Audit Evidence of Consultant Fees

On Thursday, December 19, 2013 the DCAA issued a Memorandum for Regional Directors (MRD) related to Professional and Consultant Service Costs (FAR 31.205-33) and Purchased Labor.  FAR 31.205-33(f) contains three documentation requirements mandatory for an allowable determination of consultant service costs. The documentation is as follows:

• An agreement that explains what the consultant will be performing for the contractor
• A copy of the bill for services rendered
• An explanation of what the consultant actually achieved for the contractor (evidence of work product)

These three requirements are needed in order for the auditor to determine whether the consultant- related costs incurred are both reasonable and representative of the consultant’s end work product. To comply with this, it is a good practice to require all consultants to provide a copy of their consulting agreement along with the first invoice of each New Year. A report of work products delivered with each invoice should also be required. The documentation necessary, with regard to the work product requirement, differs significantly from what tasks may be planned to be performed by the consultant, and instead should explicitly explain what tasks the consultant actually performed. If this documentation isn’t maintained, the DCAA will question the costs. Obtaining the missing documentation after the fact is guaranteed to be very difficult and if it cannot be produced, the costs will most likely be disallowed and not recovered through final rates.

Although, these three parts of evidence have not changed, the new guidance allows for more auditor judgment in regard to work product reasonableness. You can read the MRD in full detail here and learn about what is considered consulting services under FAR 31.205-33 and what is considered Purchased Labor or Employee Equivalents.

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