Mistake #5: Audit Findings
When you receive a Phase II SBIR, STTR, RO1, U01, BARDA, ARPA-E, or BAA, you need to comply with the Federal Acquisition Regulation (FAR), specifically FAR 52.216-7. Otherwise, you may have audit findings.
After more than 30 years of specializing in government award accounting, we know the mistakes government awardees make, and how to prevent them. This 10-part blog series, “Top 10 Mistakes Government Awardees Make,” is designed to help you avoid trouble and protect your innovation and business.
DOD CONTRACTS ARE SUBJECT TO AUDITS BY DCAA.
When you receive a federally-funded award, it’s not free money. It’s an investment that the government is making in your innovation. As such, the government expects you to adhere to their rules and regulations, and they will check to make sure you do so through audits, which can lead to audit findings.
Examples of DCAA audits of DOD contractors
If you have a DOD contract, you’ll quickly become acquainted with the Defense Contract Audit Agency or DCAA.
The DCAA performs:
- Pre-award audits
- desk audits of progress billings
- surprise, in-person floor checks
Additionally, you are required to prepare an incurred cost submission, which is a true-up report that must reconcile your final actual direct costs on every job and the proportional indirect charges that each project must absorb.
These true up reports have a 100% chance of being audited.
Examples of audits for NIH and DOE grantees.
Assuming you’ve negotiated an indirect cost rate, you will be subject to an audit of your annual incurred cost submission by your funding agency and may also be required to have a Uniform Guidance Audit conducted on your books.
Audits for NIH and DOE Grantees – Uniform Guidance Audit (formerly known as OMB A-133 audit)
NIH and DOE grantees who expend more than $750,000 during their fiscal year are subject to a Uniform Guidance Audit or UGA. That means they are required to find and hire a CPA firm with an expertise in government award accounting to conduct this audit.
Know that even though you are paying this firm, they are very much working for the federal government.
During the UGA, your auditor will test whether you are maintaining a FAR-compliant accounting system and comply with key grant terms and conditions. Some areas you can expect to see tested are:
- Proper expense coding
- Time sheets
- Uncompensated Overtime
- Subcontractor relationships
- Actual Indirect cost rates
- Consultant relationships
- Timely filing of SF-425 reports or Federal Financial Reports
WHAT HAPPENS IF THERE’S AN AUDIT FINDING?
There are two basic types of audit findings – internal control findings and monetary findings. Internal control findings are tedious to resolve with the funding agency – you must prove that you’ve taken action to ensure that the control has been fixed and the control failure will not happen again. Monetary findings carry real bite – you write the government a check.
Some monetary penalties can also include harsh penalties. Including a specifically unallowable item in your incurred cost submission to the DCAA carries a 100% penalty on top of the disallowance.
PROTECT YOURSELF BY GETTING EDUCATED
The resource section of our website, JamesonCPA.com is filled with helpful insights and information, from blogs to webinars to white papers and more. Here are a few items you may want to check out to avoid audit findings.
Archived webinar about UGA Audits
White Paper: Understanding the Different Types of DCAA Audits
Checklist: 43 Steps to Far Compliance
Top 10 Mistakes Government Awardees Make:
- Mistake #1: Taking The NIH Safe Rate
- Mistake #2: Not Having a Far Part 31 Compliant Accounting System
- Mistake #3: Overspending on Direct Costs
- Mistake #4: Overspending on Indirect Cost Rates
- Mistake #5: Audit Findings
- Mistake #6: Spending Too Much on Accounting Staff
- Mistake #7: Improper Allocation of Costs
- Mistake #8: Not Paying Attention To Agency-Specific Rules
- Mistake #9: Timekeeping and Uncompensated Overtime Issues
- Mistake #10: Spending Too Much on Accounting When You’re Not a CPA
PROTECT YOURSELF BY GETTING THE HELP YOU NEED
Ed Jameson, CPA, Managing Member
With over 40 years of experience as a government funding award accounting specialist, Ed is a recognized national expert in the field. In addition to helping hundreds of clients navigate FAR Part 31 compliance. he has been an active speaker and panel moderator at Tech Connect's National SRIR/STTR conferences since 2011. presents at the DOD's Mentor Protégé Summit and presents regularly for several state and local organizations.