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FAR 31 Audit Sampling for A/E/C Companies

Federal Acquisition Regulation (FAR) 31 overhead audits are a critical need for any Architecture/Engineering/Construction (A/E/C) company looking to qualify for and utilize government agency money and contracts. In addition to a review of the A/E/C’s accounting systems, internal controls must be tested for proper segregation of direct and indirect cost expenditures as either allowable or unallowable/disallowable expenses. To make an overhead rate calculation for indirect cost expenditures, statistical sampling must be performed in accordance with AASHTO guidelines by a qualified external auditor to project the A/E/C’s total amount of unallowable/disallowable cost based on the findings of a sample. AASHTO guidelines require auditors to exercise expert judgment to identify at-risk G/L accounts. Auditors must sample between 2 and 20 items from each of these accounts and set dynamic large dollar thresholds for each account to determine a materially relevant sample.

And for external auditors that’s where we come in. This exercise requires segregating client data that varies from client-to-client into separate accounts of interest, generating random samples, creating a client-facing document to request the sample item details as well as a client-facing document to present sample findings and projection results. All-in-all this is only a part of a process that amounts to 85 to 150 hours of work to conduct a FAR overhead audit. We can cut down on a good chunk of that time: depending on the number of G/L accounts involved, 8 to 20 hours can be automated out and performed with ease.

 

Tools

A FAR 31 Audit Sampling Solution comprises the use of 4 tools:

  • Versatile Excel Importer
  • Automated Audit Analyzer
  • Sampling Tool
  • Reports Builder

The Versatile Excel Importer and Automated Audit Analyzer are combined in one application script to build the Sampling Tool. Once samples are finalized in the Sampling Tool, then another application script employs the Reports Builder tool to automate the creation of client-facing Excel worksheets that enable auditor-friendly segregation of unallowable expenses from allowable expenses, automatically resulting in sample projections to the client’s population of G/L expenses that are DCAA compliant and replicate the DCAA’s EZ-Quant software calculations.

The Versatile Excel Importer automates the collection of client audit data from separate workbooks, worksheets and from within worksheets regardless of the varying, polymorphous data formats and structures involved.

The Automated Audit Analyzer is employed to automatically analyze the data for offsets/reversals and separate these transactions from the population data for each G/L account.

The Versatile Excel Importer and Automated Audit Analyzer are employed together along with the facility to collect a list of the G/L accounts to identify and sample all in one dialog box. You press OK to create the Sampling Tool:

FAR 31 Sampling Tool Builder
FAR 31 Sampling Tool Builder

The Sampling Tool is a macro-enabled workbook that documents every sample for each account. Edit the population data, change the large dollar threshold and set desired number of random items individually to refine the correct sample for each G/L account.

Sampling Tool
Sampling Tool

The Reports Builder creates the final workpapers report from the Sampling Tool Excel file. Perform your audit work on the sample items and enter the results for any unallowable indirect cost expenses found in your sample items. Projections are made automatically, and you are done.

FAR 31 Report Worksheet
FAR 31 Report Worksheet
FAR 31 Evaluation Worksheet
FAR 31 Evaluation Worksheet

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Contact

To discuss your needs and how we can help you best, please contact:

Donna Ellis, Director of Professional Services

(864) 625-2171

donna@auditdataanalytics.net

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