Redstone Government Consulting Blog | Contracts & Subcontracts Administration (22)

On September 5th, DCMA issued a letter to the National Defense Industrial Association (NDIA) addressing industry concerns raised at a meeting with DCMA on April 25, 2013.  We will highlight some key points in the letter that will help contractors deal with DCAA’s assertions which often times are not supported by regulations. The letter reinforces that it is DCMA that determines if a contractor’s business system is compliant or not and if a Corrective Action Request (CARs) is necessary.

The National Defense Industrial Association’s (NDIA) September Procurement Division Committee meeting provided insights and information that we believe is of  interest to our readers.  These comments are our own interpretations and opinions based upon our presence at the meeting.

“My DCAA auditor is telling me I’m now subject to CAS. What does that mean? What do I do?” We get questions like this almost every day. Usually we then obtain as much information as we can to determine why DCAA has made this claim and advise our clients accordingly.

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. 

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. 

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. 

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.