GSA Audits and Assessments
by Brandon Graves, Partner
The news has reported on a potential increase in IRS audits, but the IRS is far from the only federal agency in the audit business. Many GSA Schedule holders are familiar with the GSA’s audit process, and some have seen evidence that GSA is increasing its audit rate before IRS’s more debated increase.
In addition to increasing its number of audits, GSA seems to be increasing its scrutiny during audits. It certainly increased recoveries, going from $143 million in cost savings for the period October 1, 2021-March 31, 2022 to $324.3 million in the next period.
As GSA increases both the number of audits and scrutiny during those audits, Schedule holders need to keep several things in mind.
Assessments v. Audits
GSA reviews Schedule holder records in two primary ways. The most common is through assessments. These occur annually for most Schedule holders and are relatively high level. Document requests have a short turn around, and if there is nothing wrong the process typically resolves quickly.
GSA Schedule holders should be able to handle an assessment without outside assistance. This assumes that documents are in order and the Schedule holder understands its compliance obligations. Successful assessments hold little weight, however, and GSA refuses to accept past assessments as evidence of compliance.
Audits are more in depth, and GSA Schedule holders should be wary when they receive notice that they are subject to an audit. Audits can expand rapidly in scope and sometimes innocuous document requests can lead to catastrophic disclosures. GSA Schedule holders should know what their obligations are and how the information they provide to auditors impacts those obligations. The amount of obligations that GSA Schedule holders take on is beyond the scope of a single blog post, but there are a couple of areas that are of particular interest to GSA.
Price Reduction Clause
Most GSA Schedule contracts have the Price Reduction Clause. Essentially, GSA is entitled to a Schedule holder’s best price on a particular good or service. In the event the Schedule holder offers a lower price to a commercial customer (which includes a prime contractor), it must offer that price (or a lower one), to the GSA. GSA’s broad definition of a commercial contract results in inadvertent PRC violations in a significant number of cases.
A common case involves a prime contractor looking for a subcontractor to fulfill a request for a quote. The prime asks for a discount on the subcontractor’s GSA Schedule rate so that the prime can mark the price up and still provide to the government at the Schedule rate. This is a commercial sale and in the absence of a negotiated deviation creates a PRC violation. It is also easy to spot in the data requests that GSA generally makes.
Each person placed under a GSA Schedule task order or blanket purchase agreement must meet all of the requirements of both the GSA Schedule labor category and the relevant order. This dual requirement creates confusion among contractors who may track only one or the other.
Auditors will select a sample of resumes and compare them against those requirements. This will often highlight problems either in actual qualifications or in the Schedule holder’s record keeping. Either will result in a longer, more painful audit. This is especially true for individuals placed in a job that lasts for multiple years; if that individual is unqualified, GSA auditors may well extend the scope of the audit to all of the years the individual worked under that order.
GSA has been more aggressive in its audits lately. This has resulted in an increase in recoveries from GSA Schedule holders. It is imperative that Schedule holders maintain an adequate compliance program so that they can succeed in both audits and assessments. However, if a Schedule holder receives a notice of an audit without an adequate compliance program (or a notice of assessment with no compliance program), they should seek counsel before attempting to navigate the audit.