Difference between revisions of "Proposal Audit Program"
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| − | | | + | | 12 || 3 - Direct Labor Rates - No Audited Rates || Document your understanding of the basis of the proposed rates. |
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| + | Determine if the proposed direct labor rates are classified consistent with established/disclosed practices (CAS 401/CAS 402/FAR 31.202 and 31.203(a)). | ||
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| + | Evaluate the company’s method of developing the proposed rates (see CAM 9-505). | ||
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| + | If historical data is used to support the basis of estimate, perform substantive audit procedures to ensure the historical data is in reasonable compliance with FAR Part 31 and, if applicable, CAS. | ||
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| + | Evaluate the proposed base labor rates by comparing with other sources of information (e.g., current payroll data, signed employee agreement, appropriate Wage Determination rates, survey with established reliability). | ||
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| + | Evaluate the proposed escalation factors with consideration given to escalation history, management approved plans, forecasted economic conditions, etc. | ||
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| + | Calculate the questioned rates, if applicable. | ||
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| + | Document the conclusions, basis of proposed cost and audit evaluation. | ||
| + | Example || Example | ||
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| Example || Example || Example || Example | | Example || Example || Example || Example | ||
Revision as of 18:34, 27 October 2015
Contents |
Proposal Audit Program
Adapted from DCAA’s Audit Program for Price Proposals [www.dcaa.mil]
Purpose
The purpose of this audit is to evaluate proposals for compliance with USG regulations (FAR Part 15 and 31, as well as applicable CAS provisions) and for commercial pricing actions which are not subject to USG requirements.
Areas of Risk
USG Compliance Risk
- • Commercial Pricing – FAR 12 Procurements
We price a proposal under FAR 12 asserting commerciality, but cannot demonstrate commerciality. The risk is the procurement may be deemed FAR 15 after pricing has occurred, but before contract award.
- • Cost and Pricing Data – FAR 15 Procurements
USG Compliance risks relate to the pricing of proposal whereas the proposal falls under cost and pricing data requirements. Risk for these types of proposals are:
- 1. Truth In Negotiations Act, (Defective Pricing)
- 2. False Claims Act
- 3. Cost Accounting Standards (CAS)
Risk in these procurements is that pricing is inaccurate, and we have overpriced the proposal, causing harm to the USG. In summary, pricing our products too high.
Commercial Pricing – Non-USG
The risk for commercial pricing is that we have not captured all costs, such as using USG rates to price Non-USG rates. USG rates exclude unallowable costs (per FAR 31) which are not applicable to commercial contracts. Another area is not applying Facilities Cost of Capital to commercial contracts as this is a USG concept, but one in which allows for a cost of money factor, which may not be included in commercial, non-USG pricing actions. The risk is pricing products too cheaply.
The purpose of this audit is to evaluate proposals for compliance with USG regulations (FAR Part 15 and 31, as well as applicable CAS provisions) and for commercial pricing actions which are not subject to USG requirements.
Planning/Desktop Audit Process
1.Determine the cost estimating risk of inaccurate, incomplete, or defective proposals on the USG. a.What type of procurement is this? Competitive, Sole Source b.What type of contract is this? Cost, Fixed Price c.Is this a TINA or CAS Covered Contract? d.Confirm that this proposal (to-be contract) would include the DFARS 252.215-7002 contract clause—See Appendix A. 2.Request the following items for preliminary desktop review: a.Evaluate the company’s Disclosure Statement (for full-CAS covered entities) items to become familiar with the disclosed accounting practices. b.Obtain and evaluate recent forward pricing rate agreements/recommendations or government audited rates. c.Obtain and review the most recent incurred cost submission, or year-end actual rates. d.Obtain the proposal log for the last 2 years, including history of proposals won. e.Request and review any written estimating and accounting system manuals/control documentation. f.Request and review the trial balance for prior 2 calendar years. g.Request and review all proposal deficiencies noted by DCAA, DCMA, or other auditing bodies. 3.Once the above documents are received and reviewed, select a proposal [/sample of proposals] to review against the audit steps on the following pages. a.Samples should be stratified in homogeneous procurement and contract types. 4.After sample selection, request additional supporting data. a.RFP for the proposal b.Proposal package, including all supporting data available c.Negotiation summary (if applicable) d.Contract award (if applicable) 5.Arrange a conference call to obtain an understanding of the BU’s proposal processes and its internal control structure. 6.Plan an onsite review to substantively test the audit steps on the following pages that cannot be performed remotely.
Procedures
The detailed audit steps are outlined on the pages to follow.
| # | Area | Audit Steps | Audit Activity/Notes |
|---|---|---|---|
| 1 | Preliminary Steps | Review the Request for Proposal (RFP):
a. Determine the company’s proposal responsiveness to the RFP (e.g. is the proposal for the supplies or services requested and does the company’s proposed quantity match the RFP requirements, etc.?) b. Identify the type of data required (i.e., certified cost or pricing data or data other than certified cost or pricing data). Determine whether the DFARS 252.215-7009(Proposal Adequacy Checklist – See Appendix 2) solicitation provision was included in the RFP to establish requirements for an adequate proposal. Section L of the RFP should provide instruction on how to submit proposals and information on a specific format to facilitate evaluation. FAR 15.403-5(b) provides that the contracting officer may require the proposal in the format of Table 15-2 of FAR 15.408, specify an alternative format, or permit submission in the company’s format. c. Identify and document any special requirements or provisions (i.e., limitations on pass-through charges, established rates, hours, time-phasing, material quantities, etc.). |
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| 2 | Preliminary Steps | Verify that the proposal was approved at an appropriate level of management.
