INTERNAL CONTROL MATRIX FOR

AUDIT OF ESTIMATING SYSTEM CONTROLS

Version No. 3.2
Control Objectives
1. INTERNAL AUDITS
Management should periodically perform
independent reviews of estimating policies and
procedures to ensure that they comply with
applicable Federal regulations, have been
properly implemented, and are operating
effectively.

2. SYSTEM DESCRIPTION
Establish and maintain an Estimating System
description including policies, procedures, and
operating instructions compliant with FAR and
DFARS.

June 2006
Example Control Activities
Policies and procedures should require periodic
reviews of the estimating system to ensure that:
Policies and procedures are compliant with
applicable Federal regulations.
Policies and procedures have been
implemented and are working effectively.
Follow-up actions are taken on
recommendations resulting from
management reviews.

Establish clear responsibility for preparation,

review, and approval of cost estimates.

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Audit Procedures
a. Evaluate the contractor's policies and
procedures to determine if they require periodic
review of established policies and procedures to
ensure that:
Policies and procedures are compliant with
applicable Federal regulations.
Policies and procedures have been
implemented and are working effectively.
Follow-up actions are taken on
recommendations resulting from
management reviews.
b. Evaluate the contractor's record of completed
internal audits and current internal audit plan to
determine if the Estimating System is being
subject to periodic reviews in accordance with
established policies and procedures.
c. Identify any reviews which may have an impact
on this audit and evaluate the audit reports and
supporting working papers to determine if any
system deficiencies were noted and the extent
to which we can rely on the work performed
(see CAM 4-1000).
a. Obtain organization charts and written
policies, procedures, and directives describing
the organization structure and responsibilities
of the estimating group(s) and contributing
departments.

Control Objectives

Example Control Activities

Establish and maintain a formal written statement

of policies and procedures covering all significant
estimating system process, activities, and
functions.

Audit Procedures
b. Obtain flowcharts showing the flow of work in
the estimating process and integration of data
prepared by personnel responsible for various
functions such as accounting, cost control,
budgeting, planning, purchasing, production
control, engineering, estimating, and sales.
Key decision and review points, and time
frame for the entire process should be
identified by the contractor.
c. Determine it the following characteristics of an
adequate system exist:
Lines of authority, duties, and
responsibilities which are clearly defined.
Coordination among various segments of
the organization responsible for different
parts of the estimate.
Designation of individuals authorized to
approve requests for preparing estimates.
d. Interview selected employees involved in the
proposal preparation process to determine if
the actual responsibility for preparing,
reviewing, and approving cost estimates is
consistent with established policies and
procedures.
e. Determine if written policies are established at
a high enough organizational level to allow for
proper implementation.
f.

Determine if procedures are in writing and

compatible with underlying policies.
g. Determine if:
Policies, procedures, and other written
instructions are disseminated to all

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Control Objectives

Example Control Activities

Integration with Other Management Systems

Provide for the integration of information from
other management systems as appropriate.

3. TRAINING
Assure that assigned personnel have sufficient
training, experience, and guidance to perform
estimating tasks in accordance with established
procedures.

Provide training to employees (including technical

employees) involved in the estimating process in
the application of estimating techniques including
appropriate proposal file documentation
procedures.
Train selected estimating employees, where
appropriate, in the use of statistical aids and
advanced estimating techniques including
appropriate proposal file documentation
procedures.

4. COST ESTIMATE DEVELOPMENT

Ensure that cost estimates are developed using
acceptable estimating methods and rationale
and that supporting data is current, accurate,

Establish written guidelines governing the

estimating methods and rationale to be used in
developing cost estimates including:

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Audit Procedures
employees responsible for putting the
estimates together.
Revisions to policies, procedures, and
instructions are timely as changes occur in
the Estimating System.
h. Throughout the remainder of this examination,
be alert for any areas in which established
estimating policies and procedures are either
inadequate or incomplete.
a. Evaluate the contractor's policies and
procedures to determine if they provide for the
integration of information from other
management systems as appropriate.
b. Selectively evaluate recent pricing proposals
or other cost estimates to determine if
information from other management systems
was appropriately integrated into the cost
estimates.
a. Evaluate the contractor's policies and
procedures to determine if they require
periodic training of all employees involved in
the estimating process, including, when
appropriate, the use of statistical aids and
advanced estimating techniques.
b. Evaluate records of completed training, or
other evidence, indicating that appropriate
employees have been trained in accordance
with established policies and procedures.

a. Evaluate the adequacy and appropriateness of

the methods employed in preparing cost
estimates for each proposal type. Consider the

Control Objectives
and complete.

Example Control Activities

Differences in estimating methods for
different types of proposals.
The clear identification of pricing policies for
sensitive areas as identified by the
Government and contractor.
The use of historical experience where
appropriate, including the results of
negotiations with subcontractors and suppliers
as to price adjustments of initial bids or
proposals.
The appropriate use of analytical techniques
in developing and/or evaluating cost
estimates.

