MRD 07-PSP-030 - Audit Guidance on Supporting Contracting Officer's Cost Realism Analysis

DEFENSE CONTRACT AUDIT AGENCY DEPARTMENT OF DEFENSE 8725 JOHN J. KINGMAN ROAD, SUITE 2135 FORT BELVOIR, VA 22060-6219 IN REPLY REFER TO PSP 730.5.1 September 5, 2007 07-PSP-030(R) MEMORANDUM FOR REGIONAL DIRECTORS, DCAA DIRECTOR, FIELD DETACHMENT, DCAA SUBJECT: Audit Guidance on Supporting Contracting Officer’s Cost Realism Analysis Effective immediately, auditors should perform examinations to evaluate proposed costs/rates in support of the contracting officer’s cost realism analysis when the contracting officer requests an opinion as to whether the proposed costs/rates are realistic and not significantly understated. The new audit program under Code 27000, Parts of a Proposal – Cost Realism Audit Program, Version 1.0 (Enclosure 1), and accompanying Report Shell – Cost (Enclosure 2) have been incorporated into APPS. Contracting officers, as part of their cost realism analyses, often require the auditor to evaluate specified cost element(s) (e.g., direct labor rates, indirect rates) of a proposal and to provide a level of assurance that proposed costs/rates are realistic and not significantly understated. In these cases, Agreed Upon Procedures (AUP) engagements are not appropriate, since AUP engagements cannot provide opinions, any assurance (positive or negative), or findings based on materiality. As such, auditors should perform an audit of parts of a proposal (Code 27000), provided that there is sufficient cost ...