Current FAR Requirements
Federal Acquisition Regulations (FAR) 42.101 provides that normally, “the Defense Contract Audit Agency (DCAA) is the responsible Government audit agency.” While DCAA’s website states “DCAA provides audit and financial advisory services to DoD and other federal entities responsible for acquisition and contract administration.” DCAA only has appropriated funds to provide services to the Department of Defense (DoD). All other federal agencies must pay for DCAA services. This can make a decision related to the necessity of an audit service a budget-based decision. Today, DCAA is current on the required incurred cost audits of contractors with DoD contracts, but contractors with mostly National Aeronautics and Space Administration (NASA) contracts are years behind in their required incurred cost audits. If, as the FAR states, “DCAA is the responsible Government audit agency,” why is it not a Federal audit agency (dare we say – FCAA)? This would make things much easier for NASA and other federal agencies that need their contracts audited. However, given that this isn’t the case, DCAA is not the only option for federal agencies. Many agencies other than DoD have contracted with third-party CPA firms to get necessary audits performed.
What About the Process Used by the Office of Management and Budget (OMB) for Grants and Cooperative Agreements?
2 CFR 200 Subpart F “sets forth standards for obtaining consistency and uniformity among Federal agencies for the audit of non-Federal entities expending Federal awards.” 2 CFR 200.501 requires that all non-Federal agencies (i.e., organizations or businesses) expending more than $750,000 in federal funds within its fiscal year must hire a certified public accounting (CPA) firm to perform an audit. 2 CFR 200.514 provides that the “audit must be conducted in accordance with GAGAS,” and the scope of that audit must include the “financial statements and schedule of expenditures of Federal awards” for the fiscal year.
In addition to the requirements of GAGAS, the CPA auditor must:
- Perform procedures to obtain an understanding of internal control over Federal programs sufficient to plan the audit to support a low assessed level of control risk of noncompliance for major programs;
- Plan and perform tests of internal controls;
- Report significant deficiencies or material weaknesses in internal controls and
- Determine whether the auditee has complied with Federal statutes, regulations, and the terms and conditions of Federal awards (i.e., costs are allowable, allocable, and reasonable).
Did you notice that this covers the audit work performed by DCAA on incurred costs fairly well, if not a little bit better?
The cost of the CPA audit effort could be easily identified and assigned to the cost reimbursement contracts listed in the schedule of expenditures of Federal contracts (i.e., Schedule H of FAR 52.216-7 required incurred cost submission).
What about Subcontracts?
OMB even addresses the sub-level audit coverage issue by defining federal awards for the calculation of the audit threshold and audit scope to include subawards. So, applying the OMB approach would address the perceived audit risk associated with subcontracts that are often brought up by DCAA.
Does This Mean No More DCAA?
With all this said, there may still be a place for a Federal acquisition support agency. The November 8, 2023, Biden-Harris administration “Better Contracting Initiative” had a couple of key initiatives that a Federal acquisition support agency could support:
- Leveraging Data Across Federal Agencies to Get Lower Prices and Better Terms – A Federal acquisition support agency could be the common link to facilitate the access to and use of data across agencies. Reviewing data from a prior acquisition can only go so far. Having access to resources involved in the prior acquisition available to support the next acquisition could significantly strengthen this initiative.
- Getting Better Value from Sole Source and Other High-Risk Contracts – The focus of this initiative is leveraging many of the DoD acquisition processes. There is no need to duplicate functions in other agencies when existing resources could be consolidated and available to all agencies.
Redstone Government Consulting assists contractors throughout the U.S. and internationally with understanding the Government’s requirements, implementing the necessary policies and procedures, and training to support compliance with the FAR and 2 CFR 200. We would be happy to be part of your team.
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