In responding to contractor criticisms that DCAA has far too many criteria within their “adequacy checklists”, DCAA has now developed and is pilot testing a new adequacy checklist which involve the same criterion, but each criterion is individually weighted to yield a true risk and materiality based adequacy determination. Additionally, in developing the weighted criterion, DCAA has implicitly acknowledged that contractor proposals do not have to be 100 percent adequate to be auditable.
The newly weighted criterion will be employed beginning April 1, 2014 and will be reviewed and potentially revised annually beginning with April 1, 2015. The pilot checklist impacted by this new policy is the Indirect cost rate proposals. Assuming success with that new checklist method, others expected are:
- Forward pricing bid proposals
- Forward pricing rate proposals
- CAS (Cost Accounting Standards) DS (Disclosure Statement)
- DCAA’s Annual Report to Congress
The “pilot” indirect cost rate proposal checklist includes a total number of adequacy criteria of 55 items and each item has a weight from 1-5 (1=low risk/low criticality and 5=high risk/high criticality). For example the checklist item pertaining to the cost of money included on the proper form has a weight of 5 (real important); whereas properly applying the correct interest rates has a weight of 2 (sort of important). Similarly, the item pertaining to listing a contract as physically complete has a weight of 5 (very important); whereas reconciling the claim to the general ledger has a weight of 1 (not important, but nice to have). In total, the maximum combined score is 400 and DCAA is now using the following scorecard to determine if the proposal is fully, partially, possibly or not adequate for audit:
|
Raw Score |
Percentage Adequate |
Adequacy Narrative |
|
400 |
100% |
Fully (schedule for audit in 2016) |
|
398 – 399 |
99.5% to 99.75% |
Partially (no urgency, schedule for audit in 2018) |
|
395-397 |
98.75% to 99.25% |
Possibly (delay the audit until 2020) |
|
394 or below |
0% to 98.5% |
Return to sender with various threats such as unilateral rates if adequate proposal not received before June 30, 2020 |
In a press release, the DCAA Director heralded this new policy as the best example of “materiality” applied to audit planning that he has seen in his 35 years of auditing. His quote “If only we had this tool sooner, we would not be in the mess we are currently in”. He also highlighted the fact that he expected that industry and government administrative agencies would fully endorse this new policy, noting the tremendous flexibility which it allows its auditors and the commitment to getting current at some point in time long after his retirement. Similarly, DCAA’s Director acknowledged that contractor’s should not be held to perfection; hence, the new checklist with a significant margin for error before considering a contractor proposal to be inadequate.
This April Fool’s Day Blog courtesy of Mike Steen, Senior Director, Redstone Government Consulting.
Mike Steen is a Emeritus Advisor 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.