Cost And Accounting, DCAA Relations, Department of Defense News, Incurred Cost Proposals

DCMA Criticized for not Following DCAA Recommendations on Incurred Cost Proposal Audits.

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One again proving that the contractor should defend costs BEFORE DCAA makes its findings official.

 

http://www.dodig.mil/pubs/report_summary.cfm?id=7287&utm_source=DoD+IG+Email+Update+-+Reports+and+Testimonies&utm_campaign=e02c5e6e40-DoD_IG_Reports&utm_medium=email&utm_term=0_3a17f8681e-e02c5e6e40-277174597

Visit us at www.dcaacompliance.com

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Cost And Accounting, DCAA Relations, Department of Defense News

DOD OIG Critical of DCMA Followup on CAS Violations

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http://www.dodig.mil/pubs/report_summary.cfm?id=7232&utm_source=DoD+IG+Email+Update+-+Reports+and+Testimonies&utm_campaign=1028bc1344-DoD_IG_Reports&utm_medium=email&utm_term=0_3a17f8681e-1028bc1344-277174597

 

“For the 27 DCAA CAS reports we selected, we identified several instances in which contracting officers did not comply with FAR, DoD Instruction 7640.02, or agency instructions. We found:

    • 12 instances in which contracting officers did not issue a Notice of Potential Noncompliance within 15 days, as FAR 30.605(b)(1) requires;     • 16 instances when contracting officers failed to complete all actions on the reported noncompliances within 12 months, as DoD Instruction 7640.02    requires;     • 3 instances in which contracting officers did not have adequate documentation or rationale for determining that the DCAA-reported noncompliance    was immaterial, contrary to FAR 30.602; and     • 8 instances in which contracting officers did not obtain a legal review of their CAS determination, as Defense Contract Management Agency (DCMA),   Instruction 108 requires.

As a result, correction of the reported CAS noncompliances was delayed. In addition, contractors may have been inappropriately reimbursed contractors additional costs resulting from the noncompliance.”

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Available at DCAA Compliance or Amazon

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Accounting System, DCAA Relations, Running Your Business

The Birth, Life, and Death of a Small Business Contractor

 

 

Part One – The Illegitimate Birth

 

One of my clients is a small government contractor in the South with only a few employees. They are developing a technology that anyone could easily identify as critical in both military and civilian applications. The development is at a ‘job phase’ where units are built individually in the attempt to improve the process and the technology. Each one of these individual units are functional and critical.

Almost all of the national labs, many foreign countries, and others in industry have purchased these units and employed them immediately, even as the technology continues to be developed. I should say that the technology saves lives and is not a weapon.

Of course the military wanted the technology; but instead of going out and buying a unit, the military issued a contract, a cost type contract.  In 2010 the United States Air Force issued the contractor a cost type contract.

The Federal Acquisition Regulations (FAR) restricts the government from issuing cost type contracts to contractors unless “The contractor’s accounting system is adequate for determining costs applicable to the contract or order…” (FAR 16.301-3(a)(3)). During this time, standing orders required the Air Force to wait on an opinion from DCAA about the contractor’s accounting system and for DCMA to issue an approval of the accounting system.  This was during a period where local contracting officers could not always know when and if DCAA would show up and the Air Force really wanted the technology and issued the contract without an approved or audited accounting system.

Why the Air Force did not simply follow the example of the National Labs and issue a fixed price contract or a purchase order, we will never know. Instead, the Air Force issued a cost type contract to a contractor without an approved or even audited accounting system.

The contractor did not realize that the Air Force actions transferred almost all of the risk concerning the contract to the contractor, the opposite of what a cost type contract is ‘designed’ to do.

The fact that the FAR prohibited the Air Force from issuing the contract is not a defense the contractor may raise as one contractor found out when they complained to the Armed Services Board of Contract Appeals. In this case, the contractor claimed the government owed them hundreds of thousands of dollars. The government successfully argued that the contractor’s inadequate accounting system made any such claim impossible to support. An adequate accounting system protects the contractor and the government.

Of course, the Air Force or DCMA did order an audit and the contractor hired and consultant (not us) to help them with DCAA. This did not turn out well.

But a government contractor was born, arguably illegitimately, but born none the less.

Next, “How DCAA, Contractor, and Consultant Can Ruin an Audit”.

