Filed under: DCAA Compliance | Tags: Cost Audit, DCAA, Denial of Access, FPRA, Incurred Cost Audit, Pricing Proposal, System Audit, Systems Audits
To our valued clients:
In an effort to keep everyone apprised of the most recent information regarding:
Incurred Cost Audits
DCAA is establishing new virtual incurred cost teams managed by a new virtual branch manager (Denver Vicki Deleon) that will assure that all incurred costs though 2007 will be completed by the end of 2012. This may or may not be successful since there are a lot of audit compliance efforts required by DCAA to perform incurred cost audits. However, DCAA has established this as a primary audit goal. Due dates for reports must now be met and will be monitored. DCAA is putting itself under the gun and therefore, the contractor will be at added risk and time demands
One area of increased scope appears to be a walkthrough of the incurred cost submission to assure compliance with the criteria of FAR 42.703 and 52.216-7. The requirement for the ICE shows each area included in the Information for Contractors Pamphlet incurred cost submission as a requirement for an adequate incurred cost audit ICE package under 52.216-7 — Allowable Cost and Payment. The November 4, 2011 11-PPD-020(R) requires:
The most significant changes to the audit program include improved detailed audit steps covering areas such as direct labor costs, contractor compensation costs, and excessive pass-through costs. In addition, the risk assessment procedures have been expanded to better assist in establishing the audit scope and designing the required audit procedures. The risk assessment includes a step to obtain a walk-through of the incurred cost proposal with the contractor to facilitate the process for the auditor to gain an understanding of the basis of the claimed costs and related supporting documentation, significant controls, and the relevant policies/procedures and processes related to significant cost elements.
Policy also has revised the Guide for Determining Adequacy of Contractor Incurred Cost Proposal to provide a more comprehensive guide for use in determining the adequacy of final indirect cost rate proposals at both major and non-major contractors (Enclosure). The auditors must evaluate the contractor’s incurred cost proposal for adequacy upon receipt and immediately notify the contracting officer and contractor, in writing, of significant inadequacies.
This requirement will make the process more detailed.
In addition, DCAA has established significant increases to the number of sample items required to allow a compliant audit examination. These requirements significantly take more time and effort to provide support data.
Highlights of costs under added scrutiny include:
- Air Travel
- Lobbying
- Subcontract Costs
- Labor & Materials if no concurrent MAAR was accomplished
Subcontract surveillance after award is a critical effort. DCAA is looking for prime assurance the subcontract billings received are verified prior to passing the billings to the Government. Prime contractors should maintain subcontractor briefing, FAR 31 testing, and proper admin of subcontract. Subcontract costs are now getting extensive scrutiny and the adequacy of the subcontract ICE is critical. Consultants must have adequate support for costs. Time cards will be a very good idea for consultants and evidence of prime monitoring. Demonstrating that the prime has evaluated its subcontract costs will be a future emphasis. Possible solutions for prime contractors include engaging with third-party audit firms to support auditing of subcontractor proprietary cost information prior to incurred cost submissions.
Reconciliation of labor/payroll to 941s now will not be overlooked or minimized.
Pricing Proposals and FPRAs
DCAA audit effort will be expanded on proposal effort over $10 million FFP and $100 million cost type. Pre audit “walk though” of pricing proposals is required and causes added burden on the contractor to have an adequate package. The support of subcontracts on major proposals is a significant audit issue that is causing issues for proposal activity. Review of prime responsibility for subcontract cost or pricing data is now extensive. The prime must assess all subcontractors to ensure the sub is responsible and that the price is reasonable. In general, unless DCAA has current incurred costs audits it will audit prior costs to assure reasonableness of the accounts used for proposal purposes. FPRAs will require testing back to actual costs as well. Direct trace to the internal budget for FPRA will be more detailed. Added internal reviews for DCAA internal compliance will mandate added time and effort. Due dates for audit service is now at a premium again. Due dates for DCAA to its customer will put added stress on timely support and submittal of documents.
Denial of Access
This is still a big DCAA concern and push. Access to records is a continuing big issue. Generally, documentation supporting the contractor’s assertion (e.g., the contractor’s proposal or other submission) should be readily available. Therefore, unless the request requires analysis by the contractor or there are extenuating circumstances (e.g., the request is for a voluminous amount of data or for data stored at an off-site location), the contractor should provide the documentation upon request. For example, support for proposed labor hours should be provided the same day requested, given the information would have been generated by the contractor prior to submitting the bid proposal.
