Webinar: The Ultimate Compliance Test: Understanding GSA OIG Pre-Award Audits

The Ultimate Compliance Test:
Understanding GSA OIG Audits
Jennifer Aubel and Hope Lane | April 5, 2017
http://blogs.aronsonllc.com/fedpoint/

2© 2017 | www.aronsonllc.com | www.aronsonllc.com/blogs |
AGENDA
1. The “Audit” You Know
2. Common OIG Audit Findings
3. Why Me? Risk Factors for Audit Selection
4. What’s Actually Being Audited?
5. What Data does the Auditor Request?
6. The Audit Process
7. Trickledown Impacts on Contractor Assessments
8. Best Practices

The “Audit” You Know

Contractor Assessment
Contractor Assessment
Timing Annual and end-of-term
Scope Process review and spot checks
Duration Short assessment and quick turnaround (days-weeks)
Focus Review of many compliance areas
Goal Educate
Legal No subpoena power

Contractor Assessment vs. OIG Audit
OIG Audit Contractor Assessment
Timing Pre-award or post-award Annual and end-of-term
Scope Complete review of
transactions
Process review and spot
checks
Duration Lengthy data collection and
analysis (months-years)
Short assessment and quick
turnaround (days-weeks)
Focus Compliance issues relevant to
pricing
Review of many compliance
areas
Goal Identify contractual issues Educate
Legal Subpoena power No subpoena power

Common OIG Audit Findings

Most Frequent OIG Audit Findings
• Commercial Sales Practices (CSP) information was not current,
accurate, or complete
• Price Reductions Clause protections were negated by ineffective
basis of award customers
• Proposed labor rates were overstated
• Schedule customers were overbilled for unqualified employees
• Contractor did not have adequate controls to properly accumulate
and report schedule sales for IFF purposes
• GSA schedule sales were underreported

Why Me?
Risk Factors for Audit Selection

Why Me?
• Your contract is up for renewal
• High sales volume
– In the Top 20 of contractors up for renewal under the Schedule
– 40-50 pre-award audits annually
• OIG Audit Plan Schedule Emphasis (Schedule 70)
• Serious issues identified during Contractor Assessment
From April 1 – September 30, 2016, the OIG performed pre-award
audits of 37 contracts with an estimated value of almost $9.5 billion
and recommended over $324 million of funds be put to better use

Fiscal Year OIG Audit Plan
• FY Audit Plan and FY Audit Reports
– 2017: Approximately 35 potential Pre-award Audits
– 2016: Approximately 50 Pre-award Audits
– 2015: Approximately 50 Pre-award Audits
• Settlements in excess of $280 million over the past three fiscal years
(FY14-FY16)

What’s Actually Being Audited?

Elements Being Audited
• Commercial Sales Practices disclosed as part of the option renewal
package
• Determine if contractor’s:
– Commercial Sales Practices disclosures (CSP-1) are current, accurate
and complete
– Pricing controls properly identify commercial transactions that trigger
the Price Reduction Clause (PRC)
– Proposed prices are “fair and reasonable” prior to exercise of the
pending option period

Elements Being Audited
Determine if contractor is:
• Offering schedule customers the contract price or lower and
extending all negotiated discounts
• Accurately identifying and reporting GSA schedule sales
• Providing qualified personnel (both employee and subcontractor)
under its GSA labor categories
• Selling products that comply with the Trade Agreements Act (TAA)
• Offering rebates, concessions, etc.

What Data does the Auditor
Request?

What Can the Auditor Ask For?
• Examination of records clause included in GSA Schedule solicitations
(552.215-71) does not give auditors carte blanche access
• GSA shall have access to and the right to examine any books,
documents, papers and records of the Contractor involving
transactions related to this contract for:
– Overbillings,
– Billing errors,
– Compliance with Price Reduction clause, and
– Compliance with Industrial Funding Fee and Sales Reporting clause
• If you feel the auditor is overstepping, you should consult with a
GSA-focused attorney

The Audit Data Request: General Requirements
• 12 months of sales data that ties to audited financial statements
• All commercial and government price lists in effect during the GSA
contract period
• Support for reported GSA schedule sales
• Identification of the basis of award customer(s) and Price
Reductions clause triggering mechanism / discount relationships
since start of contract
• List of top volume non-GSA government customers and commercial
customers, along with corresponding volume for each during the
audit period

The Audit Data Request: General Requirements
• Current written policies and procedures for:
– Reporting sales under the GSA contract
– Order processing and billing systems
– Price reductions monitoring
– Pricing practices in effect during audit period, and to-date
– Ensuring employees assigned to GSA orders meet the experience and
educational qualifications in the GSA contract*
• List of Blanket Purchase Agreements (BPA), Teaming Arrangements,
and subcontractor agreements in effect during audit period
• Chart of Accounts and relevant organizational charts