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Available on Amazon or www.dcaacompliance.com

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Department of Defense News

Supervisors Fail to Act Properly to DOD Employee ‘Misuse’ of government funds for Casinos and Adult Entertainement

Excerpt from a recent Department of Defense OIG audit followup to previous audit:

 

Finding

We determined that DoD management (cardholder’s commander or supervisor) and travel card officials did not take appropriate action when notified by the DoD OIG, during the previous audit, that cardholders had potentially misused their travel card. In this follow-up audit, we reviewed management’s actions for 30 nonstatistically selected cardholders with the highest dollar amount of high-risk transactions that had been referred to management in the prior audit. During this audit, we found that:

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Department of Defense News

Do as I Say, Not as I Do

Seriously, 7% of DOD travel payments are “improper”?

“DoD Component actions were not adequate to reduce estimated improper payments in the DoD Travel Pay program. The Under Secretary of Defense (Comptroller)/Chief Financial Officer reported that estimated improper payment rates for the DoD Travel Pay program increased from 5.0 percent for FY 2012 to 6.5 percent for FY 2013 and 7.0 percent for 2014. The estimated rates missed the improper payment reduction goals for each of those years.”

http://www.dodig.mil/pubs/report_summary.cfm?id=6833&utm_source=DoD+IG+Email+Update+-+Reports+and+Testimonies&utm_campaign=24114820f8-DoD_IG_Reports&utm_medium=email&utm_term=0_3a17f8681e-24114820f8-277174597

 

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DCAA Relations

Meet the New DCAA director — NEON Testimony

Here is link to testimony before the House. At the end of the document is a biography of the new DCAA director.

The testimony is interesting. They state they cleared over 11,000 contractor incurred cost proposal “years” in FY 14. This might be more interesting if we knew what the backlog was not matter the method of measurement.

I actually agree that much of the attack on DCAA reference NEON is unfounded and displays a complete ignorance of government cost accounting compliance. From a government contracting perspective, fee exists only to fund unallowable costs such as interest expense and of course Holiday parties. To beat up DCAA for actually following the laws and the regulations is silly.

This is especially true as there is so much better material out there to work with…..

Click to access HHRG-113-SY00-Wstate-BalesA-20141203.pdf

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DCAA Relations, Incurred Cost Proposals

Statute of Limitations Does Mean SOL

I guess we need to start sending the general ledger detail in with the Incurred Cost Proposal….

ARMED SERVICES BOARD OF CONTRACT APPEALS Appeal of– Coherent Logix, Inc. ASBCA No. 59725

The government argues that its claim could not have accrued before 1 August 2013, when CLX provided the General Ledger detail showing the patent legal costs to the DCAA (gov’t br. at 4). Diane Chang, a DCAA auditor, provided an affidavit in which she states that DCAA requested the General Ledger detail from CLX on 24 July 2013 and received it on 1 August 2013 (Chang aff. ~~ 4-5). Ms. Chang also states that she has searched the DCAA files and did not find General Ledger detail anywhere in CLX’s 13 August 2008 submission. She further states that the only information CLX provided on legal costs prior to 1 August 2013 was the single line item identifying only generic “legal services” in the amount of $89, 196. (Id., ~~ 6-7)

Based on the foregoing, we cannot conclude that the government had any reason to anticipate that CLX would claim reimbursement for patent legal costs in 2007. CLX has not met its burden of proving that the government’s claim accrued on 13 August 2008 or at any other time before DCAA received the underlying General Ledger detail on 1 August 2013. Cf Combat Support Associates, ASBCA Nos. 58945, 58946, 14-1 BCA ~ 35,782, vacated on other grounds on recon., slip op., 16 March 2015 (government claim did not arrive at time of initial incurred cost submission, but only after supporting data was submitted from which it could conclude that certain claimed costs were unallowable). We hold that the government’s claim is not barred.

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Accounting System, Cost And Accounting, DCAA Relations, Incurred Cost Proposals, Running Your Business

Dear Auditor, Before you ask for my driver’s license could you read this?

Just got off the telephone with a client in Georgia where the DCAA office requested the contractor to email copies of every employee’s driver’s license to prove that they were real. The contractor successfully declined the request.

On the other side of the country, another DCAA has requested access to the contractor’s I9’s. I am encouraging the contractor to decline this request.

Researching the issue I stumbled on DCAA’s The Privacy Act: An Employee’s Guide to Privacy.  Here is one of the many relevant statements made within this DCAA document:

The Privacy Act provides the Government with a framework in which to conduct its day-today business when that business requires the collection or use of information about individuals. Specifically, it requires that the Government:

  • Maintain no secret files on individuals;
  • Inform individuals at the time it is collecting information about them, why this information is needed, and how it will be used;
  • Assure that personal information is used only for the reasons given, or seek the person’s permission when another purpose for its use is considered necessary or desirable;
  • Allow individuals to see the records kept on them; and provide individuals with the opportunity to correct inaccuracies in their records.

