42.101 Contract audit responsibilities
Source: FAR 42.101 on acquisition.gov
Auditors play a critical role in reviewing contractor costs and systems, with DCAA typically responsible except for educational and nonprofit organizations, which follow OMB Uniform Guidance.
Overview
FAR 42.101 outlines the responsibilities of auditors in the context of government contract audits. It specifies that auditors are tasked with providing information and advice based on their analysis of contractors’ financial and accounting records, reviewing cost control systems, and conducting other necessary analyses related to proposed and incurred costs. The section also clarifies which government agency is responsible for contract audits: typically, the Defense Contract Audit Agency (DCAA) handles audits for most contractors, except for educational institutions and nonprofit organizations, where audit cognizance is determined by the OMB Uniform Guidance. In cases where another agency seeks audit cognizance, coordination between agencies is required to ensure efficiency and economy.
Key Rules
- Auditor Responsibilities
- Auditors must analyze contractor financial records, review cost control systems, and perform additional analyses as needed to support contract requirements.
- Audit Agency Cognizance
- DCAA is generally responsible for audits, except for educational and nonprofit organizations, which follow OMB Uniform Guidance. Inter-agency coordination is required if another agency seeks audit cognizance.
Responsibilities
- Contracting Officers: Must request and utilize audit information and ensure the correct audit agency is engaged.
- Contractors: Must provide access to financial and accounting records and cooperate with auditors.
- Agencies: Must coordinate audit cognizance when necessary and follow OMB Uniform Guidance for educational and nonprofit organizations.
Practical Implications
- Ensures proper oversight of contractor costs and compliance with federal requirements.
- Impacts how contractors prepare and maintain financial records.
- Misunderstanding audit cognizance or failing to provide access can delay contract actions or result in noncompliance.
(a) The auditor is responsible for-
(1) Submitting information and advice to the requesting activity, based on the auditor’s analysis of the contractor’s financial and accounting records or other related data as to the acceptability of the contractor’s incurred and estimated costs;
(2) Reviewing the financial and accounting aspects of the contractor’s cost control systems; and
(3) Performing other analyses and reviews that require access to the contractor’s financial and accounting records supporting proposed and incurred costs.
(b) Normally, for contractors other than educational institutions and nonprofit organizations, the Defense Contract Audit Agency (DCAA) is the responsible Government audit agency. However, there may be instances where an agency other than DCAA desires cognizance of a particular contractor. In those instances, the two agencies shall agree on the most efficient and economical approach to meet contract audit requirements. For educational institutions (defined as institutions of higher education in the OMB Uniform Guidance at 2 CFR part 200, subpart A, and 20 U .S.C. 1001) and nonprofit organizations (as defined in the OMB Uniform Guidance at 2 CFR part 200), audit cognizance will be determined according to the provisions of the OMB Uniform Guidance at 2 CFR part 200, subpart F.