We Lifted the Vail
A few months back we submitted a request to DCAA under Freedom of Information Act. Based on the DPC guidance referencing both DCAA and DCMA as playing a key role in support of the rest of the DoD Acquisition Community, we expected DCAA would have a significant number of documents disclosing this key role. Turns out, not so much. All we got was a single document listing 13 frequently asked questions (FAQs) DCAA has been fielding from their auditors, dated July 31, 2020.
Highlights of the FAQs
DCAA made the following points:
- Reiterated the DPC guidance that forgiven Paycheck Protection Program (PPP) loans should be considered as a credit and contract costs appropriately reduced for that credit.
- Remind its auditors how General Accepted Accounting Principles (GAAP) works. CARES Act Section 2302 permits the deferral of payroll taxes to 2021 and 2022. While the payment is deferred, the tax expense must be recognized under GAAP in the period in which the liability for the tax expense was incurred. Apparently DCAA auditors were looking to reduce billing on contracts and adjust provisional billing rates due to the deferment. They must have missed the Congressional intent of increasing cashflow for businesses. Yes, that included defense contractors.
- DCAA auditors should be doing the job of other agencies and make sure a contractor was not deferring payroll tax under Section 2302 and getting a PPP loan forgiveness under Section 1106.
- Referred auditors to DPC guidance on CARES Act Section 3610 reimbursement of leave costs at https://www.acq.osd.mil/dpap/pacc/cc/COVID-19.html. Even though the draft DPC guidance refers to DCAA as playing a key role in supporting contracting officers in using this reimbursement capability, DCAA has nothing to say on it. They did have a question to make sure auditors are on the watch for a contractor getting Section 3610 reimbursement and tax credits or a PPP loan forgiven. However, extending a hand to assist industry as Ms. Lord has mentioned in her comments and memorandums addressing industry concerns was not mentioned.
- Auditors need to consider the impact of COVID-19 pandemic on forward pricing audits. It appeared clear to us that DCAA auditors are going to be requesting contractors to provide detailed documentation as to the impact of the pandemic on their estimates.
- They spend several questions and answers apparently trying to convince their auditors that not all audits should contain a scope limitation due to the pandemic. We were not convinced that auditors will trust or understand contractor estimates or trust their own judgement related to their remote audit procedures and it is likely DCAA managers will fall back to the qualify everything mindset.
- Lastly one good point, a contractor creating a new cost account or cost category to capture COVID-19 related leave cost is not a cost accounting practice change requiring a cost impact proposal.
Overall – Nothing New
DCAA is truly staying in the shallow end of the pool. Not sure they even have a toe in the water at this point.
Redstone GCI is available to assist contractor’s in assessing their risk of audit intervention and accessing the impact of the pandemic on their operations and estimates. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying new guidance as it comes out.
John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant