2012-02-16 NCMA Upper Chesaspeake (PP)

NCMA Upper Chesapeake Chapter
John Shire
Deputy Assistant Director
Policy and Plans
Defense Contract Audit Agency
The views expressed in this presentation are DCAA's views and not necessarily the views of other DoD organizations
DCAA Organization
Internal Review
Karen Cash
Assistant Director
Tom Peters
Executive Officer
Joe Garcia
Patrick Fitzgerald
Deputy Director
Anita Bales
Assistant Director,
Policy & Plans
Ken Saccoccia
General Counsel
Defense Legal Service
Susan Chadick
Assistant Director,
Philip Anderson
Assistant Director,
Integrity &
Quality Assurance
Don McKenzie
Tim Carr
Paul Phillips
Gary Spjut
Ron Meldonian
William Adie
Steve Hernandez
Donald Mullinax
David Johnson
Karen Cash
Terry Schneider
Deliver High Quality Services and Products
 Agency will use new Strategic Plan to work audit quality and
workforce issues
 Established proposal walk-through and early identification of
 All Raytheon audits under cognizance of one region
 Issued extensive changes to audit guidance, procedures and
 Authorized additional management/supervisory positions to
allow more time on audits
 Holding Agency-wide Field Audit Office (FAO) Managers
Conference annually
Requirements/Workload and Resources
 Working with Stakeholders to defer or divest low risk workload will allow DCAA to focus on higher risk work with larger payback
to Warfighter/Taxpayer.
 Added 500 new employees over the last 2 years
 DPAP Memorandum (1/4/2011), “Better Buying Power: Guidance
for Obtaining Greater Efficiency and Productivity in Defense
Spending: ‘Align DCMA and DCAA Processes to Ensure Work is
 Increased Thresholds for Price Proposal Audits
 Forward Pricing Rate Agreements/Forward Pricing Rate
 Financial Capability Reviews
 Purchasing System Reviews
 Contractor Business Systems Rule
Improve Communications and Working
Relationships with Stakeholders
Making a concerted effort to engage with stakeholders:
 Issued “Rules of Engagement”
 Initiated regular high level meetings with contracting
 Executives participated at speaking engagements with
DoD Procurement and Contractor Associations
 Issued Joint DCAA/DCMA Directors Memorandums
 Established MOU on EVMS
DCAA Rules of Engagement
MRD 10-PAS -023 and 024 dated Sept 9, 2010
 Issued guidance on establishing open and effective
communications with all stakeholders
 Rules cover communications during each phase of the
 Establishing the engagement
 Entrance conference
 During the audit
 Exit conference
 Post report issuance
 Negotiations
Highlights of Rules of Engagement
 Hold discussions with the requestor before beginning
the audit to identify specific areas of concern
 All parties participate in the contractor walk-through of
the proposal
 During the audit
Keep stakeholders informed of major audit issues
Timely notification of required extensions
Status of audit communicated clearly
 Provide draft results after manager review
 Include the contracting officer in the exit conference
 Auditor attendance at negotiations
Unique Value of the Audit
FAR 15.404-1(c)(2) provides that when a contracting officer performs “cost
analysis” it includes verifying:
The offeror’s cost data or pricing data and
That the offeror’s cost submissions are in accordance with the contract
cost principles and procedures in FAR part 31 and, when applicable, the
requirements and procedures in 48 CFR Chapter 99, Cost Accounting
The Price Analyst, adhering to the Contract Pricing Reference Guide (Volume
3- Cost Analysis), may perform many of the procedures discussed.
However, the Auditor, with access to the contractor’s books and
financial records, can evaluate the validity of historical data and other
supporting records.
Typically, contractors use historical costs to justify proposed costs. If we do
not verify that historical costs are compliant, then historical non-compliant
costs could go undetected, and the Government risks negotiating a proposal
value that includes similar non-compliant costs.