• Customer Information
• Contract Number and Type
• Order Number and Date
• Invoice Number and Date
• Item Description
– Part number
– Labor category title
– Travel and living, ODCs
– Labor rate type
• List and Sale Price
• Quantity Billed
• Extended Price
• Net Discount
• Additional Charges and Offsets
– Sales tax
– Freight
– Rebates
– Promotions
• Employee/Subcontractor Name
• Payment Terms
• Payment Date
• Applicable SIN
The Audit Data Request: Sales Transaction Data

The Audit Data Request: Services Requirements
• Summary of task orders under the GSA contract for audit period
• Summary of task orders for all other federal, as well as commercial
and state and local government customers, for audit period
• Mapping of corresponding GSA labor categories to any non-GSA
title labor categories on GSA task order billings

The Audit Data Request: Services Requirements
• Detailed data of billable labor rates by individual for all personnel
working on services and related contracts during the audit period
• List of internal labor categories and related descriptions, as well as
experience and education qualification requirements
• Copies of any DCAA audit reports or letters over the last two years
covering billing, ordering, accounting systems, direct labor, and
indirect rate reviews, etc.

The Audit Process

Data Sampling
• Upon receipt of initial data submission, GSA’s audit team will chose
a representative sample of transactions to look at more closely
• Contractor should expect to produce additional documentation
related to its:
– Largest orders of all types (commercial, GSA, and federal)
– Most sold products and labor categories / services
– Blanket Purchase Agreements (BPA)
– Subcontractor agreements
– Reseller or dealer agreements

The Audit Site Visit
• Site visit is generally scheduled for one week. Auditors may return
for additional days later in the process
• Visit begins with entrance conference and concludes with exit
conference
• As a best practice, provide auditors with their own work area that is
as segregated from the rest of the office as possible
• Be aware of government limitations on gifts – most auditors will not
even be comfortable accepting a cup of coffee

Audit Trend: Cost Build-Up Price Analysis
• In every professional services audit Aronson has supported in the
past four years, the auditors have tried to move their pricing analysis
to a cost build-up methodology
• In many cases, this is the auditor’s default position, regardless of the
contractor’s volume of commercial sales
• If the contractor uses an accounting system that generates indirect
rates, even if the system and the rates have not been audited, it will
be very difficult to convince the auditors to rely on commercial rates

The Waiting Game
• Try to establish a good rapport with the auditors, they may give you
a “preview” of any findings they plan to report
• Expect to receive a few more questions and requests for additional
documents here and there
• This can be the hardest part of the process – waiting for the draft
audit report
• Don’t read into how long it takes to issue the audit report

After the Audit Report is Released
• Once the audit report is issued to your Contracting Officer, you are
entitled to request a copy
• It is important to remember that the auditor can only make
recommendations; ultimately, all decisions are made by the
Contracting Officer
• If you disagree with any of the findings on the audit report, prepare a
detailed response and submit it to the Contracting Officer

After the Audit Report is Released
• Audit report is primarily a tool for the Contracting Officer to use in
negotiating the option period renewal
• Expect that Contracting Officer will seek to lower contract rates;
prepare a negotiation strategy

Trickledown Impacts on
Contractor Assessments

Impacts on Contractor Assessments
• Résumé reviews on GSA task orders
• Significant increase in the amount of sales data being requested,
especially on virtual assessments
• Continued emphasis on validating GSA sales reporting and IFF
remittance
• More frequent assessments for contractors with higher sales

Best Practices for Navigating
an OIG Audit

Audit Best Practices – Before Data Submission
• Dedicate the resources to prepare for and respond to audit
• Do NOT submit the option renewal package or CSP before
completing a detailed analysis of the sales data you will be
submitting to the auditors
• Understand what the data says before submitting to the auditors

Where are the bodies buried?
• GSA Schedule policies and procedures – do you have them? do you
follow them?
• High dollar value GSA and non-GSA contracts
• Highest sales concentrations of products, services / labor categories
• Utilization of subcontractors
• Insufficient pricing controls
• Non-standard discounting practices
• Labor qualifications
• Identifying and reporting GSA sales

Audit Best Practices – After Data Submission
• Questions can be a good indicator of potential trouble spots you
should be prepared to address during the site visit
• As a best practice, keep a log of all additional documents requested
by the auditor and questions
• Note the date and content of all responses
• Remember, it is up to the Contracting Officer to act on any findings
from the audit report
• Know when to consult outside counsel

QUESTIONS

About Aronson LLC
Aronson LLC provides a comprehensive platform of assurance, tax,
and consulting solutions to today’s most active industry sectors and
successful individuals. For more than 50 years, we have purposefully
expanded our service offerings and deepened our industry specialties
to better serve the needs of our clients, people, and community. From
startup to exit, we help our clients maximize opportunity, minimize risk,
and unlock their full potential.

