Accounting System Deficiency
Found During Incurred Cost Audit
August 2004
Reference
Number: 2004-1C-137
This
report has cleared the Treasury Inspector General For Tax Administration
disclosure review process and information determined to be restricted from
public release has been redacted from this document.
August 9, 2004
MEMORANDUM FOR DAVID A. GRANT
DIRECTOR OF PROCUREMENT
INTERNAL REVENUE SERVICE
FROM: Daniel R. Devlin /s/ Daniel R. Devlin
Assistant Inspector General
for Audit (Headquarters Operations and
Exempt Organizations
Programs)
SUBJECT: Accounting System Deficiency Found During
Incurred Cost Audit (Audit #20041C0237)
The
Defense Contract Audit Agency (DCAA) audited the contractor’s Civil Division
incurred costs. The audit included
determining whether the contractor consistently complied with established
accounting system internal controls for recording and reporting contract cost
data for Federal Government contracts.
The DCAA indicated that consistent application of sound accounting
procedures should reduce errors in contract cost data, reduce the amount of
manual processing of invoices for billing, reduce the errors in computing
indirect rates, and facilitate the audit and evaluation of contract costs.
The
DCAA evaluation was limited to certain contractor accounting practices used in
recording contract cost data. The DCAA
did not perform sufficient audit procedures to constitute an examination of all
applicable accounting system internal controls in accordance with generally
accepted government auditing standards.
The
DCAA noted that certain contractor accounting practices used for recording and
reporting contract cost data in connection with the contractor’s Civil Division
Fiscal Year (FY) 2001 incurred cost audit require corrective action to improve
the reliability of its claimed contract costs.
Specifically, the DCAA indicated the contractor misclassifies contract
types in its Costpoint accounting system.
The DCAA examined 47 projects and found that 45 were misclassified in
Costpoint. The most prevalent
misclassification involved firm fixed price (FFP) contracts entered in
Costpoint as time and materials (T&M) contracts. In a sample of 11 T&M project numbers for the Internal Revenue
Service, 8 were misclassified as FFP, and 1 was misclassified as cost-type.
Based
on these samples and the confirmation of the results with the contractor’s
compliance personnel, the DCAA believes many projects have been incorrectly
entered into Costpoint. The DCAA noted
that this deficiency could adversely affect the reliability and completeness of
the contractor’s certified incurred cost submissions. Accordingly, the DCAA cannot report accurate contract costs by
contract type for FY 2000 and forward.
The
DCAA recommended the contractor correct the contract information recorded in
Costpoint, establish procedures to ensure all contract information is entered
into Costpoint, and ensure the certified incurred cost submissions are accurate
and complete. According to the DCAA,
the contractor agreed to the recommendations and indicated it has corrected the
contract types in Costpoint for FYs 2002 through 2003.
The
information in this report should not be used for purposes other than those
intended without prior consultation with the Treasury Inspector General for Tax
Administration regarding their applicability.
If you have any questions, please
contact me at (202) 622-8500 or John R. Wright, Director, at (202) 927-7077.
Attachment
NOTICE:
The Office of Inspector General for Tax Administration has
no objection to the release of this report, at the discretion of the
contracting officer, to duly authorized representatives of the contractor.
The contractor information contained in this report is
proprietary information. The
restrictions of 18 U.S.C. § 1905 must be followed in
releasing any information to the public.
This report may not be released without the approval of
this office, except to an agency requesting the report for use in negotiating
or administering a contract with the contractor.
The TIGTA seal was removed due
to its size.