Redstone Government Consulting Blog | Small Business Compliance (9)

The Department of Energy (DOE) has released its proposed amendments to the Department of Energy Acquisition Regulations (DEAR) which would subject certain DOE contracts to business systems criteria and penalties for failure to maintain adequate internal controls governing those systems.  The proposed rule, published on April 1 2014, makes official a DOE FY 2013 promise of implementing formal regulations which would mirror systems requirements already in place for DOD contracts, those systems of which are defined in DFARS 252.242-7005.

Two recent decisions by the General Accountability Office (GAO) and the ASBCA make it clear that the contractor will be held responsible for incorrect assumptions when they fail to follow up on known inconsistencies or missing information with the government, even when the government is responsible for providing the information.

Government contractors having undergone DCAA incurred cost proposal audits during this past year have learned several important trends and lessons, some of which will likely continue into 2014, and produce added administrative hardships for most contractors. Some initiatives undertaken by DCAA in conjunction with the DCMA may mitigate the level and duration of audit effort and hasten contract close-outs for some contractors.  For example, more contractors will most likely be subject to low-risk determination criteria and expand the number of companies who could escape those audits.  

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. 

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.

Has the Government Learned Its Lesson?  Your Feedback is requested.

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. 

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.

The first in a series of videos designed to give an overview of the incurred cost submission.  This video covers the basics of the Incurred Cost Submission, such as it's purpose, the regulation requiring the ICS and when the submission is due.  Be sure to attend our upcoming Incurred Cost Submission Webinar series for more information on preparing your Incurred Cost Submission, ensuring it's adequacy with the DCAA adequacy checklist and working with DCAA auditors during the audit of your ICS or contact us to see how we may be able to assist.  We'll be announcing the dates of the ICS Webinar series soon, so sign up below to receive a notification when the course dates have been posted.

The initial reductions in force and furloughs will likely focus on general and administrative functions that support programs directly impacted by sequestration. The Government leaves our customers no choice other than to take this approach.  Yes, there will be job losses and yes there will be loss of legacy corporate knowledge and intangible value that may never return to our customer base.  This is highly unfortunate and yet another outcome of the politics of sequestration and declining Federal budgets.  Reduction in force of Accounting, Compliance, Internal Audit, Procurement, Pricing and other administrative functions with legacy corporate knowledge cannot and will not be replaced with the same corporate value or knowledge and ability to maintain compliance.

The Defense Department on February 21 revoked a relatively new payment process that was designed to get cash in the hands of contractors and subcontractors quicker. This revocation of the “Quick Pay” initiative is due to sequestration activities and will cause payments to be delayed by at least 10 days but conceivably even more. Prior to the Quick Pay initiative, which began in 2011, DoD would hold a bill for 30 days to minimize the amount of cash it pays out. The Quick Pay initiative was instituted as a way to get payments to small businesses faster by assuring that small businesses were paid as soon as a bill was verified. The initiative was then expanded in July 2012 to prime contractors as a way to assist those companies’ small business subcontractors. Under the initiative, defense contractors were paid in about 15 to 18 days.