Redstone Government Consulting Blog | Cost Accounting Standards (CAS) (2)

Comparison to FAR

Like CAS 401, CAS 402, and CAS 405, CAS 406 is part of modified CAS coverage and is one of the first CAS standards a company encounters. It likely will not call for any changes to the company’s cost accounting system if you are compliant with FAR 31.203(g)(2) (Indirect costs). FAR states that for contracts not subject to CAS:

Comparison to FAR

Like CAS 401 and CAS 402 (see previous blog posts on these CAS Standards), CAS 405 is part of modified CAS coverage and is one of the first CAS standards a company encounters. Compliance with this standard will likely not call for any changes to the company’s cost accounting system if the company is compliant with FAR 31.201-6 (Accounting for Unallowable Costs) because the FAR clause has more requirements than CAS 405.

Comparison to FAR

Like CAS 401, CAS 402 is part of modified CAS coverage and is one of the first CAS standards a company encounters. It likely will not call for any changes to the company’s cost accounting system because Federal Acquisition Regulations (FAR) 31.202 (Direct costs) and 31.203 (Indirect costs) give us words very similar to the CAS words.

Many new government contractors are frustrated by being told they have a CAS 401 noncompliance, especially if they are not CAS covered. This is, of course, wrong terminology for non-CAS covered contractors, but is shorthand for saying the company is not estimating, accumulating, and reporting costs the same way. This is most frequently a difference between how a company estimates cost and then how the company accumulates and reports costs. This is not only important to the government, but to the company itself. A contractor cannot determine whether it is losing money on a contract if there is no way to compare what was bid to what was incurred. This is likely one of the first CAS standards a company encounters because even modified coverage calls this standard into play.

Organizations that have federal awards, whether that be grants, cooperative agreements or contracts, must comply with specific cost accounting regulations. Unfortunately, depending on the type of federal award, the regulations may not be the same. Both, both Grants or Cooperative Agreements awarded under 2 Code of Federal Regulations (CFR) 200 and Contracts awarded under 48 CFR Federal Acquisition Regulations (FAR) provide requirements for cost allowability, allocability, and reasonableness as well as the required cost accounting treatment for all cost:

In order to fulfill project requirements, there are times necessitating that remote employees travel into the contractor’s site of operations for a meeting, special project, training, performance review, etc. The US Department of Labor, Wage and Hour Division, Fair Labor Standards Act (FLSA) states that the time employees spend commuting from home to their normal place of work before the beginning of the workday and from work back home at the end of the workday is not considered compensable time worked and therefore is not time for which employees must be paid. What if the employer wants to compensate remote employees for this travel time? The available guidance doesn’t seem to say an employer can’t pay an employee for this time, and many employers do, however, should they, and what things should an employer consider?

Effective for tax years after December 31, 2021, companies that have research and development expenditures will be required to amortize their R&D costs instead of deducting them in the current year. So, what is the impact – an increased tax bill beginning in 2022.

DoD-IG Goes After DCMA for not Supporting DCAA Findings

On February 26, 2021, the DoD-IG issued an audit report raising significant concern about the actions taken by DCMA Administrative Contracting Officers (ACOs) in relation to DCAA audit findings. The Finding section of the DoD-IG report found that out of 30 DCAA audit reports at two of the largest DoD contractors, 14 were not properly addressed per Federal Acquisition Regulation requirements by the cognizant ACO. Our guess and POGO believes the large DoD contractors are Lockheed Martin and Boeing – but this is only our guess. The DoD-IG report goes on to state that: “As a result, DCMA contracting officer actions on the eight audit reports may have resulted in improperly reimbursing DoD contractors up to $97 million in unallowable costs on Government contracts. In addition, because DCMA contracting officers did not take timely action on six audit reports, they delayed the correction of CAS noncompliances and the recovery of any increased costs due to the Government.” The report goes on to state that: “The Defense Contract Management Agency Director agreed with all five recommendations,” including reviewing ACO decisions to “Disallow and recoup any unallowable costs not previously disallowed.” (Evaluation of Defense Contract Management Agency Actions Taken on Defense Contract Audit Agency Report Findings Involving Two of the Largest Department of Defense Contractors – DoD-IG-2021-056, Dated February 26, 2021)

Where does DCAA’s View of the Contractor and their Role in Acquisition Come From?

DCAA Auditor Training

DCAA website provides that new auditors receive in-depth professional training from DCAA’s Defense Contract Audit Institute (DCAI), along with on-the-job training at their assigned field audit office. DCAI is located in Atlanta, GA and provides auditors with an excellent basis on which to start their careers in contract audit. Many at Redstone GCI can speak from personal experience that, once you get past the exciting MARTA ride from the airport, the instructors at DCAI provide a good hands-on learning environment. However, we are not sure if it is a subliminal message piped into the classroom or local indoctrination at assigned field offices, but the auditors are coming away with the impression that no contractors can be trusted, and a good audit opinion has to include questioned cost.

Let’s Set the Stage

So as a contractor you have received several cost-based contracts (i.e., subject to FAR Part 31), however they have all been less than $7.5M. You are flying under the Cost Accounting Standards (CAS) radar. You get a $9M cost-based contract that does not meet any of the exceptions to CAS covered listed at 9903.201-1(b) – categories of contracts and subcontracts exempt from all CAS requirements. The dreaded “trigger contract.”