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As we again approach Halloween and the night of tricks or treats, we’ve once again done some exhaustive research (more accurately searching blogs and other reliable sources) as to the trending costumes (favored by DCAA, DCMA or the Current Administration).

The Big Bad Wolf (dressed as “grandma”)

BigBadWolf-2016Halloween.pngThis costume applies to the current Administration, based upon its fusillade of Executive Orders (EO), which solely target government contractors, directly impacting and altering said contractors’ management and human relations policies. The EO’s range, from the Fair Pay and Safe Workplace (13373) compelling contractors to disclose various compliance failures (a long list of failures and well before final adjudication), to EO 13076 which requires paid sick leave (56 hours per year with significant constraints in terms of contractors having any authority to manage potential misuse of sick leave).  

The logic for the big bad wolf (& little red riding hood) comparison, POTUS has continued to unveil policies which are overtly unfavorable and highly intrusive on government contractors, all while simultaneously trying to coax “Silicon Valley (commercial companies) to join the fun of being a Government contractor. Proceed with caution, “grandma” may be the big bad wolf offering more than just milk and cookies.

Magician

Magician-2016Halloween.pngDCAA has certainly earned the rights to wear a magician costume based upon its ability to magically make its incurred cost backlog disappear (reference to contractor indirect cost rate proposals or ICPs required by FAR 52.216-7(d)).   Based upon DCAA MRD 16-PPD-008, September 30, 2016, DCAA has achieved currency (defined as a backlog equivalent to 18 months’ submissions) in part by auditing these submissions, but in larger part by declaring significantly more of them as “low risk” (summarily accepting the contractor rates as submitted).  

Other agencies have expressed concerns over DCAA’s “write-offs” and in fact DCAA had to tweak its low risk criteria (to get more ICPs into the low risk group). However, DCAA has convinced DOD that not-auditing several hundred million of contractor incurred costs is the right thing to do. Even more illusory, DCAA has defined 18 months’ inventory using simple count; each ICP equals 1 regardless of the incurred cost dollars. DCAA would likely not be current if it used the weighted average dollar value of ICPs. Stated differently, DCAA achieved currency by disproportionately disposing of the lower dollar value ICPs, leaving more complex ICPs to be audited (requiring disproportionately more audit resources per ICP). Regardless, many contractors whose ICPs and rates were accepted without audit are silently applauding DCAA’s magic act.  

Contractors actually audited by DCAA are less than appreciative, faced with audit exceptions based upon magical re-interpretations of the FAR (Federal Acquisition Regulations).   There are still a few government contractors hoping for the ultimate magic act: DCAA’s disappearance.   DCAA will never disappear, but if it really did disappear, the replacement contract auditors could be highly subjective, freely interpreting the FAR and equally illusive in terms of (contractors) knowing what to expect. DCAA by another name…or worse.

Two Blind Mice

2 Blind Mice-2016Halloween.pngThese costumes are earned by the respective directors and executives of DCAA and DCMA, based upon their continuing public declarations that the two agencies are working together better than ever. Apparently top management is oblivious to record low sustention rates (DCMA sustaining only 26% of DCAA audit assertions) as evidenced by the March 31, 2016 semi-annual report issued by the DoD-IG (Appendix F).   Equally disconcerting is the fact that individual contracting officers state (offline) that they can’t trust their DCAA auditor(s).   Why? Because too many DCAA audit assertions are based upon selective use of selective facts, as well as re-stating a regulation to better support an audit assertion.   We suspect that this lack of real teaming (in the trenches) will be clearly evidenced in a to-be-issued DOD-IG report concerning DCMA (Contracting Officer) actions in dispositioning DCAA incurred cost audit reports (announced approximately 12 months ago, but not yet issued).

Paranoid Parrot

ParanoidParrot-2016Halloween.pngThis is not as well known as some costumes, but one, which has been embraced by DCAA (agency and its auditors) as evidenced by elapsed days for issuing various types of audits. Although DCAA prides itself on its current audit “timeliness”, it now takes 85 days to complete an audit of a contractor bid proposal, and approximately 65 days to perform a pre-award accounting system audit. DCAA notes that these are significantly improved (compared to some really bad years; suggesting that if one sets the bar low, one can always improve).   Noting that 85 elapsed days are measured from receipt of an adequate bid proposal (structured and formatted as prescribed by DFARS to make it easier to audit), one might ask why it now takes 85 days when the average was 28 days (for years prior to 2008 when there were no regulatory requirement for prescribed proposal formats). The answers are a seemingly endless group (DCAA) exercise to document risk (before beginning audit field work) and ultimately, multiple post-audit reviews to ensure compliance with Government Auditing Standards. Neither of these predictably provides value to the customer (government procurement agency), but it devotes resources and adds time/elapsed days to protect DCAA from third-party criticism, a relatively clear symptom of organizational paranoia.  

Before leaving this costume and this blog, the real elapsed day mystery is with respect to pre-award audits (65 days). These are audits which are limited to an evaluation of the accounting system design (not the accounting system in operation) and the audit only commences once the contractor (auditee) completes a SF1408 self-assessment of sorts (coupled with completing a lengthy DCAA internal control questionnaire).   When this responsibility falls on prime contractors vis-à-vis a subcontractor, prime contractors rarely take more than a day or two to document the subcontractor accounting system and a week or two to document/report their adequacy conclusion. In contrasting analogies, DCAA is/are the paranoid parrot whereas prime contractors are Larry the Cable Guy (“git er done”).

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Written by Michael Steen

Mike Steen is a Senior Director with Redstone Government Consulting, Inc. and a specialist in complex compliance issues to include major contractor cost accounting & business system regulations, financial compliance, resolution of DCAA audit issues, Cost Accounting Standards application, litigation support, and claims preparation. Prior to joining Redstone Government Consulting, Mike served in a number of capacities with DCAA for over thirty years, and upon his retirement, he was one of the top seven senior executives with DCAA. Mike Served as a Regional Director for two DCAA regions, and during that time was responsible for audits of approximately $25B and 800 employees. In October 2001, he was selected for the Senior Executive Service and in 2006 he received the Presidential Rank Award. During Mike’s tenure with DCAA, he was involved in conducting or managing a variety of compliance audits, to include cost proposals, billing systems, Cost Accounting Standards, claims, defective pricing, and then-evolving programs such as restructuring, financial capability and agreed-upon procedures. He directly supported the government litigation team on significant contract disputes and has prepared and presented various lectures and seminars to DCAA staff and business community leaders. Since joining Redstone Government Consulting in June 2007, Mike has developed and presented training and seminars on Government Contracts Compliance to NCMA, Federal Publications Seminars and various clients. Mike also is a prolific contributor of written articles to government contracting publications, as well as to our own Government Insights Newsletter. Mike also serves as the director of our training service offerings, with responsibilities for preparing and developing course content as well as instructing our seminars to clients and general audiences throughout the U.S. Mike also serves as a faculty instructor for the Federal Publications Seminars organization. Education Mike has a BS Degree in Business Administration from Wichita State University. He is also a graduate of the DCAA Director’s Fellowship Program in Management, and has a Masters Degree in Administration from Central Michigan University. Mr. Steen also completed a number of OPM’s management and executive development courses.

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Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: DCAA Audit Support, Redstone GCI