Survey of Contractor’s Organization, Accounting System and System of Internal Controls (ICQ)

Purpose. This questionnaire provides the basis for documenting the auditor’s understanding of the entity’s internal control components and is used to plan the audit.  Five components of internal control are applicable to the audit of every entity: Control Environment; Contractor’s Risk Assessment; Information and Communications; Monitoring; and Accounting System Control Objectives and Activities. 

Procedures For Obtaining Understanding.  In obtaining an understanding of controls that are relevant to audit planning, the auditor should perform procedures to obtain sufficient knowledge about the design of the relevant controls pertaining to each of the five internal control components and determine whether they have been placed in operation.  This knowledge is ordinarily obtained through previous experience with the contractor and through procedures such as inquiries of appropriate management, supervisory, and staff personnel; inspection of the contractor’s documents and records; and observation of contractor activities and operations. The form and extent of this documentation is influenced by the size and complexity of the contractor, the auditor’s previous experience with the contractor, the nature of the particular controls, and the nature of the contractor’s documentation of specific controls (AU 319.58).

[PART B - CONTROL ENVIRONMENT AND OVERALL ACCOUNTING SYSTEM]

1.       Does management promptly correct deficiencies noted in external CPA's management letter on internal controls and in DCAA internal control audits?

2.       Does the contractor maintain written policies and procedures to describe:

a.       The assignment of authority and areas of responsibility so that there is adequate segregation of duties.

b.       The general accounting system.

c.       Identification and exclusion of unallowable costs.

d.       Direct/Indirect charge practices.

e.       Preparation of incurred cost submissions and forward pricing proposals.

f.         Allocation of indirect costs to final cost objectives.

g.       Approval and documentation of journal entries.

h.       Establishment of account numbers.

i.         Approvals for establishing contract charge numbers.

j.         Allocation of income, rebates, refunds, allowances or other miscellaneous credits.

3.       Are the contractor’s cost accounting records reconciled to and controlled by the  general accounting system on a current basis, i.e., postings are made at least monthly?

4.       Does the contractor’s system identify costs by contract (e.g., job cost ledger)?

[PART C - CONTRACTOR’S RISK ASSESSMENT, INFORMATION AND COMMUNICATIONS, AND MONITORING]

1.       Does the contractor have a risk assessment process for identification, analysis, and management of risks relevant to the preparation of submissions to the Government in accordance with Federal Government regulations?

2.       Has any current or previous assignment identified the contractor’s failure to properly assess the risk of having noncompliant submissions?

3.       Has any significant change in accounting for costs within the contractor’s current and preceding two years?

a.       Allocation of indirect costs --Structure of the indirect overhead rates (pool or base costs)?

b.       Accounting for direct costs? 

1.       Does the contractor have written policies and procedures for the IT system that include appropriate manual and computerized control procedures to:

• initiate, record, process, and report the contractor’s transactions and journal entries (as well as events and conditions) from their occurrence to their inclusion in the accounting records;
• enter transaction totals into the general ledger;
• record recurring and nonrecurring adjustments or reclassifications if they are not recorded through formal journal entries?
• convert hard-copy documents to electronic medium (if applicable)?

2.       Do the contractor s policies and procedures address the individual roles and responsibilities pertaining to internal controls over accounting information?

3.       Does the contractor disseminate its policies and procedures to its employees?

4.       Has any current or previous assignments identified the contractor’s failure to properly implement any of these internal control procedures?

1.       Does the contractor have ongoing monitoring procedures and/or separate internal control reviews/audits to ensure that internal controls are operating as intended and that they are modified as appropriate for changes in conditions?

2.       Has any current or previous assignment identified the contractor’s failure to monitor the effectiveness of internal control procedures?

[PART D. - ACCOUNTING SYSTEM CONTROL OBJECTIVES AND ACTIVITIES]

1.       Does the contractor have a training program to reasonably assure that all employees are aware of the importance of proper time charging?

2.       Do the contactor’s written policies and procedures provide labor documentation/work descriptions that identify the work to be performed, and are labor charges tracked to a final cost objective, whether allowable or unallowable/direct or indirect?

3.       Does the contractor maintain written timekeeping policies and procedures to reasonably assure that labor hours are accurately recorded and corrections are documented, including authorizations and approvals?

Does the contractor maintain written policies and procedures to describe the major manual and automated systems that comprise the material management and accounting system?

Estimating:

Does the contractor have written estimating policies and procedures to address employee training, assignment of authority and responsibilities, cost estimate development, and the estimating system process, activities, and functions?

Does the contractor have and disseminate written billing policies and procedures which address employee training, contract briefing to identify special billing provisions and limitations, and management review of billings?