Redstone Government Consulting Blog | DCAA Audit Support (19)

DCAA has had MMAS (Material Management and Accounting System) audit cognizance or review responsibility for DOD contractors since the advent of the DFARS Business Systems Rule in 2012. DCAA’s scope of audit is to determine if a contractor’s MMAS complies with the ten criteria or standards set forth in DFARS 252.242.7004.

A common misconception occurs when the term “DCAA-compliant accounting system” is used to describe a particular brand of accounting software. Sure, some accounting software systems and its components are designed specifically to address compliance with government regulatory requirements. But just because you buy it and use it does not mean you automatically have a compliant accounting system. There are several requirements of the accounting system and its environment that must be in place to ensure DCAA compliance, and there are a multitude of ways to meet these requirements without a significant investment in the purchase, implementation, training, and maintenance of a really expensive accounting system. Small businesses looking forward to bidding on prime, cost-type contracts must maintain DCAA compliance while also being as cost effective as possible to keep indirect rates at a competitive level. There are many options to choose from, and business owners must determine the best fit for their company. Be sure to consider all of the options:

In 2014 DCAA quietly rolled out its new audit report format which generated some obvious questions:

In more than a few instances, government contractors receive a DCAA inquiry which is not directly related to any particular audit. In many cases, the request involves a Contractor Survey (or a Contractor Internal Control Questionnaire) which is requested annually to facilitate DCAA’s audit planning (at least for the moment given DCAA’s propensity to routinely change audit priorities).   For repetitive annual requests which are essentially the same set of questions received every October as DCAA begins its new fiscal year, the tendency is to complete the questionnaire without asking DCAA to explain what contractual clause requires this action (don’t ask, there is none).

The judgments rendered by the ASBCA in the Raytheon Co., Space & Airborne Sys, ASBCA Nos. 57801, 57803, 58068 resulted in the resolution of a number of issues concerning CAS (Cost Accounting Standards) cost impacts associated with unilateral changes in a contractor’s cost accounting practices. There were five basic issues; the Government prevailed on three, the contractor prevailed on one, and one was undecided (to be decided in the actual trial given that the current decisions were in reference to the parties’ cross-motions for summary judgment).

Estimating System Deficiencies

In its recent report (DODIG 2015-139), the DOD-IG (Inspector General) found that DCMA Contracting Officers failed to comply with DFARS timing requirements related to contractor business systems (DFARS 215,407-5-70 and DFARS 252.242-7005. In this case, the IG evaluated actions (or more accurately inactions) on 18 DCAA audit reports related to contractor estimating systems which are subject to the criteria in DFARS 252.215-7002. The DFARS Business Systems rule includes no time frames concerning government audits of contractor systems; however, once a government audit report is (finally) issued, DFARS has the following time-requirements (“requirements” used loosely because due dates applicable to the government are routinely ignored as evidenced in the IG report):

In its report dated March 25, 2015, DCAA issued its fourth Annual Report to Congress including a number of self-accolades for numerous accomplishments in spite of a huge disconnect between DCAA’s audits and its statutorily required audits.  DCAA provides an overview wherein it reports that its “cost-effective” approach examined $182.6 billion, issued 5,688 audit reports, identified $4.5 billion in savings with a 6.9 to 1 return on investment (ROI).   DCAA now represents that its ROI is based upon a “conservative approach” because the savings only include realized savings and not future potential savings if DCAA recommendations are implemented.   However, DCAA fails to mention that future potential savings will be reported when realized; hence, if in any given year DCAA did report future savings as well as realized savings, DCAA would be duplicating reported net savings (coincidentally an issue reported in a 2014 DOD-IG report because two different DCAA audit offices reporting the same net savings for the same audit exceptions).

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.

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.

It’s that time of year, books are closed, tax data has (maybe) been sent to the CPAs and you are ready to start a new year. However, as a government contractor with cost-reimbursable contracts, for the next 180 days a cloud called the incurred cost submission (due on June 30, 2015) is looming over head. Will this cloud looming become a thunder storm or beautiful clear skies? Well, my friend, that is up to you. Here are the top 5 things to know about the incurred cost submission that will make this year a success in submitting a timely and adequate incurred cost submission.