DCAA New Year Resolutions

Although it may come as a surprise to many, DCAA (Defense Contract Audit Agency) has embraced the concept of New Years’ Resolutions, in this case to restate and to reinforce strategic goals in terms of near term objectives.  It should be recognized that DCAA’s New Year actually began on October 1, 2014; however, DCAA is only now managing to complete its new years’ resolutions which is coincidentally reinforcing the need for resolution #1. 

Here are DCAA’s top five New Years’ Resolutions for 2015:

#1 Reconsider the need for budgets and due dates

As some may recall, DCAA scrapped budgets and dues dates in late 2008 in the wake of the GAO reports which asserted that DCAA audits failed to comply with government auditing standards (GAGAS).  At the time a number of very outspoken DCAA field auditors gained fame by their unsupported assertions that, but for due dates and budgets, they could have saved taxpayers billions by detecting contractor misdeeds (i.e. unallowable costs).  Even though the GAO is supposed to rely on documented evidence, the GAO inexplicably took these DCAA auditor assertions at face-value and the rest is history (out-of-control, endless and untimely DCAA audits which led to an ever increasing backlog of unaudited contractor indirect cost rate proposals).  If DCAA can’t successfully reinstitute due dates and budgets, DCAA’s fallback resolution is for Congress to eliminate any regulation which places any time limit on any government action to retroactively recoup costs from government contractors (i.e. elimination of the six year statute of limitations in FAR 33.206(b)).  At least for now, DCAA is stuck with the reality of reconsidering due dates and budgets and to the extent DCAA imposes due dates and budgets on its auditors, those auditors will be imposing extremely tight turn-around times for contractors to provide data and/or to respond to audit exceptions.  As with everything else, DCAA auditors are more than happy to convert their “hardship” into more aggressive demands from contractors.

#2 Allow DCAA Unfettered Access to Contractor Records and Employees

As stated in DCAA’s 2012 and 2013 Annual Reports to Congress, DCAA continues with its resolution and belief that it must have unfettered access to contractor records (online access to all accounting and purchasing data and all policies and procedures) and similar access to contractor employees including those employees interviewed in 2015 to explain what that employee was working on in 2008 (a year being audited by DCAA…as if the employee can be expected to remember).   It matters not that even without this unfettered access DCAA had effectively audited since 1965 (at least until late 2008 when the auditors became self-supervising) and that all other forms of auditing rely almost exclusively on records (documents, not people) provided by the auditee during the audit.  Perhaps DCAA believes in the theory of “third time is a charm” in which case we can be assured that DCAA’s 2014 Annual Report to Congress will include the same wish for unfettered access….

#3 Revise FAR Cost Principle to Eliminate All Objective Criteria

Although this resolution may seem counter-intuitive, DCAA’s view of auditor independence extends into its belief that auditors should be free to interpret cost principles in a manner which yields the maximum amount of exceptions (cost questioned).  If cost principles were void of all objective criteria, DCAA auditors would be free to maximize audit exceptions by simply creating audit criteria which disallows any cost audited by DCAA. But for those pesky FAR clauses which inconveniently include objective criteria, DCAA would be free to question costs at will consistent with its unofficial mantra of “we prefer to believe what we prefer to be true”.

#4 Regulations Imposing (on Contractors) more Adequacy Checklists

DCAA would like to build on its success in terms of regulations which have explicitly or implicitly invoked “adequacy checklists” into the acquisition regulations.  For DoD contractors this has involved a requirement to prepare bid proposal and forward pricing rate proposal adequacy checklists and for all other contractors, the implicit adequacy checklist for indirect cost rate proposals.  Although DCAA (and the DAR Council) have declared adequacy checklists to be a magnificent tool which improves time-efficiencies within the procurement process, the fact is that DCAA has spent untold hours reviewing and rejecting contractor proposals for adequacy when that same amount of time could have been spent auditing the contractor proposal (as it had been submitted).  Nevertheless, DCAA will continue to develop adequacy checklists and continue to herald the success (of adequacy checklists) as long as none of the rule-makers wake up to the fact that auditing should primarily involve gaining an understanding of the subject matter of the audit which would include not only the format and content of a particular contractor proposal, but the underlying supporting data created by that contractor for that particular proposal.  It should be the contractor’s proposal as opposed to the contractor’s proposal converted into a standard format solely to avoid inconveniencing the government reviewer or auditor by forcing him, her or them to critically and analytically think.

#5 A Law Prohibiting DCAA Employees from Abandoning Ship

As DCAA has become totally engrossed with redundant levels of internal reviews including non-value added reviews by those who have little or no real-life audit experience, DCAA has experienced a significant loss of highly competent auditors to sister agencies (i.e. DCMA).  This dilemma is also confirmed by the fact that the percentage of DCAA auditors who are CPAs has dropped dramatically from 2008 to 2014.   Thus DCAA has resolved to seek legislative action which would make it illegal for DCAA employees to leave.  Although one would think that DCAA would prefer that its unqualified auditors would depart, DCAA no longer has any metrics or any other means to determine which auditors are unqualified.   Hence, the basis for DCAA’s other unofficial mantra, “we have met the enemy and he might be us”.

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Written by Michael Steen

Michael Steen 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.

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

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