If so, review the proposal package for adequacy based on the criteria established in the RFP. If the DFARS 252.215-7009 solicitation provision was included in the RFP, the company is required to provide the contracting officer with a completed DFARS Proposal Adequacy Checklist with its proposal submission. Review the checklist to assess and document conclusions about the proposal adequacy (CAM 9-103.1b). |
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| 3 | Preliminary Steps | Obtain a walk-through of the proposal to gain an understanding of the basis of each cost element of the proposal, the related supporting documentation, and the relevant policies/procedures and processes related to significant cost elements. As part of this walk-through, require management to identify:
a. Significant subcontracts and the status of its cost or pricing analyses. b. Significant interdivisional work and its basis for estimate. c. The “added value” provided by the company related to the subcontracted effort, when proposed subcontracted costs exceed 70 percent of the total cost of the work to be performed. |
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| 4 | Preliminary Steps | Assess Materiality. Document the understanding of the proposed basis of each cost element for each significant cost element of the proposal. Identify those cost elements that significantly contribute to the total proposed value. | |
| 5 | Preliminary Steps | When ICAPS or Cobham certification/self-assessment have not been completed (e.g. non-major contractor) or are not current (e.g. the system has not been audited in the last 4 years or there have been significant changes to the system since the last audit) and if the evidence to be obtained during the audit is dependent on computerized information systems, document the audit work performed that supports reliance on the computer-based evidence. Specifically, document or reference one or more of the following:
a. The audit assignment(s) where the reliability of the data was sufficiently established in other DCAA audits, b. The procedures/tests that will be performed in this audit to evaluate the subject matter in this audit that will also support reliance on the evidence, and/or c. The tests that will be performed in this audit that will be specifically designed to test the reliability of the computer-based data |
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| 6 | Preliminary Steps | Gain an understanding of the product/service being acquired and related company processes to manufacture the product or deliver the service. Identify any significant changes in the company’s processes that have taken place and consider the potential impact on the proposal and planned audit procedures. | Example |
| 7 | Preliminary Steps | Determine whether there are any outstanding FAR, other Agency Supplements or CAS noncompliances, key prior findings or audit leads affecting the proposal. If there are applicable noncompliances, findings or leads, determine how they will affect the audit scope. | |
| 8 | Preliminary Steps | Obtain and document the understanding of the relevant company internal controls related to the company’s proposal using the framework (e.g., estimating, accounting). The documentation should be used in the walk-through of the company’s proposal to the extent possible. | |
| 9 | Preliminary Steps | Conduct an entrance conference. Confirm the team’s understanding of how the proposal values were calculated and discuss the availability of required data and personnel necessary to timely support the audit. | |
| 10 | 1 - Direct Labor Rates - Established Rates by FPRA_FPRR | Trace proposed labor rates to the rates specified in the applicable FPRA/FPRR and verify proper application of the rates.
If the RFP requires the company to bid labor categories other than those established, determine if this results in a potential CAS 401 noncompliance. Determine if any conditions (e.g., expansion of workforce) exist under which the established forward pricing labor rates should be modified (CAM 9-505.7). Note if conclusions differ from any significant rates in the FPRA/FPRR. Document the conclusions, basis of proposed cost and audit evaluation. |
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| 11 | 2 - Direct Labor Rates - Audited Rates | If the RFP requires the company to bid labor categories other than the rates that were audited, determine if this results in a potential CAS 401 noncompliance.
Determine if any conditions (e.g., expansion of workforce) exist under which the audited forward pricing labor rates should be modified (CAM 9-505.7). If the adjustments to the originally audited rates are significant, these should be noted. Calculate the questioned rates, if applicable. Document the conclusions, basis of proposed cost and audit evaluation. |
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| 12 | 3 - Direct Labor Rates - No Audited Rates | Document your understanding of the basis of the proposed rates.
Determine if the proposed direct labor rates are classified consistent with established/disclosed practices (CAS 401/CAS 402/FAR 31.202 and 31.203(a)). Evaluate the company’s method of developing the proposed rates (see CAM 9-505). If historical data is used to support the basis of estimate, perform substantive audit procedures to ensure the historical data is in reasonable compliance with FAR Part 31 and, if applicable, CAS. Evaluate the proposed base labor rates by comparing with other sources of information (e.g., current payroll data, signed employee agreement, appropriate Wage Determination rates, survey with established reliability). Evaluate the proposed escalation factors with consideration given to escalation history, management approved plans, forecasted economic conditions, etc. Calculate the questioned rates, if applicable. Document the conclusions, basis of proposed cost and audit evaluation. Example || Example | |
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Planning/ Desktop Audit Process
