Free FAR Audits & Cost Monitoring Questions and Answers — Questions and Answers

Question 1: What is the primary role of the Defense Contract Audit Agency (DCAA)?

To write contract clauses
To negotiate pricing
To audit government contracts (Correct answer)
To enforce FAR penalties

Correct answer: To audit government contracts

The Defense Contract Audit Agency (DCAA) serves as the primary audit agency for the Department of Defense. Its core mission is to perform contract audits and provide accounting and financial advisory services. This ensures that government contractors comply with contract terms and federal regulations, safeguarding taxpayer interests by verifying the accuracy and allowability of costs.

Question 2: Which of the following best describes a cost monitoring system?

It develops new pricing models
It reports labor hours only
It tracks budget vs. actuals (Correct answer)
It performs technical analysis

Correct answer: It tracks budget vs. actuals

A cost monitoring system is a financial management tool designed to continuously track and compare actual project expenditures against the established budget or cost estimates. By regularly comparing 'budget vs. actuals,' organizations can identify variances, assess financial performance, and take timely corrective actions. This process is crucial for maintaining cost control and ensuring projects stay within their financial parameters.

Question 3: An incurred cost audit is typically performed:

Before contract award
During proposal evaluation
After cost-reimbursement contracts (Correct answer)
Only in fixed-price contracts

Correct answer: After cost-reimbursement contracts

An incurred cost audit is typically performed after the completion of a cost-reimbursement contract or at the end of a contractor's fiscal year. Its purpose is to verify the actual costs claimed by the contractor for reimbursement. This audit ensures that all submitted costs are allowable, allocable, and reasonable according to the contract terms and FAR Part 31 cost principles, leading to the final settlement of the contract.

Question 4: What is the key purpose of forward pricing rate agreements (FPRAs)?

To lock in profit margins
To negotiate final pricing
To forecast indirect costs (Correct answer)
To analyze technical proposals

Correct answer: To forecast indirect costs

Forward Pricing Rate Agreements (FPRAs) are formal agreements between the government and a contractor that establish indirect cost rates for a specified future period. These rates, such as overhead or general and administrative (G&A) expenses, are then used for pricing new contracts or modifications during that period. FPRAs streamline negotiations by forecasting and agreeing upon indirect costs in advance, providing predictability for both parties.

Question 5: Which regulation governs cost principles for federal contracts?

FAR Part 15
FAR Part 12
FAR Part 31 (Correct answer)
FAR Part 19

Correct answer: FAR Part 31

FAR Part 31, titled 'Contract Cost Principles and Procedures,' is the definitive regulation that governs the allowability, allocability, and reasonableness of costs incurred by contractors under federal contracts. It provides detailed guidance on which costs can be reimbursed by the government. Adherence to FAR Part 31 is critical for all cost-reimbursement type contracts and for pricing fixed-price contracts that require certified cost or pricing data.

Question 6: What is the role of provisional billing rates?

They determine fixed fees
They cap profit margins
They allow interim indirect cost billing (Correct answer)
They audit subcontractors

Correct answer: They allow interim indirect cost billing

Provisional billing rates are temporary indirect cost rates that contractors use to bill the government for indirect costs throughout the performance of a cost-reimbursement contract. Since actual indirect rates are not finalized until the end of a fiscal year, these provisional rates allow for ongoing reimbursement and cash flow. They are subject to adjustment once the final indirect cost rates are determined and audited.

Question 7: Which of the following is a red flag during a contract audit?

Labor reports
Overtime tracking
Unallowable expenses (Correct answer)
Indirect rate schedules

Correct answer: Unallowable expenses

Unallowable expenses are costs that, by definition in FAR Part 31 or specific contract clauses, the government will not reimburse under a contract. Examples include entertainment costs, certain lobbying expenses, or fines. The presence of unallowable expenses being charged to a government contract is a significant red flag during an audit, indicating potential non-compliance and improper billing practices that could lead to disallowances.

Question 8: Which audit focuses on verifying the accuracy of a contractor’s proposed cost estimates?

Closeout audit
Incurred cost audit
Pre-award audit (Correct answer)
Labor audit

Correct answer: Pre-award audit

A pre-award audit is conducted before a contract is awarded to evaluate a contractor's proposed cost estimates, accounting system, and overall financial capability. Its key purpose is to verify the accuracy, completeness, and reasonableness of the contractor's pricing data. This audit helps the government ensure that the proposed price is fair and reasonable before committing to the contract.

Question 9: How frequently should indirect rates be monitored?

Only at contract closeout
Once per year
Continuously (Correct answer)
Quarterly only

Correct answer: Continuously

Indirect rates should be monitored continuously throughout the year, rather than only at specific intervals. Ongoing monitoring allows contractors to track actual indirect costs against their provisional rates, identify significant variances early, and make necessary adjustments. This continuous oversight helps prevent large over- or under-billings at year-end and ensures more accurate financial management and billing to the government.

Free FAR Audits & Cost Monitoring Questions and Answers

What is the primary role of the Defense Contract Audit Agency (DCAA)?