Redstone Government Consulting Blog | Wayne Murdock (2)

I recently watched an amazing video of an F-16 fighter jet being flown without pilots.  Watching this video helped me figure out what’s wrong with DCAA.  This fighter jet flew and worked properly without a pilot.  Unfortunately, DCAA HQ has been without pilots for quite some time but unlike the F-16 the audit agency can't do its job.

“My DCAA auditor is telling me I’m now subject to CAS. What does that mean? What do I do?”

DCAA issued its long awaited audit programs for accounting system internal controls.  In March of this year it issued audit programs for its billing system, and the two facets of its accounting system; the control environment and the accounting system or accounting controls.  A significant portion of the control environment audit program is devoted to assessing a company’s “Management’s philosophy and operating style, commitment to competence, and human resource policies and procedures.”  DCAA informs its auditors that this is a very subjective area and in conjunction with their risk assessment procedures and attendance at audit entrance conferences and system demonstrations they should be aware of positive and negative signs.  Leaving the disclosure and development of these positive and negative signs up to the judgment and discretion of the auditor DCAA, HQs decides not to give any illustrations or examples of either, save one.  It very subjectively asserts that excessive turnover may be a possible negative indicator regarding management’s philosophy and operating style.  However, it doesn’t provide any type of a benchmark or barometer as to what is excessive.  It then instructs the auditors to request a listing of management or supervisory personnel in key functions such as operations and program management, accounting, or internal audit that have either retired, quit, or been terminated.  The auditor is then told that if the turnover appears to be excessive, obtain explanations of the reason for management or supervisory personnel leaving the organization. 

The continuing trend toward the diminution of pay and benefits for Government employees will have a negative impact on DCAA for many years to come.  Over recent years, and especially the past few, DCAA has lost and will continue to lose its experience and knowledge base.  Once those who can retire and those who can find employment elsewhere do so, the “preeminent” government audit agency with the primary goal of contract audits will be a mere shell of its former self, and many would argue that has already come to pass.  Pay freezes, furloughs, changes in retirement benefits, and overall lack of leadership have had devastating effects on the DCAA auditor rolls and contractors are now seeing the impact of this “Brain Drain.”  These actions, coupled with the Agency’s overreaction to recent GAO and DoD-IG criticism, have resulted in at best inappropriate interpretations and at worst inaccurate uses of government regulations and internal DCAA guidance by auditors with very little experience or direction that in past years was provided by more senior people.

DCMA reviewers and consultants alike used a years’ old guidance instruction for performing CPSRs (Contractor Purchasing System Reviews) in ascertaining if a contractor’s purchasing practices represent methods for achieving “best value” in purchasing of services and supplies.  This guidance, DCMA Instruction “Consent to Subcontract/Contractor Purchasing System Review (CPSR)” includes an Appendix B that was specifically used in the reconciliation of a contractor’s purchasing or procurement related policies and procedures.  That appendix in essence is a checklist with 55 far ranging questions from purely subcontract management issues to Affirmative Action and Standards of Conduct items, and effectively represents criteria and parameters for acceptable government contractor procurement practices in addition to preferred documented company policies and procedures. 

The Defense Department on February 21 revoked a relatively new payment process that was designed to get cash in the hands of contractors and subcontractors quicker. This revocation of the “Quick Pay” initiative is due to sequestration activities and will cause payments to be delayed by at least 10 days but conceivably even more. Prior to the Quick Pay initiative, which began in 2011, DoD would hold a bill for 30 days to minimize the amount of cash it pays out. The Quick Pay initiative was instituted as a way to get payments to small businesses faster by assuring that small businesses were paid as soon as a bill was verified. The initiative was then expanded in July 2012 to prime contractors as a way to assist those companies’ small business subcontractors. Under the initiative, defense contractors were paid in about 15 to 18 days.