Contractor Business Systems, are we getting closer to a final rule?
At this point we have it memorized, “Contractor business systems and internal controls are the first line of defense against waste fraud and abuse,” the amended rule also states “Weak control systems increase the risk of unallowable and unreasonable costs on government contracts.”
On Friday December 3, 2010 the Department of Defense published an amendment to the Defense Acquisition Regulations System Rule published on January 15, 2010. The amended rule on contractor business systems:
Prepare for a Decrease in DCAA Audits Thanks to New DoD Standards
The Department of Defense (DoD) announced on October 18, 2010 that as a part of their efforts to appropriately align DCAA audit resources, the DoD was increasing the limit imposed for contracting officers’ to request DCAA audit assistance to Fixed-Price proposals exceeding $10 million and Cost-Type proposals exceeding $100 million. Auditors will complete all in-process price proposal audits that are below the revised thresholds. The revisions of the Procedures, Guidance and Information (PGI) does not impact the requirement for cost or pricing data as that threshold remains at $700,000 as of October 1, 2010.
DCAA Updates the Contract Audit Manual — Changed Sections Require Continued Compliance
DCAA has updated sections of the Contract Audit Manual (CAM) through September 1, 2010. The CAM provides technical assistance and procedures that are followed by the DCAA, for audits of government contractors. The CAM is available to assist contractors with requirements and procedures that should be implemented to meet DCAA audit standards. The following areas of the CAM have changed: Continue reading »
Getting out of Gridlock – Resolving Contract Audit Recommendations
To keep the process moving forward as quickly as possible and to obtain resolution at the lowest levels possible, the Department of Defense Procurement and Acquisition Policy (DPAP) issued a memorandum on resolving contract audit recommendations in December 2009; these procedures were furthered clarified in May 2010.
The DPAP memorandum dictates, when the contracting officer has a basis for disagreement with the audit findings, the contracting officer should first attempt to resolve the issues and recommendations identified with the DCAA auditor. In such cases, Continue reading »
2010 Allowable Executive Compensation Limit Increases by $10K
OFPP determines this limit based on surveys of executive compensation of large publicly-traded companies. This limit may not reflect reasonable compensation for small contractors. For small to midsize companies the ceiling on executive compensation is going to be proportionately lower than the $693,951 benchmark. They will need to be substantiated based on “relevant business” such as, firm size, industry, geographic area, and if engaged in non-government work (FAR 31.205-6(b)(2) &/or (FAR 31.205-6(p).
Aronson & Company can answer your executive compensation questions and can help defend DCAA executive compensation challenges, contact Donna Dominguez at ddominguez@aronsoncompany.com
Change in Airfare Recoverability May Result in Overbilling
Beware, you may be overbilling for airfare costs if you haven’t been closely watching the travel regulations lately. A regulation revision, FAR 31.205-46(b), related to the recoverability of airfare costs aimed to resolve certain ambiguities and may result in lower recoverable amounts. The new rule provides that airfare costs in general, only are allowable to the extent the costs do not exceed “the lowest priced airfare available to the contractor.” Thus, under the new rule when contractors have obtained discounted airfare prices not available to the general public, only the discounted airfare only is allowable. The revision goes on to state that increased costs for refundable, versus non-refundable, airfare generally are unallowable.
Contractors therefore should update travel policies and procedures to reflect both the new limit of the lowest priced airfare available to the contractor and that increased costs for refundable tickets are unallowable. Contractors also should ensure that travel policies and procedures are followed when scheduling travel.
A likely result of this revision is increased focus by the DCAA and other government auditors on both allowability of airfare and contractor policies and procedures for scheduling travel. A&C can provide assistance in initiating or updating your travel policies. Contact Hope Lane at hlane@aronsoncompany.com or call at 301-231-6266.
A Handy Guide to Navigate the Maze of DCAA
Do you ever feel that dealing with DCAA is like walking through an enormous maze? Once you complete an audit you feel a sense of victory and you vow to NEVER step back into the maze again. Well here is a great resource, published by the seemingly last place you would think to look for assistance www.dcaa.mil- DCAA’s “Information Guide for Contractors”. Although the guide was published in 2005 it still proves to be a great resource today. This guide will help you navigate the maze to be prepared for your next audit.
The guide is designed to address compliance requirements in terms easily understood by contractors and removes a lot of the “legal” language of the Federal Acquisition Regulations. The Information guides the contractors through key areas and identifies DCAA’s major areas of emphasis: Internal Control Systems; Management Policies; Accuracy and Reasonableness of cost representations; Financial Capabilities; and Contractors compliance with contractual provisions.
The most informative chapter for a basic review of government contracting is Chapter 2 Pre-award Surveys of Prospective Contractor Accounting Systems. Take a moment to review the information before your next accounting system review.
Contact Nicole Mitchell (301) 222-8231, nmitchell@aronsoncompany.com the next time you need assistance navigating the maze of DCAA.
DOD Contractor Compliance Crackdown! Payments Could Be Withheld Up to 50%
A proposed rule released by the Department of Defense (DoD) on January 15, 2010 will provide contracting officers the authority to withhold payments on cost reimbursable type and time and materials type contracts as a response to address business system deficiencies. The draft rule adds a clause to contracts requiring contractors to certify that they have no major defects in their contractor business systems defined as: accounting systems, estimating systems, purchasing systems (CPS), earned value management systems (EVMS), material management and accounting systems (MMAS), and property management systems. This DoD’s proposal to amend the Defense Federal Acquisition Regulation Supplement (DFARS), continues the crack-down on contractors increasing regulations and potential penalties for contractors with deficient business systems.
The draft rule identifies contractor business systems and internal controls as the first line of defense against waste, fraud, and abuse of tax dollars. The objective of the rule is to improve the effectiveness of Defense Contract Management Agency (DCMA) and Defense Contract Audit Agency (DCAA) oversight of contractor business systems. The requirements of the rule will apply to entities contractually required to maintain one or more of the defined contractor business systems listed above. If deficiencies are identified in the systems and the contractor does not implement corrective action within 45 days, the proposed rule allows contracting officers to withhold up to 10% of each of the Contractor’s payments on cost reimbursement, time and materials, and labor hour type contracts for each system up to a maximum of 50%. Continue reading »
2010 Resolution Recap
During the first weeks of 2010 we shared our second annual “New Year’s Resolutions” for government contractors to get on track, get in compliance, and get ahead. Did you catch it? If not, don’t worry – you can access the 2010 and 2009 resolutions under Categories: New Year’s Resolutions. While you’re here, subscribe to our Fed Point RSS Feed – and have the news delivered directly to you! (Click here to learn more about RSS).
Here’s a 2010 resolution recap:
- Resolution #1: We Will Avoid Jeopardizing Contract Awards by Getting Our Accounting System Approval–Ready
- Resolution #2: We Will Complete Required Contract Reporting Accurately and On-Time (Subcontractor/ Stimulus/ VETS100/ eVerify Reporting)
- Resolution #3: We Will Assess Our Tax Risks and Support Our Tax Accounting Positions
- Resolution #4: We Will Review our Pricing Annually to Avoid GSA Schedule Price Reductions Ramifications
- Resolution #5: We Will Ensure our Compliance Program is Robust Enough for Government Work (Code of Business Ethics and Conduct)
- Resolution #6: We Will Eliminate Redundant Work and Erroneous Reporting (Deltek)
- Resolution #7: We Will Stay the Course and Protect Our Most Valuable Assets to Ensure Long-Term Success (Insurance)
- Resolution #8: We Will Finance Our Business More Effectively – Best Practices for Managing Loan Covenants
- Resolution #9: DCAA Hot Button – Bonuses
- Resolution #10: We Will Be Ready for the Inevitable Government Contracting Economic Crisis
Looking for more information or assistance implementing any of these items? Contact Aronson & Company – Hope Lane, Lead Officer, Government Contract Consulting Practice at 301.231.6266 or Pete O’Neill, Officer, GSA Schedules Group at 301.222.8226.
Resolution #9: We Will Document Our Bonus Plans
Employee bonuses have always been on DCAA’s radar but even more so under current conditions. Contractors are encouraged to not rely on a long standing history of awarding bonuses as a basis for considering it as an allowable cost.
Written bonus plans where the criteria for award are clearly understood by the employees are the best assurance that a contractor has for acceptance of such payments as allowable cost. Today bonuses are expected to be performance related and therefore not generally considered part of the fringe package as in previous years. There is a place in the fringe pool for spot awards, if defined in the bonus plan, however, generally the expense should follow the person being awarded the bonus. Casual/beneficial guidelines would indicate the overhead pool for direct and full time overhead personnel and G&A for employees that generally charge G&A.
Care must be taken to show that the bonus award is determined by performance. This may be as simple as using annual evaluation rating for the rank and file, but more specific criteria would be used for management personnel, specifically something they have control over such as maintaining direct labor, client feedback on performance, maintaining budgets and resulting indirect rates, etc.
Executive bonuses may be more specific and include maintaining financial ratios, achieving new business goals as well as contractor specific goals. Under no circumstances should profit be an evaluation criteria as it might be seen as a distribution of profits and therefore unallowable. Bonuses for owners of the company must be explicitly measurable so as to be allowable and be reasonable.
Contractors are reminded to periodically review the DCAA Contract Audit Manual for current evaluation and audit procedures for all costs recorded on their books. Still not sure, Aronson can help. For assistance contact Nicole Mitchell at (301) 222-8231 or nmitchell@aronsoncompany.com.
Aronson Contributors
Categories
Popular Tags
Blog Roll
Popular Posts
What We Are Writing
- A Marriage of Inconvenience: GSA Schedule Contracts & The Contractor Code of Business Ethics & Conduct Clause
- Emerging Small Businesses: To Grow Your Business, You Must Plan For Growth
- Government Contracting: Look Before You Leap!
- GSA Schedules – Strategies for Success
- New Employee vs. Independent Contractor Considerations
- Pay on Display – Understanding the Executive Compensation and Subcontractor Data Reporting Requirements & Ramifications
- The GSA Schedule: Your Ticket to the Federal Market (May 2010)
- The New FAR Codes of Conduct and Compliance Program Provisions
- The Seven Deadly Sins (of contract compliance)