Access to Records - DCAA

General

Statutes, implementing regulations, or contract terms may provide access to contractors' records for purpose of audit (1-504.2). The clause at FAR 52.215-2 provides the auditor's primary authority for access to contractor records. This clause must be inserted in all negotiated contracts, except those:

• (1) not exceeding the simplified acquisition threshold;

• (2) For commercial items; or

• (3) for utility services. (See FAR 15.209(b)).

This clause provides the contracting officer's representative with the authority to examine and audit contractors' books, records, documents and other evidence and accounting procedures and practices, regardless of form (e.g., machine readable media such as disk, tape, etc.) or type (e.g., data bases, application software, data base management software, utilities, etc.), sufficient to reflect properly all costs claimed to have been incurred or anticipated to be incurred in performing cost-reimbursement, incentive, time-and-material, labor-hour, or price-redeterminable contracts. The clause also provides access rights for the purpose of evaluating the accuracy, completeness, and currentness of certified cost or pricing data.

• b. In addition to access to specific cost records, access to records refers to contractor policies, procedures, systems, management reports (see 4-202.1 for information pertaining to access to internal audits), personnel, minutes of its board of directors meetings, charter and bylaws, and any other information source which affects and reflects the incurrence, control, and allocation of costs to contracts.

• c. Adequate audits are possible only when all existing evidence which pertains to the representations, claims, or proposals under audit is available to the auditor. A contractor's failure to make all pertinent records available to the auditor when needed leads to audit reports that contain qualified or adverse opinions, and may result in more difficult negotiations and delay in the contract award or settlement.

• d. For field pricing support audits, FAR 15.404-2(c)(3) states that the auditor is responsible for determining the scope and depth of audit. Inherent in this responsibility is the right of auditors to determine the specific records or other evidential matter needed to accomplish the audit. DCAA auditors must adhere to generally accepted Government auditing standards in determining what comprises competent, relevant, and sufficient evidential matter. Therefore, auditors must use good judgment and rationale in deciding what contractor records or other evidential matter should be sought. In determining the sufficiency of evidence needed, auditors must consider the audit objective, the risk, and materiality of an error or misstatement in the area being audited and the effect on the audit opinion. See 5-502.1 for additional guidance on access to contractor budgets and 14-304.2 on access to cash flow forecasts.

• e. FAOs should not enter into written nondisclosure agreements with contractors or concur with contractor letters containing access to records provisions or procedures. Any such written agreements may give the appearance of limiting access. Furthermore, auditors are required to protect proprietary information from unauthorized disclosure under 18 U.S.C. 1905 (see CAM 1-507). Therefore, agreements addressing the protection of proprietary information are not necessary. However, responses to contractor requests for confirmation that proprietary data will be protected in accordance with applicable laws and regulations are permissible. See 1-805 for guidance on memorandums of agreement pertaining to matters other than access to contractor records.

• f. While FAOs will not sign agreements, letters or procedures indicating concurrence on access to records matters, they will obtain and review any such documents containing contractor procedures or policies. If the FAO believes the policies and procedures will invoke unreasonable delays, waste audit time or otherwise impede the orderly process of the audit, the contractor should be notified in writing of such concerns in accordance with procedures in 1-504.4, and 1-504.5. If no such concerns exist, the FAO should follow contractor procedural arrangements for obtaining access to needed information.

• g. Agreements between a contracting officer and a contractor which appear to restrict DCAA's access to a contractor's records should be transmitted through Headquarters, ATTN: PPS, to the General Counsel for a legal analysis.

