Preparing For FAR Overhead Rate Audit: Everything You Need To Know

Summary: In this blog post, we will break down the fundamentals of FAR audit readiness and explain all the steps you need to take in order to prepare yourself for an audit. Once you have all of the necessary documentation, you should review it carefully to make sure that everything is accurate and up-to-date.

As a small business owner, understanding the FAR overhead rate audit firm Atlanta can be perplexing and even overwhelming. However, with the right information and preparation, you can ensure your organization is ready for the audit process. 

What is a FAR Overhead Rate Audit?

FAR overhead rate audits are required for all cost-type contracts exceeding the simplified acquisition threshold and having a total estimated contract value exceeding $650,000 (including options). The purpose of the FAR overhead rate audit is to determine whether the contractor's indirect costs are reasonable and allocable in accordance with generally accepted accounting principles and federal cost accounting standards AASHTO audit guide.

How to Prepare for Your FAR Overhead Rate Audit

If you're a government contractor, you know that every year your company's Federal Acquisition Regulation (FAR) overhead rate is subject to audit by the Department of Defense (DOD). The FAR overhead rate is used to calculate the indirect costs associated with your company's government contracts. It includes expenses like rent, utilities, insurance, and administrative costs.

In order to prepare for your FAR overhead rate audit, you should first gather all of the relevant documentation. This includes financial statements, cost accounting records, timekeeping records, and any other documentation that will support your company's indirect costs. 

Gather Documentation and Data

The key to success in any FAR overhead rate audit is organization and documentation. It is essential that you have all of your supporting documentation and data readily available so that the auditor can easily verify your costs. This includes:

-Your accounting records

-Timekeeping records

-Payroll records

-Billing records

-Contract documents

-Other supporting documentation

Build an Audit Plan

Now that you understand the audit process and what the auditor will be looking for, it's time to start building your audit plan. The first step is to determine which types of records and documentation you will need to provide. This will vary depending on the specific requirements of your project, but may include: 

-Contracts 

-Billing records 

-Timesheets 

-Employee resumes 

-Position descriptions 

-Work samples 

Once you have gathered all of the necessary documentation, you will need to create a detailed schedule outlining how you will spend your time and resources during the audit period. This schedule should take into account all of the different elements of the audit, including: 

-Data collection 

-Review and analysis 

-Report preparation 

Your audit plan should be designed to ensure that you are able to provide the auditor with everything they need in a timely and efficient manner. If you have any questions about what is required, be sure to ask your accountant or another financial advisor.

Best Practices for Compliance with the FAR Rules

There are a few key things to keep in mind when preparing for your FAR overhead rate audit. First, be sure to have all of your documentation in order and readily available. This includes contracts, invoices, time sheets, and any other relevant records. Secondly, make sure you understand the FAR rules inside and out. Be prepared to answer questions about how you comply with these rules on a daily basis. 

Engage Third-Party Assistance

There are many resources available to help you prepare for your FAR overhead rate audit. The Office of the Assistant Secretary for Acquisition (ASA) oversees a number of acquisition-related programs, including the Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer (STTR) program.

The Federal Procurement Data System (FPDS) is another valuable resource. FPDS collects data on federal government contracting actions, including the dollar value of contracts awarded. This data can be used to benchmark your company's overhead rates against those of other businesses in your industry.

Auditing Process

There are two main types of audits that the Defence Contract Audit Agency (DCAA) performs on cost-reimbursable contracts: Incurred Cost Audits and Forward Pricing Rate (FPR) audits. An Incurred Cost Audit is conducted to determine whether the contractor’s accounting system is adequate and whether the costs claimed were actually incurred and allocable to the contract. A Forward Pricing Rate audit is conducted to determine the allowability of proposed indirect rates. 

After the Audit: Results and Reporting

After the audit is complete, the results and findings will be reported. The report will include an analysis of your organization's compliance with the FAR, as well as recommendations for improvement. The goal of the report is to help you improve your overhead rates and avoid costly penalties.

Alternatives to the FAR Overhead Rate Audit Process

Over the last few years, the FAR overhead rate audit process has come under increased scrutiny. This is due in part to the fact that the process is often seen as being too costly and time-consuming for what it delivers. As a result, many companies are now looking for alternatives to the FAR overhead rate audit process.

Finally, some companies are choosing to simply waive their right to an audit altogether. While this may seem like a risky proposition, it can actually be quite beneficial for companies that are confident in their ability to maintain accurate financial records. By waiving their right to an audit, companies can save themselves both time and money.

Conclusion

With the right approach and adequate preparation, you can ace your FAR overhead rate audit. Through our guide, we have provided all the necessary information to help you get started on devising a plan to pass your audit with flying colors. We highly recommend working with the best advisors who understand this topic inside out in order to make sure you don’t miss any important details before embarking on this audit journey.