Reminder – DCAA in Pursuit of Scanned Images!

As 2014 is now upon us, let us not forget one of many important DCAA Memorandums for Regional Directors (MRDs) – Placing Reliance on Scanned Images.  Particularly important to note is that this MRD only applies to scanned images of paper invoices as stated in the Frequently Asked Questions portion of the memo.  The memo does not address scanned images of financial and cost accounting records.

The August 15^th MRD lists audit procedures based on specific requirements covered under FAR 4.703(c) and FAR 4.703(d).  These requirements state that the contractor must have established procedures to ensure the imaging process preserves accurate images of original records in order to maintain their integrity (e.g., signatures and other written or graphic images).   Also required is the maintenance of an effective indexing system to permit timely and convenient access.  For example, keeping an up-to-date index of records, a log of record locations and movement of records will satisfy this individual requirement.   Contractors must retain original records for a minimum of one year after imaging to allow periodic validation of imaging systems.  

Interestingly, testing for scanned invoices will not be done separately, but rather as part of ongoing audits being performed, such as incurred cost audits or proposal audits.  This means that the DCAA has chosen not to create a separate activity code for the scanned image testing.  Field Audit Offices (FAOs) determine which assignments will include procedures to perform a sample of scanned image testing annually.   Testing procedures should be included in one of the first few audits performed during the contractor’s fiscal year and will cover the previous twelve-month period.  This allows auditors in the future to make an easy determination on whether reliance can be placed on scanned images for that contractor fiscal year.

Why might you ask are scanned images being tested by the DCAA?  The DCAA’s intent is to provide reasonable assurance that they can rely on scanned images during the course of their audits throughout the year.  In the eyes of an auditor, if there are not any deficiencies identified and scanned images appear to maintain the integrity of original records, the auditor can generally depend on scanned documents for the period covered.  The Frequently Asked Questions portion of the memo provides additional useful information but most worth mentioning is question number 9.  Question 9 states, from an auditor’s standpoint, “I am performing an incurred cost audit for FY 2008, and it has been determined that my audit will include testing of the contractor’s scanned images.  Do I test documents for FY 2008, or for the last 12-month period?”  The DCAA directs the auditor to look at scanned images for the preceding 12-month period, but if testing of scanned documents was not performed for fiscal year 2008, auditors should determine if original documents for that time period are available and test 2008 documents as well.

Contractors with over $100M Auditable Dollar Value (ADV) are subject to scanned image testing along with select contractors with ADV under $100M based on FAO discretion.  The FAO will take into consideration additional factors before considering if testing is applicable. Factors such as the amount of firm-fixed price work, assessment of being high risk for Incurred Cost Submission sampling and whether the contractor typically provides scanned images as supporting documentation are all taken into account.

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