How to Best Work with the DCAA During the Obama Administration

 

The following article was submitted by Richard Marksberry, Partner in the MidAtlantic practice of Tatum, LLC. During the last four years Mr. Marksberry has, as the CFO, led the selection and implementation of accounting systems for three federal contractors each with sales over $100 million annually.  He was recognized as one of the “Top 10 CFO’s in Government Contracting” by ExecutiveBiz in 2008.

Every government contractor will encounter DCAA during their contract tenure.  Exactly how well that experience turns out will depend on two things: (1) how well prepared the contractor is for their audit, and (2) what contract type they are operating under.  There has been a great deal of discussion lately about what changes have been taking place at DCAA over the last year or so.  Most, but not all, are perceived to be not in the contractor’s favor, including:

Richard Marksberry, Tatum LLC

• Pass/Fail audit results (no degrees of weakness or inadequacy in part reports)
• Discontinuance of small contract closeout simplification rules
• Directive for not indicating suggestions for improvement to the contractor
• Stricter rules regarding  requests for information, where upon non-timely compliance results in a reported weakness by default
• Finally, while findings may be discussed as part of the audit exit interview the contractor may not be allowed to see the auditors report prior to filing with the contracting officer. (a distinct break from past practice)

 Is there a light at the end of the tunnel?  Yes!  Most of the above issues are primarily directed at the cost plus and little less directly at the time and material contract types.  These are the contract types for which unallowable costs and misapplied hours are a “fail” factor in a DCAA audit.  However, it is the stated objective of the current Administration to move away from these contract types and toward firm fixed price and incentive based contracts.  President Obama has stated that the increased cost to the government and the doubling of the Federal contracting over the last eight years is in part due to the no bid (uncompleted awards) and cost plus contract types, which he believes allows for unrestricted growth in payments to contractors once a contract was awarded!  Whether the Administration’s shift in contract award types is possible in practice is still left to be seen.  But nevertheless, we may see a significant shift in this direction.

While it is the stated goal of the Administration to reduce Federal contracts by $40 billion per year, there will still be a need until the Federal workforce is staffed to make up for the contract reductions.  Any contracts awarded under the American Recovery and Reinvestment Act will carry additional reporting requirements in order to foster “transparency and accountability”.  At the same time there is a push to “open up bidding to small contractors.”  Based on the trends, I have doubts that the reporting rules will be relaxed for any contracting group.

The best preparation for the potential changes in Federal contracting is to make sure you have a system that is in compliance with the Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS) and under which policies, procedures and costs are easily auditable under DCAA guidelines.