1-504.2 Statutory and Regulatory Requirements

Among statutory bases for access to contractor records are 10 U.S.C. 2313(a), "Examination of Records of Contractor," 10 U.S.C. 2306a, ("Truth in Negotiations"), and 41 U.S.C. 422(k) (Cost Accounting Standards). The following acquisition regulations have implemented these statutory and other access requirements:

• a. FAR 15.209(b)(1) requires an "Audit -Negotiation" clause (FAR 52.215-2) in all negotiated contracts other than those which are not expected to exceed $100,000.
• b. FAR 15.408 Table 15-2, Instructions for Submission of a Contract Pricing Proposal.
• c. FAR 52.215-20 and 52.215-21 (Requirements for Certified Cost or Pricing Data or Data Other Than Certified Cost or Pricing Data).
• d. FAR 52.230-2 and 52.230-3 (Cost Accounting Standards).
• e. FAR 52.216-4 (Economic Price Adjustment -Labor and Material).
• f. FAR 52.232-16 (Progress Payments).

1-504.3 Guidance for Requesting Access to Contractor Records

• a. Records should first be informally requested during the FAO's normal course of business with the contractor (either verbally or in writing). The auditor should be ready to discuss the basis for the request with the contractor. CAM or other Agency guidelines should not be cited as the reason for requesting a record in lieu of explaining the underlying audit need.

• b. Occasionally contractors may ask that requests for records be in writing. Auditors should generally accommodate the contractor where it will facilitate access and avoid misunderstanding. However, contractor requirements that all requests for records be in writing are unacceptable as such a process would unnecessarily impede the audit process.

• c. All requests should be for specific records rather than a general class of records. For example, requests should be for "the general ledger for FY 2000," or "the payroll register for the pay period ending July 4, 2000" rather than "the general ledger," or "payroll data." Addressing specific records relates the request to a specific audit. This action should avoid lengthy discussion with the contractor on the merits of the request.

• d. When the auditor does not know precisely what records exist, a listing of what does exist (such as "recurring financial reports" or "IT files") should be requested. The listing itself may be considered a record, particularly if the contractor already produces such a list for other purposes.

• e. Unusual or extensive requests for reproduction of contractor records should be made by supervisors and be in writing if requested by the contractor.

• f. When original records or documents are provided by the contractor, auditors will ensure that all such records and documents are returned to the contractor as soon as possible.

• g. Circumstances justifying an evaluation of original records at locations other than contractor facilities include records seized by investigators under a warrant or obtained by Government counsel through criminal, investigatory, or civil subpoena. DCAA has the right to evaluate any records in the hands of Government agents. Regardless of the circumstance under which the auditor obtains access to contractor records, due professional care will be exercised in protecting the records while in the auditor’s possession.

• h. Auditors will not remove original records from the locations at which they are furnished without prior Agency approval. Auditors who might be confronted with an unusual circumstance and need to move the contractor’s original records from the location at which they are furnished will request their regional office to obtain the contractor’s authorization. Auditors will fully explain in their request the reasons the contractor’s original records cannot be used at its site. Regional offices will submit their approved auditors’ requests to Headquarters, attention: PPS, for evaluation and coordination with legal counsel.

• i. Auditors should not request copies of contractor records for the sole purpose of allowing the auditor to work at home rather than at the contractor’s site. Auditors who might be confronted with an unusual circumstance related to working at home, and need to obtain and remove a copy (total or a portion) of the contractor’s original records from the location at which they are furnished will request the FAO manager’s written request to obtain and document the contractor’s authorization. Auditors will fully explain in their request the reasons the records cannot be used at the contractor’s site and why a copy is needed. Contractors who encourage auditors to take copies of records from their premises rather than work onsite should not be accommodated without good cause. Auditors may continue to request copies of selected records which are necessary to document audit files and support audit positions. See 1-507 guidelines for safeguarding contractor information.

1-504.4 Conditions Representing Denial of Access to Contractor Records

The following conditions qualify as access to records problems where a specific record is needed within these general areas:

• a. Contractor refusal to provide access to any requested record including (i) support for unclaimed costs excluded under CAS 405 or (ii) records maintained in an electronic or optical format (even if paper copies are available).

• b. Unreasonable delays by contractor representatives in permitting the audit commencement or in providing access to needed data or personnel. Since the determination of unreasonable delay is subjective, it is important to distinguish between occasional delays due to unexpected circumstances (for example, a key employee is out sick) and recurring delays which suggest that it is a contractor's practice to engage in delaying tactics. Recurring delays should be carefully documented with the names of contractor employees, data requested, dates when requested, dates when provided, etc.