Systems Audits
New DFARS rules for systems now exists for accounting systems, estimating systems, purchasing systems, earned value management systems (EVMS), material management and accounting systems (MMAS), and property management systems. DCAA has started its new systems audits on large contractors with the kick off of its new billing and accounting system audits. The pilot programs for billing and accounting have been slow to implement and the data required is extensive. The accounting system pilot is difficult to demonstrate. These are complex and have been very painful for the major contractors. DCAA is looking for real time system demonstrations. Example, show how the billing (voucher) actually gets produced, reviewed, entered, etc on a real time basis. Old system reviews are very outdated and now DCAA is attempting to update new reviews.
Filed under: Uncategorized | Tags: DCAA, DCAA Compliance, Joint Venture, JV
A recent article in the National Contract Management Magazine highlighted that trends by the Federal Government to bundle many requirements has made the ability to compete at this level very challenging for smaller companies. As such, many of these companies are now considering joint ventures as a way to pull resources together to meet the larger requirements being solicited. In many cases, these Joint Ventures are formed as an “unpopulated JV” where a separate Limited Liability Company (LLC) is created. Under this arrangement, the founding companies enter into a subcontract with the LLC to fulfill the prime contract requirements.
The challenge with an Unpopulated JV/LLC arrangement has always been “who’s in charge” in respect to policies, procedures, cost accounting, contract administration, etc. The unpopulated JV/LLC, after all, is the entity the government is contracted with. They will expect the same level of contract administration functions and financial management as from a populated company. So what is a Unpopulated JV to do?
The current trend to solve this issue is to outsource the contract management, performance reporting, cost accounting, compliance responsibilities, etc, to a third party “Business Service Integrator” (BSI). The BSI has many advantages, which include:
1) Proprietary information is protected and controlled
2) Ensures “one face” contract administration/financial management to the government
3) Policies and procedures are established for the LLC
4) Cost Accounting Standards for the LLC are established and maintained
5) Cost and schedule information is efficiently captured and reported
6) EVMS requirements are centralized for efficient and accurate reporting
7) Contract administration is efficient and DCAA audit compliant
Bottom line, the Unpopulated JV/LLC is held to the same standards as a “populated” entity. Through the use of a BSI, the founding companies can ensure efficiency while maintaining compliance in the myriad of prime contract, FAR, and DCAA requirements.
Get the entire article at http://gate6solutions.com/downloads/12-10%20CM%20Magazine%20Article%204.pdf
Filed under: Uncategorized | Tags: contract, contractors, DCAA, defense contract audit agency, Governement Contracting, Government Contracts
We have been getting a lot of inquiries on the requirements the federal government uses as it relates to Small Business participation for government contracts. The following is a summary excerpt from the SBA Guide and Definitions for Small Business. In general the government contacting officer designates the applicable size standard given the NAICS code for a particular procurement. To bid on government contracts, a company must certify that it is a small business concern under the appropriate size standard for the solicitation. To be awarded a government small business set-aside or 8(a) contract, the company must also be able to perform a given percentage of the contract. This provision limits the amount of subcontracting a concern may enter into with other firms. The breakdown of those percentages is as follows:
Construction: General and heavy – 15%, Special Trade – 25%
Manufacturing: 50% of the cost of manufacturing, not including materials
Services: 50% (contract cost) of SB own employees must perform the service effort
It is extremely important for small businesses to accurately represent their size standard and ability to perform. Although being a small business can be a competitive advantage, criminal penalties may be considered for those businesses knowingly misrepresenting themselves in the conduct of federal procurement.
Get the entire SBA PDF at http://www.sbaonline.sba.gov/idc/groups/public/documents/sba_homepage/guide_to_size_standards.pdf
McNew & Associates, Inc.
No Stress…Just Responsibility
719-685-7897
Filed under: Uncategorized | Tags: contract, contractors, DCAA, defense contract audit agency, Governement Contracting, Government Contracts
“Small business growth continues to be at the forefront of discussions concerning economic growth. The foundation of our economy remains small business, whether that be as a prime contractor or a subcontractor for the larger companies, defense related or other market segments. The excerpt below represents just one example of the push for continued small business growth,” commented Gary Henry, VP Operations, of McNew & Associates.
At a Small Business Defense Procurement Summit held in Detroit — one of several planned for various cities — Ashton Carter, undersecretary of defense for acquisition, technology and logistics, said the department spends up to $200 billion per year on contracts with small business, The Detroit News reported Saturday.
“Small business is a necessary ingredient of getting a better deal for the defense dollar for two reasons,” Carter said. “One is you tap into the talent and energy and vitality of small business. … And secondly, you get more competition from small businesses.”