Forward Pricing Proposal Adequacy
 Adequate Contractor Proposals – Facilitate Effective Audit
 Proposed amounts supported by detailed basis of estimate and
supporting documentation
 Supporting justification/explanation provided for significant
variances between prior buy actual cost data and proposed
 Consolidated Bill of Material
 Detailed support for additive factors applied to various cost
 Indirect Rates supported by contractor budgetary or trend data
 Adequate Support for Subcontractor Proposals
 Adequate prime contactor cost or price analysis
 Adequate subcontract proposal
 Proposal reflects anticipated accounting changes
Top Reasons for Inadequate
Contractor Proposals
 Significant variances between proposed amounts and basis of
estimate/supporting documentation (proposed amounts not
 Significant variances between prior buy actual cost data and
proposed amounts without supporting justification/explanation
 Lack of consolidated Bill of Material
 Unsupported additive factors applied to various elements of costs
often leading to duplicate costs proposed
 Rates not based on contractor budgetary or trend data
 Inadequate Support for Subcontract Proposals
 Inadequate prime contractor cost or price analysis
 Inadequate subcontract proposal
 Proposal does not reflect anticipated cost accounting changes
Proposal Walk-Through
Includes PCO, ACO & DCAA
 Gain
full understanding of contractor’s
 Identify obvious data omissions
 Facilitate early identification of proposal
 Process allows for expediting appropriate action if
proposal is inadequate or other problems requiring
contracting officer assistance
 Establishment of suspense dates for contractor
corrective actions
Importance of Proposal Adequacy
 Reduces time and resources needed for review
of proposal- more efficient use of audit
 Ensures timely service to the requestor
 Facilitates contract negotiations
 Facilitates accomplishing the contracting
officer’s requirement for ensuring proposal
complies with FAR and CAS
Notification of Inadequate Proposal
 DCAA policy is to always notify the contracting officer
as well as the contractor of proposal inadequacies and
the necessary actions to make the proposal adequate –
this is now earlier and more interactive due to the walkthroughs
 Contracting officer has the option to have DCAA go
forward on proposal review based on the available
 Going forward may result in additional time, an adverse
or disclaimer of opinion and excessive audit resources
 The key is to ensure the audit will still provide value to
the acquisition process
Contractor Support to Facilitate
a More Timely Audit Process
 Effective contractor proposal walk-throughs
 Adequate contractor submissions and assertions
 Adequate supporting data in a timely manner and
timely access to key contractor personnel
responsible for contractor support
 Real-time DCAA access to contractor systems
Acquisition Example 1
 Firm Fixed Priced $176M Proposal for
 Audit questioned $43M
 $28M related to equipment lease costs
Due to additional audit procedures on this follow-on effort
it was determined the contractor was leasing the equipment
from a related party
FAR 31.205-36(b)(3) limits the allowable lease costs to the
normal costs of ownership
The contractor removed the excess lease costs from its next
proposal for two more option years
Acquisition Example 2
 Firm Fixed Priced $78M Proposal for force
protection equipment for troops
DCAA identified several inadequacies in the
contractor’s original proposal
Revised Proposal submitted for $55M
 Audit Questioned $20M due to the
contractor’s failure to consider actual cost
already incurred
 The Army was able to use $15M of the saving
to acquire additional equipment
Contractor Business Systems
 The interim Business System Rule was issued on May 18, 2011
 Defines contractor business systems as the contractor’s
 Accounting System
 Estimating System
 Material Management and Accounting System (MMAS)
 Purchasing System
 Property Management
 Earned Value Management System (EVMS)
 Includes a contract clause that requires the contracting officer to
apply a percentage of withhold when a contractor’s business
system contains a significant deficiency
Contractor Business Systems
 DCAA will report on compliance with the
criteria in DFARS
 DCAA Reports will identify significant
deficiencies – defined by the interim Business
System Rule as
 Shortcomings in the system that materially
affects the ability of officials of the DoD to
rely upon information produced by the
system that is needed for management
Incurred Cost Initiative
Developed a risk-based approach to working down backlog
in a effective manner:
 Increase staffing
 Dedicated audit teams (FAO Manager, Supervisors, and
 Revising guidance to perform audits covering multiple
contractor years in a single assignment at certain contractors
 Developed revised incurred cost audit program
 Delivering an incurred cost auditing refresher training course
 Continue working with DoD on strategies to better align the
limited DCAA resources to the higher risk contracting areas
Continuous Improvement
 Ad-hoc studying the forward pricing rate evaluation process
with a focus on timely delivery of audited rates
 High Risk Proposal Team assembled to provide a one –
agency support network focused on quality and timeliness
 Full participation of proposal walk-throughs to assess
proposal adequacy and understand the basis of estimate
 Emphasizing annual program plan meetings with contracting
officer and contractor to discuss priorities
 Implementing a project management approach to include
detailed milestone plans to facilitate timely completion of
 Enhancing the role of the prime contract auditor in
coordinating major subcontract proposal audits under major
 The use of audit reports on parts of a proposal to help get
audit results to the contracting officer more timely
Defense Contract Audit Agency
Additional information on DCAA
and Points of Contact available at
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