• c. Restrictions on reproduction of necessary supporting evidential matter.

• d. Partial or complete denial of access to internal audit data or other management reports on contractor operations.

• e. Denial of access to the contractor's data base. This denial can be a refusal to produce the necessary reports, or allow DCAA to validate reports by testing the database using DATATRAK, or other data retrieval software.

• f. Chronic failure of contractor personnel to comply with agreed-to dates for furnishing data.

• g. Assertion of attorney-client privilege or attorney-work-product doctrine.

• (1) The attorney-work-product doctrine protects documents and other memoranda prepared by an attorney in contemplation of litigation, including private memoranda, written statements of witnesses, and mental impressions of personal recollections prepared or formed by an attorney in anticipation of litigation or for trial. As its purpose is to protect the adversarial trial process by insulating the attorney's preparation from scrutiny, the work-product rule ordinarily does not attach until at least some claim, likely to lead to litigation, has arisen. Courts have also accorded work-product protection to materials prepared by non-attorneys who are supervised by attorneys.

• (2) A contractor invoking the attorney-client privilege must show a communication between client and counsel that; was intended to be and was in fact kept confidential and; was made for the purpose of obtaining or providing legal advice. The attorney-client privilege is given strong protection by the courts, and thus judges rarely order the production of these documents. If the privileged data is provided to a third party including DCAA, then contractors may risk waiving the privilege and they may be required to disclose the information to others, even their adversaries.

• (3) If a contractor asserts the attorney-client privilege or the attorney-work-product doctrine, the auditor should ask the contractor to explain in writing (i) the basis of the assertion and (ii) why the contractor cannot provide the requested information or some alternative, non-privileged information that will meet the auditor’s needs. Auditors with questions on whether the contractor’s assertion of attorney-client privilege or attorney-work-product doctrine is appropriate in their specific situation should contact DCAA-DL for assistance. If the contractor continues to deny access and does not provide alternative, non-privileged information, the procedures in DCAAI 7640.17 should be followed until such time as a high level executive from the company asserts the privilege in writing. After receiving the contractor’s written assertion, the issue should be elevated to the Regional office. At a minimum, the Regional Director should contact top level contractor management to explain that even if the privilege is appropriate, the contractor is still required to support how it complies with its contractual requirements using non-privileged data. Non-privileged data may include filings with a court that are available to the public, contractor’s summaries of data, other public filings, etc. If these efforts do not prove successful, the following information should be provided to DCAA-PPS so that Policy may review the assertion with DCAA Legal counsel.

• Identifying information including FAO name, contractor name, audit assignment number, audit subject, FAO point of contact, and information pertaining to prior coordination that has taken place in order to try to obtain the requested data.

• A copy of the contractor’s formal assertion of attorney work product doctrine or at-torney-client privilege for the data requested.

• A detailed listing of data requested, with the rationale for each document’s necessity in order to complete the scope of the audit, and why that data cannot be obtained from another source or in another manner from the contractor.

• • (4) An assertion of attorney-work-product or attorney-client privilege related to contractor’s disclosures of violations of Federal criminal law or the

False Claims Act as required by FAR 52.203-13 should be pursued as an access to records issue in a similar manner as other contractor assertions of attorney work product or attorney-client privilege. The only difference is the DoDIG should also be contacted to assist in gaining access, in addition to applying the procedures in Section 6 of DCAAI 7640.17.

1-504.5 Resolution of Contractor Denials

a. When contractor personnel deny or unreasonably delay access to records needed for audit, auditors should immediately notify and thoroughly discuss the issue with responsible contractor officials authorized to make decisions. Reasonable effort should be made to resolve the issue in a timely manner at the lowest possible DCAA and contractor management level. If access is denied following the initial conference with the contractor, the auditor should follow the procedures cited in DCAA Instruction No. 7640.17. b. When implementation of DCAA Instruction No 7640.17 does not resolve contractor denial of access to records, then the regional office should consider requesting Headquarters to subpoena the records in accordance with DCAA Regulation No. 5500.5. The DCAA Director is authorized to subpoena contractor documents and records needed to audit costs incurred under flexibly priced Government contracts and subcontracts, and to audit the accuracy, completeness, and currentness of certified cost or pricing data used for negotiated Government contracts and subcontracts.