Michael Blake, associate director for the White House Office of Public Engagement, said the budget for small businesses would jump by $4 billion this year, climbing from 21.9 percent to 23 percent of the department’s outside contracts.
U.S. Sen. Carl Levin, D-Mich., said, “We’ve got hundreds of companies in Michigan that do defense work. We want to continue to increase that number and make sure they know about opportunities in the defense area. It’s a growing part of Michigan’s economy.”
“Although this summit was held in Michigan and thus related primarily to Michigan small business, the discussions parallel the requirements for every state across the U.S. Moving forward, those small businesses who have been proactive in developing sound business plans. For those small businesses wanting to support DoD and Federal programs, they must ensure they have the appropriate accounting and other business systems in place, thereby putting themselves in a better position to secure new work as a prime or subcontractor moving forward,” said Mr. Henry.
Read the article at http://www.upi.com/Business_News/2011/03/26/Defense-thinks-small-for-new-contracts/UPI-68361301164672/
McNew & Associates, Inc.
No Stress…Just Responsibility
719-685-7897
Filed under: Uncategorized | Tags: contract, contractors, DCAA, defense contract audit agency, Governement Contracting, Government Contracts
According to a top Defense procurement official, the Defense Department’s new approach to acquisition will mean more competition and fixed-price contracts along with more incentives for contractors to do a good job.
An article written by Tom Spoth explained Shay Assad’s outline of contracting strategies that will lower Pentagon spending.
Assad said there should be more competition for contracts, especially for services, which account for 53 percent of Defense contract spending. He said the department would “reduce or eliminate” open-ended sole-source contracts, even those that have already been negotiated.
“We’ll review those when they come up for options,” Assad said. “We are going to examine each and every one of them to say, when can we open that contract for competition?” One way mentioned to foster competition would be increased use of contracts negotiated by other agencies, most notably the General Services Administration. Defense also wants to reward contractors that effectively manage their subcontractors and reduce overhead costs.
The Pentagon will move away from time and materials contracts and show a preference for fixed-price contracts. The Pentagon also wants to increase small-business participation in defense contracting. That could mean mandating that prime contractors delegate a certain amount of subcontracting work to small businesses
Read the entire article at:
FederalTimes.com. “Assad outlines contracting strategies to lower Pentagon spending” [Acquisition>>Policy] June 30th, 2010.
McNew & Associates, Inc.
No Stress…Just Responsibility
719-685-7897
Email: mcnewassoc@mcnewassociates.com
Filed under: Uncategorized | Tags: contract management, DCAA, DCAA Problems, defense contract audit agency, FAR, G&A, Governement Contracting, Incurred Cost Submission, McNew & Associates
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McNew & Associates, Inc.
No Stress…Just Responsibility
719-685-7897
Email: mcnewassoc@mcnewassociates.com
Filed under: Uncategorized | Tags: audit, contract, contract management, DCAA, defense contract audit agency, Governement Contracting, Incurred Cost Submission, Job Costing
An Incurred Cost Submission is a proposal containing your actual incurred costs for the most recently completed contractor fiscal year. The proposal contains actual costs for both direct costs (labor, material, travel, subcontractors, etc.) as well as indirect costs (fringe, overhead(s), G&A, etc). The indirect costs are to be broken out separately and should contain both the indirect pool and the base to which the pool is allocated. DCAA has a model incurred cost proposal on its website at www.dcaa.mil on the bottom left side under “Publications” titled “Incurred Cost Electronically.”
The submission is meant to identify direct and indirect costs by contract, and even more detailed, by contract type. For those of you with Cost Reimbursable contracts, the FAR 52.216-7 Allowable Cost and Payment clause requires that you submit an adequate final incurred cost proposal within six (6) months after the end of your fiscal year. For most of you, this means submission is required by June 30. Failure to submit an adequate proposal within six (6) months will result in reminders letters to you from DCAA. Once you become 6 months overdue (12 months after year-end), DCAA will make a unilateral decision for you based on prior year costs with decrements applied.
For small contractors, DCAA follows the rule of 6-24-6 which translates into submission of the incurred cost proposal by the contractor with six (6) months of year end, audit of the incurred cost proposal by the government (DCAA) within 24 months after receipt of an adequate submission, and negotiation of final costs by the Administrating Contracting Officer within 6 months after final audit results.
Moral of this story, if one of your contracts contains the 52.216-7 Allowable Cost and Payment Clause, make sure you get your proposal in to DCAA by June 30 (or 6 months after your fiscal year end if not December 31). If you need help putting this incurred cost proposal together, we are always here to help!
McNew & Associates, Inc.