Audit Procedures
following:
The nature of the products or services
procured.
The degree of firmness of specifications.
The contractor's experience with the same or
similar products or services.
The extent detailed cost data can be derived
from the accounting system, adjunct
statistical records, etc.
The relative dollar amount of the estimates.
Cost and time restrictions on preparation of
the estimates.
b. Evaluate the extent to which the contractor has
identified the estimating practices for sensitive
cost areas.
c. Determine if the contractor has procedures in
place to ensure that practices used to estimate
costs are consistent with accounting practices
used in accumulating costs (CAS 401) and to
ensure that estimated costs are consistently
classified between direct and indirect (CAS
402).
d. Evaluate the extent to which estimating
methods make use of historical data relating to
entire products and individual tasks; and
indirect cost ratios and percentage factors
applicable to a common base.
e. Determine if cost estimates based upon prior
cost experience consider:
Differences in complexity, quantity, rate of
production, state of development, etc.,
between items previously produced and those
for which estimates are being developed.

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Control Objectives

Example Control Activities

f.

g.

h.

i.

j.

k.

l.

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Audit Procedures
Applicability of preproduction engineering,
special tooling, plant rearrangement, and
other nonrecurring costs.
Anticipated changes in production methods
material usage, prices, wage rates, labor
efficiency, production volume, plant
capacity, and make-or-buy structure.
Evaluate the applicability of historical standard
cost variance factors. (Where standards have
been revised to represent expected actual cost,
historical cost variances are not applicable).
Evaluate the appropriateness of escalation
factors proposed and the methods used to apply
them to the cost elements.
Evaluate the availability and use of incurred
cost records in developing estimates if the
contractor is given the authorization to proceed
before a contract price is negotiated.
Evaluate the propriety of using company-wide
forward pricing factors for preparing cost
estimates. Are such factors current; based upon
reliable cost data and procedures; and correctly
applied?
Evaluate the reasonableness of formula pricing
methods for spare parts to ensure that individual
elements of costs are not duplicated in both
base costs and loading factors.
If used by the contractor, evaluate the adequacy
of catalog pricing and prepriced listing methods
for developing reasonable prices for spare parts
proposals.
Evaluate the adequacy of the contractor's
methods for developing cost estimates for
contract changes.

Control Objectives

Example Control Activities

Provide standardized formats for proposals and the

submission of supporting data.

Require that appropriate cost/price analysis be

performed for all subcontracts prior to certification
of the prime contract price.

Provide for consistent application of estimating

techniques through proper control and supervision
of the estimating process.

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Audit Procedures
Do the estimates properly reflect the nature
and scope of the change, and the status of the
work in process at the time the change is
issued?
Are the contractor's procedures for pricing
deleted work correct? (Work deleted but not
yet performed should be priced at estimated
current cost).
m. Determine if proposals are submitted on the
appropriate forms and if related support data
contain enough detail to permit an adequate
evaluation of cost estimates. Is the basis for
each cost element disclosed?
n. When a certificate of current cost or pricing
data is required, does the contractor adequately
identify the cost or pricing data submitted?
o. Evaluate the contractor's policies and
procedures to determine if they establish
responsibility for the review and analysis of
subcontracts.
p. Selectively evaluate recent pricing proposals or
other cost estimates to determine if cost/price
analysis of subcontracts were performed as
required by the policies and procedures.
q. Determine if controls are in place to ensure:
Timely submission of data at all phases of the
proposal preparation process.
Uniformity of approach, detection of errors,
and prevention of duplication.
r. Determine if the following characteristics of an
adequate estimating system exist:
Adequate supervision in each area and at
each level of the estimating process.
Managerial reviews at interim points and

Control Objectives

5. CONTRACT CERTIFICATION
To ensure that all cost or pricing data is current,
accurate, and complete as of the date of
agreement on price.

Example Control Activities

Establish written procedures for updating cost or

pricing data throughout the proposal evaluation
and negotiation process.

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Audit Procedures
upon completion of the estimating process.
Management reviews covering the soundness
of judgmental estimates, adherence to
established policies and procedures, and
compliance with pertinent regulations.
Estimators who summarize and document the
conditions, assumptions, risks, etc. taken into
consideration in developing estimates.
s. Determine whether proposed direct labor rates
reflect the total hours employees are expected
to work during the year as covered in CAM 9
505b, Evaluation of Estimated Direct Labor
Rates.
a. Evaluate the contractors policies and
procedures to determine whether they
adequately provide for updating of cost or
pricing data up to the point of agreement on
price.
b. Selectively evaluate recent post-award audits to
determine if they indicate that the contractor is
not updating cost or pricing data as provided for
in the policies and procedures.