Redstone Government Consulting Blog | Compliant Accounting Infrastructure (21)

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Perhaps the most subjective cost allowability determination process utilized by the Defense Contract Audit Agency (DCAA) is that associated with determining reasonableness of Government contractor employee compensation, more specifically the wages and benefits of senior managers and executives. Government contractors more likely to endure examination and challenging of such compensation are those with cost reimbursable contracts which invoke the audit of annual incurred cost proposals (ICP) via contract payment clauses. The audit review is a highly subjective process with the purpose of determining if annual compensation exceeds a hypothetical “reasonableness” benchmark, using ambiguous criteria contained in FAR 31.205-6(b)(2), i.e., measured to wage surveys reflecting compensation for same job position within companies of same size, same industry, same geographic area, and engaged in same type of non-government work as performed under government contracts. 

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.

Contractor Agrees to Reimburse Employees for Back Wages after Cited SCA Violation

An investigation conducted by the U.S. Department of Labor’s (DOL) Wage and Hour Division for compliance with the McNamara-O’Hara Service Contract Act (SCA) and the Contract Work Hours and Safety Standards Act (CWHSSA) revealed that CH, Inc. violated the provisions of these two statutes by underpaying 35 employees $268,899 in fringe benefits and overtime which, under the statutes, those employees were entitled to receive.