DCAA Audit Guidance on Placing Reliance on Scanned Images

On August 15, 2013, the Defense Contract Audit Agency (DCAA) issued a Memorandum for Regional Directors (MRD) (13-PPS-016(R)) providing new guidance on testing contractors’ document scanning/imaging processes in order to establish reliability of scanned documents in lieu of hard copy originals. FAR 4.703 permits the use of scanned images in lieu of original documents for record retention purposes.

The DCAA MRD states that auditors should test a contractor’s scanned image process on an annual basis. The testing, however, will not be performed as a separate audit assignment. Instead, the testing will be incorporated as part of another audit already being performed (e.g., incurred cost audit, proposal audit).

During the planning stages of the audit, auditors will request walkthroughs of a contractor’s source documentation imaging processes. The auditors will also test a sample of scanned images to original documentation from the preceding 12-month period to ensure document integrity, reliability, and compliance with FAR 4.703. DCAA will ultimately use the results of these tests to determine if reliance can be placed on scanned copies of original documents in future audits.

Per the MRD, testing of scanned images should be performed at all contractors with an Auditable Dollar Value (ADV) over $100 million and at select contractors with an ADV below $100 million, at the field audit office’s discretion.

Interestingly, the MRD identifies deficiencies in scanned image processes as a significant deficiency, in accordance with DFARS 252.242-7005(a), and as such a material weakness. The MRD advises DCAA auditors to prepare an accounting system deficiency report, citing noncompliance with FAR 4.703(c) and/or 4.703(d) and DFARS 252.242-7006(c)(1), “Accounting System Administration,” for a contractor found to have issues with its scanned imaging process.

The views expressed in this article are those of the authors and do not necessarily reflect the position or policy of Berkeley Research Group, LLC.