,
regardless of form or type.
Copyright © 2017 Unanet

7. DCAA’s Audit Rights
Other regulatory sources of audit rights:
• 10 U.S.C. 2313(a) – Examination of Records of Contractor
• 10 U.S.C. 2306a – Truth in Negotiations
• 41 U.S.C. 422(k) – Cost Accounting Standards
• FAR 15.408 – Instructions for Submission of a Contract Pricing
Proposal.
• FAR 52.215-20 and 52.215-21 – Requirements for Cost or Pricing
Data or Information Other Than Cost or
Pricing Data
• FAR 52.230-2 and 52.230-3 – Cost Accounting Standards
• FAR 52.216-4 – Economic Price Adjustment - Labor and Material
• FAR 52.232-16 – Progress Payments
Copyright © 2017 Unanet

8. DCAA’s Audit Rights
Net result:
• Virtually every contract exceeding the simplified acquisition
threshold ($150k) and not for commercial items or utility
services grants the Government some level of audit access.
Copyright © 2017 Unanet

9. Poll Question #2

10. Poll Question #3

11. What can DCAA Examine?
• “… books, documents, accounting procedures and practices,
and other data, regardless of type and regardless of whether
such items are in written form, in the form of computer data,
or in any other form.”
• “… all of the Contractor’s records, including computations and
projections…”
• “… all records and other evidence sufficient to reflect properly
all costs claimed to have been incurred … directly or indirectly
… [to] include inspection of the Contractor’s plants …”
FAR 52.215-2
Copyright © 2017 Unanet

12. Audits Performed By DCAA
Pre-Award
– Pre-award Accounting System Survey
– Price Proposals
– Forward Pricing Rates
Post-Award
– Incurred Cost Submissions
– Systems of Internal Controls
– Post-award audits (“defective pricing”)
– Equitable Adjustment Proposals and Claims
– Compliance with CAS and Disclosure Statement adequacy
Settlements
– Contract Closeout
– Contract Termination

13. Systems Audits Performed by DCAA
• Control Environment and Overall Accounting System
• Indirect and ODC System
• Labor System
• Billing System
• Estimating System
• Purchasing System
• Budget and Planning System
• Compensation System
• IT System
• Material Management Accounting System (MMAS)

14. Poll Question #4

15. 2017 NDAA
• Creation of new Defense Cost Accounting Standards Board,
effective October 1, 2018
– Will be required to recommend changes to the CAS Board
– Implement CAS to achieve uniformity on DoD contracts
– Possibility for differences in implementing compliance with
CAS under DoD and non-DoD contracts
• Requires CAS Board to meet at least quarterly and report to
Congress on its progress to ensure the CAS conform to GAAP
• CAS waiver threshold raise to $100 million

16. 2017 NDAA
• Companies may submit indirect rate audit results from
outside CPA firms to DCAA
– CPA firms must comply with “relevant commercial”
accounting and auditing standards
– No guidance on how differences with CAS and
“commercial” auditing standards should be resolved
– DCAA does not have to rely on the audit results from
outside CPAs if the company or business unit has a
“predominance of cost-type contracts”
Copyright © 2017 Unanet

17. Current DCAA Trends
• DCAA continues to use a risk based approach to selecting
proposals for audit
• Forward Pricing and Incurred Cost are still considered the
highest priority areas
• Lower staffing levels means that DCAA may not be able to
eliminate the incurred cost backlog in FY 2018 as planned
• Multi-year incurred cost audits are probably here to stay
• Timeliness for forward pricing audit reports still an issue

18. Poll Question #5

19. DCAA Audit Focus Areas
• DCAA continues to focus resources on three main audit areas:
– Incurred Cost
– Pre-Award Accounting System Surveys
– Forward Pricing
• Unless DCAA is able to increase its staffing above 5,000, it is
doubtful many business system and CAS compliance audits
will be performed in FY 2018

20. Incurred Cost Audits
• FAR 52.216-7
– Requires adequate final indirect cost rate proposal to the Contracting
Officer (or cognizant Federal agency official) and auditor within the 6-
month period following the expiration of each of its fiscal years
– Extensions, for exceptional circumstances only, may be requested in
writing by the Contractor and granted in writing by the Contracting
Officer
• What happens if an incurred cost proposal is not submitted on
time?
– The Government can revoke the privilege of direct billing under the
notion the accounting system is not adequate if it can not produce the
rate submission in a timely manner
– The Government can issue a “Flash Report” to state the accounting
system is Inadequate, which will limit the company’s ability to obtain
new contracts
Copyright © 2017 Unanet

