Redstone - 2016 Yes, Virginia, there is a Santa Clause.png

In 1897, a famous newspaper editorial contained a response to an 8-year old girl who raised the question of the validity of Santa Clause (Is there a Santa Clause).   The response and the editorial is considered the most famous newspaper editorial ever published, not only protecting the eight year old, but causing adults to re-think their own beliefs.   In the spirit of accepting that there just might be a Santa Clause, we’ve identified some of the most mythological statements extracted from the Federal Register (regulatory reporting burden) or the Office of Management and Budget (OMB) regarding the annual benefits and costs of Federal Rules and paperwork. No one reconciles the OMB summary with the individual estimates in the Federal Register, which is probably a good thing because believing in government assertions of regulatory benefits or regulatory burdens is analogous to believing in Santa Clause. As illustrated herein, “Yes, Virginia, there is a Santa Clause and he lives in the minds of those providing estimates for regulatory burdens and/or benefits”.

OMB Annual Report to Congress under the “Right to Know Act”

In its 2015 Report, OMB proudly declared that the estimated annual benefits of major Federal Regulations from October 1, 2004 to September 30, 2014 was between $216 billion and $812 billion while the estimated costs were between $57 billion and $85 billion (in 2001 dollars).   OMB (which is directly linked to the White House) also stated that the estimated net benefits (from 2009-2014, this Administration) were $215 billion).   After providing these overwhelmingly positive numbers, OMB cautions that it is important to emphasize that the estimates used have limitations; i) these ranges reflect uncertainty in the benefits and costs of each rule at the time that it was evaluated (issued) and ii) quantification of various effects is speculative and may not be complete.   Based upon the cautionary statements alone, why bother with any of this?

FAR 52.215-2, Audit and Records – Negotiation

Recently posted (September 9, 2016), the annual reporting burden was 148,300 hours (14,830 respondents, 10 responses or actions annually and 1.0 hour per response).   By implication, all government contractors and subcontractors subject to this clause will spend a grand total of 148,300 hours associate with this “reporting burden”.  Apparently, the FAR Councils are unfamiliar with DCAA (Defense Contract Audit Agency) whose audits and access to contractor records are linked to FAR 52.215-2. Responding to DCAA audit inquiries probably exceeds 148,300 hours for a single large contractor with multiple segments and hundreds of DCAA auditors. Regarding the 1 hour per response, merely completing a lengthy and intrusive DCAA internal control questionnaire will require exponentially more than 1 hour.   In its estimate, the FAR Councils make note of the fact that 52.215-2 does not require contractors to create or maintain any records that the contractor does not normally maintain in its usual course of business; unfortunately, no one at DCAA appears to have read this portion of FAR 52.215-2.

FAR Part 44 Purchasing System Review or CPSR

As posted on April 5, 2016, the FAR Councils estimated that annual reporting burden to be 39,500 hours (1,580 respondents, 25 hours per response; increased from a previous estimate of 17 hours).   There is no explanation for the estimated “per response” hours other than an explanation of the objective of a CPSR.   For anyone who has i) prepared for a CPSR or ii) been evaluated through a CPSR, 25 hours doesn’t even begin to cover the preparatory time, much less the thousands of hours to have developed policies and procedures and self-monitoring to reasonably ensure compliance.   At best, the 25 hours might cover a portion of the time to respond to a DCMA risk and planning survey.

FAR 31.204-46, Travel Costs

Although the referenced cost principle includes numerous documentation requirements, for reasons known only to the FAR Councils, they only address the regulatory burden of preparing a justification whenever a higher (than per diem) actual expense reimbursement method is used. This would apply to lodging (only) in excess of the daily lodging per diem.   Oddly enough, the FAR Councils estimated 25 hours per response and 10 responses per year for an estimated 5,800 contractors.   “Oddly” because this should not involve the equivalent of three full days merely to document unavailability of lodging at government per diem rates. Perhaps the 25-hour estimate was obtained from DCAA whose expectations for documentation could be described as “totally self-explanatory resulting in incontrovertible evidence that the cost is allowable”.   Perhaps more odd, the FAR Council only addresses the regulatory burden of a diminutive slice of FAR 31.205-46 (perhaps not wanting to know the “rest of the story”).

Various Regulations

The following are summarizations of FAR Council estimates for individual actions:

  • Regulatory burden (FAR 52.203-13) initially estimated at 3 hours per response, revised to 60 hours per response based upon a public comment which stated that 3 hours was probably too low (yes, there was nothing else stated in the public comment)
  • Regulatory burden for submitting a public voucher and for supporting requests for payments, 1 hour and .25 hours, respectively.
  • Regulatory burden of .017 hours per response (1 minute) to provide information required by FAR 52.215-1(c(2)(iv).
  • Regulatory burden of .08 hours (5 minutes) to review and respond to pre-solicitation notices
  • Regulatory burden of 2 hours to prepare and report data for a retroactive price adjustment on applicable fixed-price contracts.

The list of significantly underestimated regulatory burdens is endless, but probably no more believable than: “Yes Virginia, there is a Santa Claus”.

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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.

About Redstone GCI

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.

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