As some may have seen, on March 10, 2016, the Department of Defense (DOD) issued its 2017 regulatory proposals. However, through marginally reliable resources, we’ve located one significant regulatory deviation being sought by DOD.  We understand that DOD will make this public on April Fool’s Day, 2016.  The following is what we know about this rumored (but could be factual) DOD action.

DOD to Consider Outsourcing DCAA Contract Audits 

Rumors are that DOD will seek a waiver to the current administration’s seven-year ban on Public-Private Competitions (OMB Circular A-76).   Specifically, DCAA’s contract audits will be “open for bids” with the objective of reducing the time and cost to complete contract or pre-contract audits.  DOD’s spokesperson, who insisted on complete anonymity, indicated that DCAA is “all for it”, insisting that DCAA will prove once and for all that it provides timely, efficient and high-quality audit services fully responsive to the needs of its customer, the US taxpayer.  However, in the interview with WE-R-US magazine, the DCAA—and we mean DOD spokesperson wearing a DCAA ball-cap—did identify a few conditions before DCAA would participate in the A-76 competition.  Because of his/her desire for anonymity, WE-R-US refers to his/her code name, AS4D (Anonymously Speaking for DOD).  An extract of that discussion follows:

WE-R-US:  What is DCAA’s first condition?

AS4D:  All bidders must be required to spend at least 400 hours pre-planning each audit along with 300 hours documenting the risk assessment.  Oh and DCAA will review the pre-planning and risk assessment for adequacy.

WE-R-US:  Isn’t there an issue with independence and objectivity?

AS4D:  Not a chance. DCAA will sign its “auditor independence” form.

WE-R-US:  An independence form?  Seems to be a classic case of “form over substance”?

AS4D:  DCAA loves forms, checklists and anything else which makes it easy to audit or actually delay auditing because some audits are just too tough.

WE-R-US: But what about objectivity?

AS4D:  Of course, DCAA will be objective; its objective will be to reject every one of them…DCAA is really good at rejecting stuff as inadequate, particularly when DCAA injects its highly subjective criteria.

WE-R-US:  But 700 hours and the audit won’t even be started?

DOD:   You misunderstand. Not 700 hours alone. 700 hours plus the time it takes to remediate all of our inconsequential reasons for deeming these inadequate.

WE-R-US:  Who will actually do these reviews of your competitors’ pre-planning and risk assessment?

AS4D:  DCAA’s widely-acknowledged technical experts.

WE-R-US:  Widely-acknowledged by whom?

DOD:  Widely.

WE-R-US:  Any other conditions?

AS4D:  DCAA will also review the final work-product for sufficiency reflecting DCAA’s world-class designation from an independent Peer Review.

WE-R-US:  Are you referring to the DOD-IG Peer Review issued in August 2014?

AS4D:  Yes.

WE-R-US:  Wasn’t DCAA reported as “approved with deficiencies”?

AS4D:  Yes.

WE-R-US:  Didn’t the DOD-IG allow DCAA to supplement the actual audit files with extensive verbal explanations to remediate critical information not actually in DCAA’s working papers/files?

AS4D:  Yes, what’s wrong with that?

WE-R-US:  DCAA auditors routinely insist that they can only rely on documentation contemporaneously prepared and retained in contractor records. Yet, the DOD-IG permitted DCAA to supplement its audit files.  Seems to be a double-standard.

AS4D:  It’s not a double-standard. It’s two standards, one for internal Government purposes and one for contractors.

WE-R-US:  That’s a double standard.

AS4D:   No it’s not. A double standard is when the same standard is used in two different places.  Next question.

WE-R-US:   Assuming there is an A-76 Public Private competition, is it possible that the DOD will decide to use the multiple awardee approach, for example, select more than one winner and each will be allowed to bid on future task orders?  This is common with IDIQ contracts.

AS4D:  What’s an IDIQ contract?

WE-R-US:  Indefinite Delivery, Indefinite Quantity.

AS4D:  Why would anyone buy indefinite quantities with indefinite deliveries?

WE-R-US:  DOD and other Government agencies do it all the time. According to our sources, IDIQ maximizes competition and flexibility. In fact, task orders can be different contract types.

AS4D:  I thought you said it would be an IDIQ contract type?

WE-R-US:  Well each task order must then be a designated contract type such as firm-fixed- price, cost plus fixed fee, T&M, etc.

AS4D:  That won’t work. That scenario not auditable.  We, I mean DCAA, will use DCAA’s new silver bullet, the audit disclaimer of opinion.

WE-R-US:  New silver bullet?

AS4D:   Yes, if DCAA decides that the audit is just too tough, they stop the audit and disclaim an opinion leaving the Contracting Officer to go it alone.

WE-R-US:  So what happens when the Contracting Officer “goes it alone”?

AS4D:  DCAA will second guess the Contracting Officer and refer them to an IG.

WE-R-US:  We think we now understand why DOD would consider outsourcing DCAA, not exactly a team player.  Good luck on the A-76 Public Private Competition.

AS4D:  DCAA is the only team that counts— the winning team, and it won’t need any luck because they are the experts.  Just ask Widely.

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Written by Michael Steen

Michael Steen Mike Steen is a Senior 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 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: Defense Contractors, DCAA Audit Support