About Aronson LLC
• Thinking ahead for clients for more than 50 years
• 225+ professionals located in Rockville, MD
• 80+ professionals dedicated to supporting government contractors
• Aronson helps clients rethink the way they approach their business
through innovative, industry-specific services and advice:
– Audit, Assurance and Tax
– Deltek Systems and Outsourcing
– Financial and Contract Compliance
– GSA Schedules
• www.aronsonllc.com/blogs/fedpoint/ – News and trends and insight
for today’s savvy government contractor

Awards / Accolades / Affiliations
The Gazette of Politics & Business Exceptional 53 Business Award
In 2012, Aronson received the PB53 award for the third year in a row. The program
acknowledges the top businesses and organizations in Maryland based on criteria that
includes the company’s annual revenue, employee growth, noteworthy product or service
innovations, community service efforts and more.
Accounting Today Top Firm
In 2013, Aronson was once again named to Accounting Today’s list of the top 100 firms in
the country. Accounting Today is a leading provider of online business news for the tax and
accounting community.
Washington Business Journal Top 25
Aronson is ranked #12 on the Washington Business Journal’s Top 25 Accounting Firms in
the DC Metropolitan area.
INSIDE Public Accounting Top 100
Once again, Aronson has earned a spot in the top 100 of this prestigious list, released by
INSIDE Public Accounting. This is the longest running, most comprehensive and accurate
independent analysis focusing on management and operations of America’s large local,
regional and national firms.
Washington Business Journal Best Places to Work
Aronson has been recognized five times as one of the Metro area’s “Best Places to Work.”
The award recognizes a company’s achievements in creating a positive work environment
that attracts and retains employees through a combination of employee satisfaction, working
conditions and company culture.
Montgomery County Chamber Corporate Social Responsibility Award
In 2010, Aronson was honored to receive the MCCC’s Corporate Social Responsibility Award
based on the depth and breadth of the company’s energetic commitment to support young people,
in the areas of education, housing and health.

Jennifer Aubel is a principal consultant in Aronson LLC’s Government
Contract Services Group. She works with clients to tailor GSA
Schedule solutions that meet organizational needs by developing
scope and pricing strategies, maintaining compliance, providing audit
support, and improving the profitability and versatility of the GSA
Schedule contract. Additionally, Jennifer frequently speaks on GSA
Schedule topics at both Aronson and industry-sponsored events and
is an active member of the National Contract Management
Association (NCMA).
Jennifer has 20 years of experience in the federal contracting market,
working for contractors and as a consultant to GSA Schedule contract
holders. Prior to working with Aronson, she managed a multi-million
dollar GSA program for a mid-tier integrator.
Jennifer graduated summa cum laude from the University of Maryland
University College with a bachelor’s degree in Legal Studies.
Principal Consultant, Government Contract Services Group
301.231.6253
jaubel@aronsonllc.com
Jennifer N. Aubel

Hope A. Lane, CPA, leads Aronson LLC's Government Contract Consulting
practice. With more than 20 years of broad-based experience in the
government contracting arena, she is well-known as one of the industry's most
knowledgeable thought leaders in contract-related financial compliance and
contract administration.
Exclusively focused on government contracting, Hope possesses in-depth
understanding and hands-on expertise. Prior to joining Aronson, she served in
financial management positions with several regional federal contractors. Often
described by her peers as forward-thinking, Hope is able to go beyond what a
client asks for to deliver precisely what they need.
As an avid advocate for the government contracting industry, Hope is a guest
speaker and lecturer for associations and industry trade groups and a featured
speaker at Aronson's executive briefings. She also serves as editor-in-chief of
Aronson's Fed Point blog. As a leader in the firm, Hope advocates for
continuous growth and mentorship and encourages others in the practice to
innovate for the benefit of their clients.
Hope earned her bachelor's degree in accounting from the University of North
Carolina at Charlotte and is actively involved in professional organizations like
the Professional Services Council, National Contract Management Association
and Women Impacting Public Policy.
Partner at Aronson LLC, Government Contract Services Group
301.231-6266
hlane@aronsonllc.com
Hope A. Lane, CPA

301.231.6253
Contact Jennifer Aubel / Aronson LLC
jaubel@aronsonllc.com
www.linkedin.com/in/jnaubel
www.twitter.com/jnaubel

301.231.6266
Contact Hope Lane / Aronson LLC
hlane@aronsonllc.com
https://www.linkedin.com/in/hopelanecpa
https://twitter.com/hlanemd

Webinar: The Ultimate Compliance Test: Understanding GSA OIG Pre-Award Audits

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