21. Incurred Cost Audits
Information needed to prepare incurred cost proposals:
• Detailed indirect rate calculations
• Individual project cost ledgers for ALL contracts (cost plus, T&M and fixed
price) including government and commercial contracts
• Subcontract information including cost incurred in the current fiscal year
• Previous year submission
– Used to complete the cumulative allowable cost worksheet
• Contract billing information
– Used to calculate the amount over/under billed
• Summary of hours and amounts per labor category on T&M contracts
• Quarterly Form 941 tax return
– Used to complete the reconciliation of labor dollars to payroll
• Summary of any accounting or structure changes during the reporting year
• Contract briefs

22. Pre-Award Accounting
System Surveys
General requirements for adequate accounting system
• Conforms With Generally Accepted Accounting Principles,
(GAAP)
• Produces equitable results - Verified
• Applicable to the contemplated contract(s)
• Is capable of being consistently followed

23. Pre-Award Accounting
System Surveys
Standard Form 1408 criteria
• Proper segregation of direct and indirect costs
• Identification & accumulation of direct costs by contract
• Consistent allocation of indirect expenses
• Costs under general ledger control
• Adequate timekeeping system
• Labor distribution system
• Interim determination of costs
• Exclusion of unallowable costs
• Identification of costs by contract line item if required
• Segregation of pre-productions costs if applicable
Copyright © 2017 Unanet

24. Forward Pricing
• Forward pricing refers to estimates for future costs
– Price proposals
– Forward pricing rate proposals
– Provisional billing rates
• Refer to FAR 15.408, Table 15-2

25. Forward Pricing
Vital Elements of a Cost Proposal
• Summary - Total Cost Elements
• Consolidated Bill of Materials
– Types, Quantities, Cost
– FAR 15.408, Table 15-2 II.A.
• Breakdown of Labor (FAR 15.408,
Table 15-2 II.B.)
– Hours
– Rates and Costs by Appropriate Category
• Details:
– How Indirect Costs Are Computed
– How Indirect Costs Are Applied
– Cost Breakdowns, Trends, and Budgetary Data
(FAR 15.408, Table 15-2 II.C.)
• Identification-Other Direct Costs (ODC) by Category and Basis for Pricing (FAR
15.408, Table 15-2 II.C.)
• Rationale for Proposed Profit
Copyright © 2017 Unanet

26. Preparing for and
Navigating DCAA Audits
• DCAA audits do not have to be painful!
• Advance preparation is key
– Have a strategic plan, know when your company might be
subject to audit
– Initial audit preparation can take months to get systems
adequate and new/revised policies and procedures in
place
• Understand purpose of the audit
– Know the regulatory requirements

27. What makes a
DCAA audit successful?
A successful DCAA audit has:
• Audit procedures that are applied consistently and correctly
• Audit findings that are documented appropriately and
presented in a clear manner
• Audit performance is efficient and minimizes impact to
company operations
• No significant findings

28. Audit Liaisons
• Choosing the right person to act as your DCAA audit liaison is
paramount
• Excellent audit liaisons:
– Have strong understanding of company operations
– Knowledgeable regarding company product/service
offerings
– Have first hand experience with DCAA audits
– Keep detailed log of all auditor requests and information
provided

29. Record Keeping and
Documentation
• Understand the record keeping requirements at FAR 4.7
• Adequate record keeping systems
– Comply with the minimum retention time frames required
at FAR 4.7
– Clearly identifies the records available
– Location of records is identified
– Retrieval of records can be accomplished in a timely
manner

30. Entrance and
Exit Conferences
• Insist DCAA hold entrance and exit conferences
• Entrance conferences will ensure understanding of the audit
scope as well as what information and persons are needed to
support the audit
• Exit conferences allow the company to understand the basis
for audit findings and will facilitate timely written response for
inclusion in the audit report

31. Keep DCAA within
their audit scope!
• Determine which audit type the auditor is performing
– Complete audit programs are publicly available at
www.dcaa.mil
– Keep a list of areas to be covered by the audit
– Involve the auditor’s supervisor and/or branch manager if
auditor repeatedly strays outside the established scope of
the audit
• Do not develop analyses or compile documentation that your
company does not normally maintain.

32. Copyright © 2017 Unanet 32
The Unanet Solution
Scenarios
Opportunities
Revenue
Skills
Budgets
Project Status
Earned Value
GL, AR, AP
Backlog
Cost Pools
Utilization
Performance
Margin
Metrics & KPIs
Dashboards
Expenses
Timesheets
Approvals
Invoicing
CRM & Teamwork

33. Customer Success Story
Copyright © 2017 Unanet
“Unanet shone during our
DCAA audit”.
- Bob Deegan
Senior Vice President and CFO
As a leading IT products and services firm with 350
employees, Array Information Technology needed an
accounting system that would support DCAA
Compliance and be user friendly.
They also wanted a system that would provide real-
time data and reporting to all 15 branches to make
informed company decisions.
Deltek GCS did not fulfill their requirements, so they
looked to Unanet for help.

34. DCAA Resources in Unanet
Copyright © 2017 Unanet

35. Questions?