No Stress…Just Responsibility
719-685-7897
Email: mcnewassoc@mcnewassociates.com
Filed under: Uncategorized | Tags: DCAA, DCAA Problems, defense contract audit agency, Government Contracts, Problems with DCAA
Government Contracts are complex and difficult to say the least. You may be having trouble with Bid & Proposal or Contract Management. It may be your Government Cost Accounting or just being DCAA Compliant.
McNew & Associates would like to hear from you!
Make a comment to this blog post telling us what problems you are having with your Government Contracts…
McNew & Associates, Inc.
No Stress…Just Responsibility
719-685-7897
Email: mcnewassoc@mcnewassociates.com
Filed under: FAR | Tags: Contractor Records, DCAA, defense contract audit agency, FAR, FAR 4.7, Governement Contracting, Records Retention
FAR 4.7 states “Contractors shall make available records, which includes books, documents, accounting procedures and practices, and other data, regardless of type and regardless of whether such items are in written form, in the form computer data, or in any other form, and other supporting evidence to satisfy contract negotiation, administration, and audit requirements of the contracting agencies and the Comptroller General for (1) 3 years after final payment or(2) as specified by the contract.
FAR 4.703(c) states that original records need not be maintained or produced in an audit if the contractor or subcontractor provides photographic or electronic images of the original records and meets the following requirements:
- Procedures have been established to ensure that the imaging process preserves accurate images of the original records, including signatures and other written or graphic images, and that the imaging process is reliable and secure so as to maintain the integrity of the records.
- An effective indexing system to permit timely and convenient access to the imaged records is maintained.
- The original records are maintained for a minimum of one year after imaging.
DCAA may be requested to audit these processes & procedures by the contracting officer.
*FAC 2005-17 June 14, 2007. Subpart 4.7-Contractor Records Retention, 4.7-1
McNew & Associates, Inc.
No Stress…Just Responsibility
719-685-7897
Email: mcnewassoc@mcnewassociates.com
Filed under: DCAA Compliance | Tags: DCAA, defense contract audit agency, Exempt Salaried Employees, Governement Contracting, Job Costing, Labor Distributions, QuickBooks
1. QuickBooks is NOT DCAA compliant
The insinuation that QuickBooks is not DCAA compliant is only partially true. Yes, out of the box, the software is not “DCAA Compliant”. However, the accounting system as a whole, can be made DCAA compliant.
The DCAA Contract Audit Manual (DCAAM 7640.1) describes an accounting system as:
The contractor’s accounting system consists of methods and records established to identify, assemble, analyze, classify, record, and report an entity’s transactions and to maintain accountability for the related assets and liabilities. The accounting system should be well-designed to provide reliable accounting data and prevent misstatements that would otherwise occur.
This definition never mentions accounting software, but rather a system in the whole that provides reliable and accurate information. This means that the software (QuickBooks) is simply one component of the overall accounting system. An accounting system includes software, policies and procedures, internal controls, and routine monitoring. In order to be DCAA compliant, QuickBooks needs to be supplemented with more robust policies and procedures and a few add-ons to make the system fully compliant.
2. No Labor Distributions for Exempt Salaried Employees
QuickBooks payroll has the full capability to perform a fully compliant labor distribution IF used correctly.
3. No Job Costing Capability
QuickBooks has the full capability to track costs by contract, and yes, even to the CLIN, SLIN, and task level. QuickBooks falls short at providing a full job cost as it does not apply indirect costs to the job level. This can be corrected through monthly procedures.
4. QuickBooks Cannot Support A Large Government Contract
McNew & Associates has clients processing $30M+ worth of contracts through its QuickBooks accounting system. Contract size is not an issue so long as the system in compliant.
QuickBooks Deficiencies
- Cash Basis Payroll
- No PTO Accruals
- Failure to calculate indirect rates
- Lack of Full Job Status Reporting (Thru Gross Profit Only)
- User Incompetence about System Capabilities
Corrective Measures
MAI has the specific knowledge and capabilities to complete the system.
- How do we do it?
- “Turn On” System Modules and Items not appropriately used by client
- Additional “Add-Ons” to complete Indirect Rates and Job Status Reporting
- Implement Pro Forma Policies and Procedures
- Establish Internal Control Procedures
- Provide Routine Monitoring Procedures
Proof of Record
- Over 30 client QB systems converted for DCAA compliance
- At least half audited by DCAA
- 100% passing rate with DCAA
McNew & Associates, Inc.
No Stress…Just Responsibility
719-685-7897
Email: mcnewassoc@mcnewassociates.com