1-504.6 Impact of Contractor Denial of Access

• a. When the contractor denies the auditor access to records/data, the costs affected by the denial should be questioned under price proposals. Such costs should also be questioned on progress payments and suspended under cost-reimbursement contracts per 6-902a. A con-tractor's denial of access to records may be so extensive that it is impractical to perform any audit or determine an amount affected by the denial. In such a case, immediately notify all procurement and contract administration activities that may be involved with the subject audit and request their assistance. In addition, the auditor should recommend suspension of payments on all affected contracts until the access to records problem is resolved.
• b. The impact of a contractor's denial of access to records on the scope of audit should be described in the "Qualifications" and "Results of Audit" paragraphs of the audit report. The report should identify the records that were sought, discuss the need for the records, and describe the measures that were taken to gain access (see 10-210.4).

Contractor Guidance

DCAA Request for Information and Access to Records Companies should establish an understanding with DCAA regarding the production of information to support their audit requests. That way, there is a protocol established for providing information, to include timliness of information.

Examples of timing protocols to establish are:

• Rate Checks, provide documents within 3 days,

• Incurred Cost Audits, 2 weeks,

• Offsite documents to support Incurred Cost Audits, 4 weeks,

• System Audits, generally 2 weeks

These are only examples and the production of documents and information should be one which is acceptable to DCAA, and reasonable for us to comply with. Other considerations are the Point of Contact (POC) with DCAA. Companies normally prefer that all interaction with DCAA be done by a single focal point, or single group. That way, we establish a relationship with DCAA, and ensure that documents are provided timely, and the auditors are provided useful information that will assist with their audits. The purpose of the document is so that both parties comes to terms that are reasonable, and acceptable. Company management and the government expects full cooperation with audit requests, providing timely and responsive responses to the audit requests. Establishing an advance agreement with DCAA regarding this subject eliminates any confusion or misunderstandings between companies and DCAA, and eliminates the possibility of DCAA asserting that a company is non-responsive, and is restricting access to the records the government is entitled to audit and/or review. _____________________________________________________________________________________________________________________________________________

Contractors are only required per contract clauses to give the government, including the DCAA, a reasonable opportunity to examine their books and records. The government cannot place unreasonable demands for access to records upon contractors. These clauses normally only give the government the right to audit the contractor’s books and records in the format maintained by the contractor. The contractor is not required to create records for the DCAA to audit.

Contractors are not contractually bound to cease their normal operations and devote their full attention to providing information to the DCAA when the DCAA is conducting an audit. Most DCAA auditors realize that contractors have a business to run. The auditor does not want to unduly disrupt the contractor’s operations when conducting an audit. Thus, they are willing to try to work out accommodations with the contractor that will allow the contractor to continue to function relatively normally, while permitting the auditor to complete the audit in a timely fashion. However, there is one thing to which auditors will be sensitive, and that is a denial of access to records.

10 U.S. Code § 2313 - Examination of records of contractor

(a)AGENCY AUTHORITY

(1)The head of an agency, acting through an authorized representative, is authorized to inspect the plant and audit the records of—

(A) a contractor performing a cost-reimbursement, incentive, time-and-materials, labor-hour, or price-redeterminable contract, or any combination of such contracts, made by that agency under this chapter; and

(B) a subcontractor performing any cost-reimbursement, incentive, time-and-materials, labor-hour, or price-redeterminable subcontract or any combination of such subcontracts under a contract referred to in subparagraph (A).

