Redstone Government Consulting Blog | Accounting System Compliance (25)

“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.

A question we are frequently asked is “Do small contractors really need written policies and procedures in place to pass....”   This is finished with many types of audit - pre-award accounting system, post award accounting system, or even purchasing system?

The Foreign Corrupt Practices Act prohibits payments made directly or through intermediaries to foreign government officials to assist in obtaining business, retaining business, or directing business to any person.

The Foreign Corrupt Practices Act (FCPA) continues to be a high priority of enforcement for the Securities Exchange Commission (SEC) and the Department of Justice (DOJ). The U.S. Government’s aggressive approach to transactional bribery of foreign government officials will be anything but relaxed as companies and business people can expect a continued prioritization of FCPA cases. The DOJ has added more prosecutors and more resources than ever before. Additionally, U.S. regulators have stated that penalty amounts are not going down.

As a follow-up to our June 2015 blog on the now really infamous OPM computer hack of 2015 (which might actually date back to 2013 based upon the fact that OPM’s story continually changes) we now know that approximately 21 million personnel records have been compromised.  However, we can all sleep better at night knowing that the action was technically not a cyber-attack because there was purportedly no attempt to take over the systems; hence, “merely” infiltrating (hacking) the systems to gain access to sensitive data including that related to background investigation.

On April 30, 2015, a US District Court Judge in Delaware granted a United States motion to dismiss an FTCA claim (Federal Torts Claim Act) filed by KBRS (Kellogg Brown and Root Services).   The government’s motion to dismiss was premised upon jurisdictional issues; in particular discretionary functions on the part of a government official are exemptions to the FTCA.   The litigation involved a two count complaint by KBRS; i) damages arising from a negligent DCAA audit and ii) damages caused by the negligent DCAA audit resulting in a Department of Justice investigation under the False Claims Act.   Although the litigation involved a number of other issues (in addition to the allegedly negligent DCAA audit report), none of those issues were debated once the District Court determined that it did not have jurisdiction over actions exempt from the FTCA.

A Prospective View of Model Employer (Government Contractor)

On April 15, 2015, members of the self-proclaimed Congressional Progressive Caucus called for an Executive Order (EO) which would define a model employer and provide model employers with preferences in terms of government contract awards.  The Progressive Caucus envisions an EO which would define a model employer to include a minimum wage of $15/hour, other benefits including paid time off, full-time hours and predictable schedules.  As noted by this Caucus, the 2014 EO which raised the minimum wage to $10.10/hour for employees of government contractors was simply not enough to eliminate stagnant wages which tether jobs to poverty and government assistance. 

Most contractors (those with calendar year ends) have incurred cost proposals (ICP) due to the government on June 30 and we know that preparing the incurred cost proposal can be stressful and time consuming.  We have prepared 10 helpful tips for contractors to consider when preparing their ICP this year to help alleviate stress, reduce the amount of time spent preparing the ICP and most importantly to result in ICP adequacy.

Government contractors have been undergoing accounting system reviews by DCAA for years, but more recently, the adequacy of a contractors accounting system does not necessarily have to be determined by DCAA.  Some Government agencies are relying on outside accounting and consulting firms to offer confidence that a government contractor has an adequate accounting system as a prerequisite for awarding a cost reimbursable contract. 

As we approach year-end, many of our clients are in the midst of preparing to close the year, of which tax planning is always an important consideration.  Historically, government contractors have maintained “2 sets of books.”  The first on a GAAP accrual basis, which is required as a component of an adequate accounting system per the SF1408 PreAward Accounting System Survey for all contractors working with flexibly-priced contracts, and the second set of books maintained on a tax basis.  There are a variety of factors that create differences between the two sets of books, such as the IRS 50% rule for business meals vs. FAR 31 allowability/allocability considerations for the same category of expense.  Further, DCAA is not tasked with assessing tax compliance, and as an agency income tax treatment has no impact to the audits performed by the agency. This year, however, a new IRS regulation concerning the capitalization of assets is creating confusion for some government contractors and could impact cost accounting for government contracts.