Who is your cognizant agency1? Does it relieve you of the additional audit requirements of other agencies and awards if you meet the requirements of your cognizant agency? The answer is … it depends.

 

Ideally there is one set of requirements that is consistent across all agencies. The unfortunate reality is that agencies differ: Interpretations of the same requirements differ; implementation of the same requirements differ within agencies; and auditors interpret and apply the rules different based upon experience, background, and training.

 

DCAA versus A-133/Yellowbook and External Audit Requirements

 

Many grant and contract recipients receive funding from multiple agencies. These recipients, if they are fortunate, may fall under the category of Defense Contract Audit Agency (DCAA) oversight, or they may fall under the auspices of agencies that require a qualified external audit under government auditing standards, A-133, and other financial audit requirements.

 

For those companies that receive funds from agencies in both groups, they will be meeting the requirements for both audit standards. DCAA will audit (rates, accounting systems, invoices, and other aspects of the business), and recipients will be required to retain an external audit firm and pay them to audit the organization’s financial statements and control systems to meet the requirements for the other agencies.

 

Logic would dictate that if a commercial entity is operating under the same cost principles for all its awards, an indirect rate negotiated with one agency would work for all the agencies. It would also seem logical that if an external audit is conducted by a qualified independent audit firm to the level of Generally Accepted Government Auditing Standards (GAGAS), also known as Yellowbook and financial statements, and the organization is found to meet Generally Accepted Accounting Principles (GAAP) that the audit would be accepted—or at least reviewed by government auditors as part of their audit. It may be logical, but it isn’t necessarily going to happen; after all, you are dealing with the bureaucracy of government.

 

Understand Your Requirements—All of Them

 

For funding recipients to satisfy the requirements of their funding agencies, they must first understand their award documents: funding assistance or acquisition; grant, cooperative agreement or contract; program type (e.g., BIR, STTR, Block Grant, Construction), fee or no fee; direct cost only or direct and indirect costs; and so on. Once recipients understand you’re their award documents say, then they must understand how the sum of those awards impact the business: will they receive and expend more than $500,000 of cost-type Federal funds in a single year? Will they exceed $10 million, $50 million or more in total awards?

 

Once you have looked at individual awards and the total of all awards, then it is time to understand how your specific business structure and stage are impacted. Are you operating at a profit? What type of tax/legal entity is the company (Corporation, LLC or another type)? Do you use independent contractors to work on projects? What are the labor requirements, staffing issues, etc.?

 

Once you have identified your requirements, the variables that impact eligibility and compliance, then examine the audit requirements that you will need to satisfy. In general, you must comply with the most stringent of the specified agency requirements. You may have differences in indirect rates, bases, etc. on a project-by-project, award-by-award basis, but those differences will be managed within the structure of complying to the highest standards across ALL projects.

 

With sufficient knowledge of your awards and the requirements they impose, you can be ready for any audit. You can access requirements online or by calling your agency audit offices (including the DCAA). The earlier in your process that you identify and understand the compliance requirements, including what type of audit you will need, the less costly it will be to comply.

 

Author: Lea A. Strickland, MBA CMA CFM CBM GMC

Copyright ©2010 F.O.C.U.S. Resource, Inc.

All Rights Reserved

 

 

 

1 A “cognizant agency” is defined as: “The Federal agency which, on behalf of all Federal agencies, is responsible for implementing the requirements of the Single Audit Act which include: reviewing, negotiating, and approving cost allocation plans, indirect cost rate and similar rates; receiving and approving non-federal audit reports; conducting federal audits as necessary; and resolving cross-cutting audit findings.” Source: University of Washington Website: Grant & Contract Accounting. http://www.washington.edu/research/gca/uwin/gcagloss/cognizant.html

%d bloggers like this: