Posts Tagged ‘DCAA’

Getting out of Gridlock – Resolving Contract Audit Recommendations

Monday, August 2nd, 2010

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, (more…)

2010 Allowable Executive Compensation Limit Increases by $10K

Monday, April 19th, 2010

The Office of Management and Budget (OMB) has raised the ceiling on executive compensation costs under government contracts for GFY 2010 to $693,951.  This is only a 1.4% increase from GFY 2009 maximum amount of $684,181. 2010’s ceiling was the smallest increase in recent years, most likely a reflection of the down economic climate.  The $693,951 figure only limits the executive compensation that companies can claim as a cost in government contracts. It does not limit the compensation that an executive may otherwise earn, noted Daniel Gordon, administrator of OMB’s Office of Federal Procurement Policy (OFPP).

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

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Change in Airfare Recoverability May Result in Overbilling

Tuesday, March 23rd, 2010

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

Wednesday, March 10th, 2010

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%

Tuesday, January 19th, 2010

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%. (more…)

Resolution #9: We Will Document Our Bonus Plans

Thursday, January 14th, 2010

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.

Resolution #1: We Will Avoid Jeopardizing Contract Awards by Getting Our Accounting System Approval–Ready

Monday, January 4th, 2010

Valuable time and money are spent submitting proposals in pursuit of Government contracts.  Those $s may be wasted if your accounting system isn’t “ready for prime time”.  Your next government contract award, as a prime or sub, may be dependent on having a compliant accounting system.  And, small businesses are NOT exempt. Many contractor system requirements are triggered based on the size of a contractor; BUT the requirement for an approved accounting system considers the type of contract awarded, not contractor size. The issuance of time and materials and cost reimbursement contracts typically require contractors to meet prescribed accounting system requirements such as DCAA’s “Preaward Survey of Prospective Contractor Accounting System” (SF 1408).

Don’t miss out on contract awards! Make sure your accounting system adequately performs the following required elements! (more…)

DCAA Audit Director, April Stephenson, Reassigned

Tuesday, October 27th, 2009

On October 26, 2009, the Associated Press reported “The Pentagon’s chief auditor was forced from her post Monday following sharp criticism from lawmakers over failures to hold defense contractors accountable for overcharges and poor performance.”

Robert Hale, Pentagon comptroller, announced Patrick Fitzgerald, Director of the Army Audit Agency to replace Stephenson on November 9, 2009. Hale told DCAA’s employees that Fitzgerald “has an excellent reputation as a successful manager of a large, geographically diverse audit organization. … I believe that Mr. Fitzgerald is particularly well qualified to guide DCAA during this period.” Fitzgerald brings to the position over 30 years of audit experience and has also been heading the oversight committee created by Hale to monitor DCAA. (more…)

DCAA Issues Criteria for Adequate Proposal Pricing

Tuesday, October 13th, 2009

DCAA released a great tool to assess the adequacy of your proposal pricing - available at http://www.dcaa.mil/Adequacy.pdf. A well supported cost proposal reduces effort needed for review and facilitates negotiations. Reviewing your pricing and following the DCAA established criteria for adequacy is a benefit to all!  Aronson & Company advises companies on all government contract, proposal pricing and compliance-related issues, contact Nicole Mitchell (301) 222-8231, nmitchell@aronsoncompany.comor Thomas Marcinko (301) 231-6237, tmarcinko@aronsoncompany.com.

DCAA Audits – Deficient once Again

Wednesday, September 30th, 2009

The latest report on DCAA by the General Accounting Office (GAO) released September 2009 entitled “Widespread Problems with Audit Quality Require Significant Reform” marks an embarrassing moment for DCAA. The GAO found audit quality problems at DCAA offices nationwide including; compromise of auditor independence, insufficient audit testing, and inadequate planning and supervision.Here are just a few of the highlights:

• DCAA auditors spent 530 hours to support an audit of a non-existent billing system and reported adequate controls
• On another billing system audit an auditor told GAO he did not perform detailed tests because “the contractor would not appreciate it”
• On an accounting system audit, the supervisory auditors directed audit staff to delete some audit documents, generate others, and in one case, copy the signature of a prior supervisor onto new documents making it appear that the prior supervisor had approved a revised risk assessment. The supervisor who approved the altered documents was later promoted.

In total DCAA rescinded 80 audits cited in the last two GAO reports. (more…)