We have recently had to deal with issues related to DCAA applying DFARS business system rules in DFARS 252.242-7006 Accounting System Administration in its evaluation of small business client accounting systems. The DFARS business system rules were never intended to be applied to small businesses. Further, the limited resources of a small business make it very difficult for a small business to fully comply with all 18 of the specific criteria contained in the business system rules. DFARS 252.242-7005 regarding the applicability of the business system rules states:
With a Presidential Memorandum halting all proposed federal regulations that have not yet taken effect and pausing the Department of Labor’s (DOL) appeal of the nationwide injunction on the overtime rule which would double the minimum salary for exempt status, we are curious how the new administration will impact employer responsibilities, particularly those of federal contractors. While we certainly hope for some respite, we won’t speculate on what might happen, and we continue to encourage employers to be diligent in compliance with those regulations which have recently taken effect as well as those that employers have been slow to tackle.
On July 6, 2016, the DOE (Department of Energy) quietly withdrew its April 1, 2014 proposed rule, “Contractor Business Systems—Definition and Administration. The April 2014 proposed rule which defined five business systems was modeled after similar business systems requirements imposed upon DOD Contractors (DFARS 252.242-7005 along with six interrelated regulations pertaining to each of the six business systems noting that the five DOE systems excluded MMAS). Also in common with DOD, the statement or mantra, that “Contractor business systems and internal controls are the first line in defense against fraud, waste and abuse. That statement was excessively used by the Commission on Wartime Contracting, a Bi-Partisan Commission whose August 2011 248-page report concluded that at least $31 billion and possibly as much as $60 billion was wasted in Iraq & Afghanistan from 2002-2008 ($4.4B to $8.6B annually; by comparison, Government agencies estimate annual improper payments exceeding $100 billion in each year 2009-2015). If one bothers to read the 248-page report, one would also surmise that most of the waste resulted from government failures which notably includes one singular failure, the lack of any accountability for $6.6B of a $9.1B cash shipment.
Topics: Business Systems Review
From the signing of the Lilly Ledbetter Fair Pay Act and the creation of the National Equal Pay Task Force and throughout Obama’s administration, we have seen a consistent push for “fair pay” (viewed from the perspective of the Federal Government). Equal Employment Opportunity Commission (EEOC) Chair Jenny Yang explained that “Since the creation of the President’s Equal Pay Task Force in 2010, the EEOC has investigated tens of thousands of charges of pay discrimination, and through our enforcement efforts, we have obtained more than $85 million in monetary relief for those who have faced pay discrimination based on sex.” Of passing interest, the amount is only shown in absolute terms/dollars because in relative terms the recovery (using annualized data) is approximately .000025% of total full-time employee compensation in the United States (annual monetary relief of $17,000,000 and total annual full-time employee compensation is approximately $6,842,500,000,000). Regardless of the statistical insignificance, in relative terms, it is clear that they mean business and that they’ve only just begun--not to be confused with the 1970’s Carpenter’s Song; “We’ve Only Just Begun”.
“A sound internal control environment, accounting framework, and organizational structure” is criteria number one in DFARS 252.242-7006 Accounting Systems. In fact, all six of the business systems identified in DFARS 252.242-7005 Contractor Business Systems, or commonly known as the “DFARS Business Systems Rule”, references adequate internal controls and the reliability of data. Even more far-reaching than DFARS is that FAR, adhered to by most, if not all US Federal Government agencies, requires adequate contractor internal controls over financial data relied upon for acquisitions. For the purposes of this blog, we shall focus primarily on the DFARS Business Systems Rule as it applies to defense contractors because of the activities of DCAA.
Outsourcing certain administration functions within an organization has become a trending practice among government contractors. In fact, we have seen a noticeable uptick in outsourced accounting, human resources and contracts administration functions over the past year.
Whether a company chooses to outsource a certain administrative function to fill a temporary void or a permanent one, looking to subcontractors for help makes sense for a number of reasons.
Our partnership with Unanet has benefited a lot of our clients in a multitude of different ways. Not only are our consultants trained and certified to implement the software for our clients, we can also provide a variety of other types of Unanet software support to add value to the software system, accounting environment, and project management. Below are a few examples.
As if you haven’t noticed, this year has been the year of bid proposals for government contractors. My team at Redstone Government Consulting has been working the last six months straight supporting various government contractors in the development and pricing of cost volume proposals. Fortunately for us, we have a team of consultants that can provide support for cost volume proposals and are 100% dedicated to the effort, without the distraction of other projects or responsibilities. Most small business contractors, however, do not have that luxury and the employees working the bid proposal efforts must also continue to complete their daily responsibilities associated with their already busy, “day” job.
Requirement for Improved Auditing of Contracts
In late November, President Obama signed the 2016 NDAA (National Defense Authorization Act, S.1356)) which includes a number of sections related to Acquisition Policy or Acquisition Management. Of particular note for those subject to DCAA contract audits, a requirement for improved auditing which is focused on the so-called incurred cost audit backlog (contractor indirect cost rate proposals (ICPs), submitted annually as required by FAR 52.216-7(d)). Section 893 prohibits DCAA from performing any audits for non-defense agencies (e.g. NASA) unless DOD certifies that DCAA is current on the ICP backlog. “Current” is defined as 18 months of incurred cost inventory, further defined as “the level of contractor incurred cost proposals in inventory from prior years that are currently being audited by DCAA”. As a point of clarification, the inventory should include ICPs currently being audited or those in the queue awaiting audit. Based upon DCAA’s 2014 report to Congress, DCAA had approximately 18,185 ICPs valued at $822 billion (on hand as of 9/30/2014). Based upon May 2015 public comments made by DCAA’s Deputy Director, the annual inventory is approximately 7,500 ICPs which would implicate an approximate annual value of $339 billion.
“Help! We received a letter from our ACO informing us that they will be conducting a Contractor Purchasing System Review (CPSR) three months from now – can you help us?” This is a scenario we hear all too frequently these days. As promised, DCMA has ramped-up their efforts to ensure contractors purchasing systems are being reviewed and assessed for adequacy.