The Privacy Act binds Federal agencies to a “code of fair information practices.” The code sets standards which each Federal agency must meet as it collects, maintains, and uses information.

Or under the responsibilities of DCAA Employees:

RESPONSIBILITIES

You must collect only personal information that is relevant and necessary, not simply useful, to accomplish a specific objective. Whenever you request personal information from someone, you must inform him or her in writing of the legal authority for requesting the information, the purpose for collecting it, what routine uses will be made of this information, whether a response is mandatory or voluntary, and what will be the effect if he or she refuses to respond. Also, whenever you ask a person for his or her social security number, you must state the legal authority and purpose for requesting it, and whether a response is mandatory or voluntary. You should always attempt to collect personal information directly from the individual rather than from other sources wherever practicable

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DCAA Relations, Incurred Cost Proposals

Statute of Limitations Gone Wrong

I just received a call from a client regarding DCAA’s work on their 2007 incurred cost submission. Last week DCAA had provided the client with a draft audit report that:

  • Disclaimed an opinion on the incurred cost submission due to unspecified scope limitations
  • Although they disclaimed an opinion they offered several – all of them totaling up to several hundred thousand dollars.

We responded with an email asking:

1). How you can disclaim an opinion but still issue opinions on costs?

2) Requesting the details making up these findings.

3) Reserving the right to make a management response before scheduling an exit interview (the draft report stated that an exit interview would be conducted).

4) In a telephone conversation with the client, DCAA reported that the scope limitation arose out of DCMA withdrawing funding for the audit. We addressed this in the email and both asked for clarification, and noted if this was actually the reason we believed it should be specified in DCAA’s report.

DCAA did not respond to this email and the client followed up yesterday with an email requesting the data detail in order to review it.

DCAA called the client this morning and stated the following:

  • They had finalized and issued the report without either an exit interview or a management response.
  • That the contractor’s only possible action was to address the findings with the ACO.
  • That even if there had been an exit interview the report would not have changed.

Of course I can only conclude that the client misunderstood and DCAA did not act in this manner.There should be more to this story to explain these decisions.

Of course I can only conclude that the client misunderstood and DCAA did not act in this manner.

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Accounting System, Cost And Accounting, DCAA Relations, Department of Defense News, Incurred Cost Proposals

Latest DOD Office of Inspector General’s report is a Minefield for Contractors

The latest DOD Office of Inspector General (OIG) audit of DCAA and DCMA ‘s work on Contractor Business Systems creates and minefield of questions and dangers for contractors.

Let start with the largest bomb:

IF you take the report as whole, if DCAA finds problems with your business systems to include accounting estimating, compensation, etc.., DCMA should wrap the entire process up within 30 days of DCAA’s report.

Literally, this means this 30 day deadline includes full implementation and audit of the contractor’s corrective action plan.

Well, that is just fine and dandy until you consider the fact that the DCAA Director defends the decision to wait three years to start the follow-up audit as reported by the OIG:

“The Director, DCAA, agreed in principle that follow-up audits should be promptly initiated after the contractor implements the corrective actions and sufficient information exists to confirm that corrective actions are sufficient. DCAA plans to schedule an audit in FY 2014. However, the Director disagreed that it is unreasonable for the FAO to take 3 years to perform a follow-up audit of significant business system deficiencies.”

 

Here is the OIG’s counter response and a nest little table on how long it took to even start the follow-up audits.7:

However, the contractor had notified the Government that the corrective actions for all systems were completed as of January 2012, yet the DCAA FAO does not plan to compete the follow-up audits until 2015. The following table shows the actual dates of the contractor’s notification and the estimated dates for completing each follow-up audit.

Table 4. Time Elapsed Between Notification of Contractors’ Corrective Actions and DCAA’s Follow-Up Audit

Business System Contractor Notification of Corrections Estimated Completion of Follow-up Audit Time Between Notification and Estimated Completion
Compensation System November 3, 2010 June 30, 2015 4 years, 8 months
Billing System May 23, 2011 No Estimate (June 2014 start) At least 3 years, 1 month
Accounting System July 20, 2011 April 15, 2015 3 years, 9 months
Estimating System January 9, 2012 April 15, 2015 3 years, 3 months

 

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