(2)The head of an agency, acting through an authorized representative, is authorized, for the purpose of evaluating the accuracy, completeness, and currency of certified cost or pricing data required to be submitted pursuant to section 2306a of this title with respect to a contract or subcontract, to examine all records of the contractor or subcontractor related to—

(A) the proposal for the contract or subcontract;

(B) the discussions conducted on the proposal;

(C) pricing of the contract or subcontract; or

(D) performance of the contract or subcontract.

(b)DCAA SUBPOENA AUTHORITY

(1) The Director of the Defense Contract Audit Agency (or any successor agency) may require by subpoena the production of any records of a contractor that the Secretary of Defense is authorized to audit or examine under subsection (a).

(2) Any such subpoena, in the case of contumacy or refusal to obey, shall be enforceable by order of an appropriate United States district court.

(3) The authority provided by paragraph (1) may not be redelegated.

(c)COMPTROLLER GENERAL AUTHORITY

(1) Except as provided in paragraph (2), each contract awarded after using procedures other than sealed bid procedures shall provide that the Comptroller General and his representatives are authorized to examine any records of the contractor, or any of its subcontractors, that directly pertain to, and involve transactions relating to, the contract or subcontract and to interview any current employee regarding such transactions. (2)Paragraph (1) does not apply to a contract or subcontract with a foreign contractor or foreign subcontractor if the head of the agency concerned determines, with the concurrence of the Comptroller General or his designee, that the application of that paragraph to the contract or subcontract would not be in the public interest. However, the concurrence of the Comptroller General or his designee is not required—

(A) where the contractor or subcontractor is a foreign government or agency thereof or is precluded by the laws of the country involved from making its records available for examination; and

(B) where the head of the agency determines, after taking into account the price and availability of the property and services from United States sources, that the public interest would be best served by not applying paragraph (1).

(3) Paragraph (1) may not be construed to require a contractor or subcontractor to create or maintain any record that the contractor or subcontractor does not maintain in the ordinary course of business or pursuant to another provision of law.

(d)LIMITATION ON AUDITS RELATING TO INDIRECT COSTS

The head of an agency may not perform an audit of indirect costs under a contract, subcontract, or modification before or after entering into the contract, subcontract, or modification in any case in which the contracting officer determines that the objectives of the audit can reasonably be met by accepting the results of an audit that was conducted by any other department or agency of the Federal Government within one year preceding the date of the contracting officer’s determination.

(e)LIMITATION

The authority of the head of an agency under subsection (a), and the authority of the Comptroller General under subsection (c), with respect to a contract or subcontract shall expire three years after final payment under such contract or subcontract.

(f)INAPPLICABILITY TO CERTAIN CONTRACTS.—This section does not apply to the following contracts

(1) Contracts for utility services at rates not exceeding those established to apply uniformly to the public, plus any applicable reasonable connection charge.

(2) A contract or subcontract that is for an amount not greater than the simplified acquisition threshold.

(g)FORMS OF ORIGINAL RECORD STORAGE

Nothing in this section shall be construed to preclude a contractor from duplicating or storing original records in electronic form.

(h)USE OF IMAGES OF ORIGINAL RECORDS

—The head of an agency shall not require a contractor or subcontractor to provide original records in an audit carried out pursuant to this section if the contractor or subcontractor provides photographic or electronic images of the original records and meets the following requirements:

(1) The contractor or subcontractor has established procedures to ensure that the imaging process preserves the integrity, reliability, and security of the original records.

(2) The contractor or subcontractor maintains an effective indexing system to permit timely and convenient access to the imaged records.

(3) The contractor or subcontractor retains the original records for a minimum of one year after imaging to permit periodic validation of the imaging systems.

(i)RECORDS DEFINED

In this section, the term “records” includes 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.

MUST A RECORD EXIST WHEN REQUESTED

According to DCAA Freedom on Information - Processing Guide, YES.

"The FOIA only applies to records in existence at the time of the FOIA request is received by the Agency. If the records have already been destroyed, or the record does not yet exist or does not exist in the format requested, there is no obligation to recreate an old record or to create a new record to satisfy a FOIA request. With respect to information