CCA Audit Methodology and Procedures 3 — Questions and Answers
Question 1: In a cost-plus-fee contract audit, the auditor's primary concern regarding indirect costs is:
- Whether indirect costs are appropriately allocated and within agreed overhead rates (Correct answer)
- Whether the contractor's profit margin exceeds 15%
- Whether indirect costs are lower than direct labor costs
- Whether indirect costs are documented in the project schedule
Correct answer: Whether indirect costs are appropriately allocated and within agreed overhead rates
Auditors must verify that indirect costs are allocated using agreed-upon rates and that only allowable, allocable costs are charged to the project.
Question 2: Which document is the primary basis for verifying that a contractor's labor costs on a prevailing wage project are compliant?
- The contractor's general ledger
- Certified payroll reports (Correct answer)
- Union collective bargaining agreements
- The project schedule of values
Correct answer: Certified payroll reports
Certified payroll reports are the legally required documentation that demonstrates workers were paid at least the prevailing wage rate for their classification.
Question 3: An auditor finds that a contractor charged the same employee's labor costs to three different projects simultaneously for the same time period. This is an example of:
- Timesheet padding
- Double-billing or cost allocation error (Correct answer)
- Overhead misclassification
- A union jurisdictional dispute
Correct answer: Double-billing or cost allocation error
Charging the same labor costs to multiple projects for the same time period constitutes double-billing, whether intentional or due to an accounting error.
Question 4: The purpose of a 'schedule of values' in construction contract administration is to:
- Document the contractor's bonding capacity
- Provide a breakdown of the contract sum assigned to project components for progress billing (Correct answer)
- Establish the sequence of construction activities
- Define the penalty structure for schedule delays
Correct answer: Provide a breakdown of the contract sum assigned to project components for progress billing
The schedule of values allocates the contract sum among work items and serves as the basis for evaluating monthly progress payment applications.
Question 5: When reviewing change orders during a construction audit, which red flag most warrants further investigation?
- Change orders approved within the contract's threshold limits
- A high volume of change orders for work that falls within the original contract scope (Correct answer)
- Change orders documented with engineer approval and cost breakdown
- Seasonal material price escalations reflected in change orders
Correct answer: A high volume of change orders for work that falls within the original contract scope
Change orders for work within the original contract scope may indicate scope creep manipulation or an attempt to bill separately for already-included work.
Question 6: Which analytical procedure is most useful for detecting unusual patterns in contractor billing on a long-term project?
- Confirmation letters to material suppliers
- Trend analysis comparing monthly billings to project progress curves (Correct answer)
- Physical inventory counts of stored materials
- Review of contractor's tax returns
Correct answer: Trend analysis comparing monthly billings to project progress curves
Trend analysis comparing billing patterns to actual physical progress can reveal front-loading, billing acceleration, or unsupported cost spikes.
Question 7: Under the FAR (Federal Acquisition Regulations), which cost is explicitly unallowable in a government construction contract?
- Fringe benefits for union employees
- Advertising and public relations costs not related to the contract (Correct answer)
- Mobilization costs for equipment transport
- Temporary utilities installed for construction use
Correct answer: Advertising and public relations costs not related to the contract
FAR Part 31 explicitly identifies advertising and promotional costs unrelated to the contract as unallowable and non-reimbursable.
CCA Audit Methodology and Procedures 3
In a cost-plus-fee contract audit, the auditor's primary concern regarding indirect costs is: