DCAA’s revised procedures for labor and material audits

Ever heard of a MAAR 6 or MAAR 13? These are the Defense Contract Audit Agency’s (DCAA’s) Mandatory Annual Audit Requirements (MAAR) for labor (MAAR 6) and material (MAAR 13). That’s “DCAA speak” for real-time labor and materials floor checks. Labor and material are two of the most significant cost elements billed on government contracts — and “real-time” verification of these costs as they are incurred helps confirm the accuracy of the charges and can only be accomplished during the accounting period in which they apply.

Of course, labor and materials audits have been around for as long as there have been contracts. Recently, however, the DCAA issued a Memorandum for Regional Directors (MRD) titled “Revised Procedures for Real-Time Audits of Labor and Purchase Existence and Consumption”, addressing revised requirements for labor and material audits. The new MRD allows auditors to use a risk-based approach to determining when to perform these types of audits and also allows auditors to conduct alternative procedures — including virtual testing — to perform their floor checks.

The DCAA issued its MRD because it says that advances in technology and the audit environment have changed dramatically since it developed its original MAAR policies and procedures. Additionally, its auditors identified best practices and lessons learned during the pandemic and gained efficiencies performing these audits and associated audit procedures. So, the DCAA revised its approach and procedures to implement the best practices it identified, create more flexibilities for auditors and align audit resources to appropriate risk levels. Some of the significant changes the DCAA is making include:

• Removing mandatory annual audit requirements from real-time labor audits and purchase existence and consumption audits and establishing procedures for audit teams to determine when to perform these real-time audits using a risk-based approach.
• Creating flexibilities for audit teams to conduct real-time labor audits on a scheduled basis or unannounced basis based on specific risk considerations.
• Establishing best practices for use of alternate interview and floor check techniques, such as telephone or video conferencing to increase efficiency.
• Creating flexibilities for audit teams to conduct real-time audits on an interval basis throughout the year or at a specific point in time based on specific risk considerations.