Dealing with DCAA audits can be tricky at best - especially in today’s environment, if you do not take the necessary steps to ensure that you understand, manage and respond appropriately to audits. In this brief article, we will look at what steps can be taken by contractors prior to, during and after a DCAA audit.
Topics: Contracts & Subcontracts Administration, Government Compliance Training, DCAA Audit Support
On August 13, 2013, the Federal Register included a proposed rule to reduce the contractor response time (for comments on past performance ratings) from 30 to 14 days. The change is a required reform (i.e. Congressional expectation) to improve contractor past performance databases; per the rule writers, it will “improve communication with contractors, access to performance information within the government and procedures selecting high performing contractors” and “having this data available within 14 days will be to the advantage of most contractors”. Not that it matters, but this strikes us as a meaningless and inconsequential change (to placate Congress) which will do nothing to improve the timeliness of the acquisition process. Moreover, just one more example where contractual due dates are imposed on contractors (who are then held to these due dates) when few if any due dates are contractually imposed on government auditors or contracting officers. Notably when FAR 52.216-7 was revised in May 2011, public comments suggested that with respect to the annual indirect cost rate proposal (contractor due date for submission is six months after the end of the contractor fiscal year) it also include due dates for incurred cost audits to facilitate contract closeout—in their infinite (and biased) wisdom, the rule makers stated that government due dates would be inappropriate because such due dates might impact the quality of the contract audits. Which begs the question, how does one measure audit quality when DCAA completes so few incurred cost audits?
Topics: Incurred Cost Proposal Submission (ICP/ICE), Contracts & Subcontracts Administration, DFARS Business Systems, DCAA Audit Support
One of the primary goals for a contractor notified of an impending Defense Contract Audit Agency (DCAA) audit should be to understand the audit process and, if possible, to develop a positive working relationship with auditors. In other words, to work with rather than against the auditor.
Topics: Compliant Accounting Infrastructure, Contracts & Subcontracts Administration, DCAA Audit Support
“My DCAA auditor is telling me I’m now subject to CAS. What does that mean? What do I do?”
Topics: Contracts & Subcontracts Administration, DCAA Audit Support, Cost Accounting Standards (CAS)
The Department of Defense (DOD) June 28, 2013 “Performance of the Defense Acquisition System” annual report states that little difference exists between fixed price and cost-plus contracts when it comes to predicting or controlling costs.
Topics: Compliant Accounting Infrastructure, Contracts & Subcontracts Administration, Government Compliance Training
President Obama will purportedly send to Congress proposed legislation this week which will cap reimbursement of all government contractor employee annual salaries at $400,000, the President’s annual (base) salary. The proposed legislation is an expansion of the FY 2013 National Defense Authorization Act (NDAA) approved in early CY 2013, applicable only to Department of Defense Contracts, which would ostensibly apply to all government contracts awarded by civilian government agencies, and elevate the cap from the previously debated ceiling of $230,700 (Vice-President’s salary) to the $400,000 amount.
Topics: Compliant Accounting Infrastructure, Small Business Compliance, Contracts & Subcontracts Administration, Government Compliance Training
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.
Topics: Compliant Accounting Infrastructure, Contracts & Subcontracts Administration, DCAA Audit Support
In a recent DCAA audit policy, DCAA makes note of the 2013 NDAA (National Defense Authorization Act) which requires DCAA to track requests and contractor responses for internal audits and to ensure that DCAA does not use contractor internal audit reports for any purpose other than evaluating and testing the efficacy of contractor internal controls and the reliability of associated contractor business systems. The reason the NDAA mentions this “limited use” is to diffuse contractor concerns and allegations that DCAA will misuse access to internal audits for so called fishing expeditions.
Topics: Small Business Compliance, Contracts & Subcontracts Administration, Government Compliance Training, DCAA Audit Support
As most contractors (subject to DCAA incurred cost audits) are aware, DCAA and DCMA were soundly “defeated” in terms of ASBCA rejections of DCAA FAR 31.205-6(b) compensation reasonableness challenges (Reference to J.F. Taylor, ASBCA Cases 56105, 56322 and Metron, ASBCA Cases 56624, 56751, 56752).
Topics: Compliant Accounting Infrastructure, Incurred Cost Proposal Submission (ICP/ICE), Contracts & Subcontracts Administration, Government Compliance Training, DCAA Audit Support
Recently the House of Representative unanimously passed a bill prohibiting new federal contracts with companies with seriously delinquent federal tax debts. However, the House failed to pass a similar measure, Federal Employee Tax Accountability Act (FETAA), which could have resulted in terminating government employees with seriously delinquent tax debts. It seems to us that retaining government employees with serious tax debt is equivalent to retaining employees who steal from their employer, but apparently in the view of Democratic Congress-persons (critics of the FETAA), it would be unfair to single out federal workers whose tax compliance is better than the general public. The last we checked, the general public does not work for the federal government and in any case, the specific federal employees who are seriously tax delinquent are not tax compliant so who cares if federal employees collectively are more tax compliant than the general public.