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Always Changing / Always Challenging

Accounting for Government Contracts

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DFARS 252.242-7005 Contractor Business Systems

• Interim Rule issued May 18, 2011• Final Rule issued February 24, 2012• Contract clauses included if subject to Cost Accounting Standards, and

includes any of the following clauses:– DFARS 252.215-7002, Cost Estimating System Requirements– DFARS 252.234-7002, Earned Value Management System– DFARS 252.242-7004, Material Management and Accounting

System– DFARS 252.242-7006, Accounting System Administration– DFARS 252.244-7001, Contractor Purchasing System Administration– DFARS 252.245-7003, Contractor Property Management System

Administration• The clause is self-deleting if CAS does not apply.

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Cost and Price Analysis• In 2010 DOD issued guidance to contracting officers raising the contract value for

requesting a proposal audit from $650,000 to $10 million for fixed-price contracts and from $10 million to $100 million for cost-type proposals.

• DOD transferred low-dollar proposal audits from the Defense Contract Audit Agency (DCAA) to the Defense Contract Management Agency (DCMA). The change came in the wake of congressional criticism over the quality of DCAA’s audits. DCAA said this decision would allow it to redirect 132,133 audit hours to higher-dollar proposals. A DOD Inspector General (IG) report has now concluded that this action could cost taxpayers as much as $249.1 million per year.

• According to the IG, DCMA’s Pricing and Negotiation eTool information system is unreliable for cost analysis performance. The IG recommended returning the authority for low-dollar audits to DCAA. However, the Office of Defense Procurement and Acquisition Policy (DPAP) said that the IG’s analysis was flawed and that it will monitor future audits to see if a change is warranted.

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DCAA Basic Mission• DCAA provides a wide variety of products and

services to contracting officers:– Preaward Contract Audit Services

• Price Proposals• Preaward Surveys• Forward Pricing Labor & Overhead Rates

– Postaward Contract Audit Services• Incurred Costs/Annual Overhead Rates• Truth in Negotiation Act Compliance• CAS (Cost Accounting Standards) Compliance & Adequacy

– Claims, Contractor Business System Audits

DCAA Basic Mission - Continued

• In addition to performing formal audit activities, Agency auditors provide:

• Negotiation Assistance, including:– Factfinding and analysis of contractor information after audit– Procurement liaison assistance

In FY 2010, DCAA audited $34 billion of costs incurred on contracts and reviewed 5,689 forward pricing proposals amounting to $185 billion. Approximately $2.9 billion in net savings were reported as a result of audit findings. When compared to the $530 million expended for the

Agency's operations, the return on taxpayers' investment in DCAA was approximately $5.10 for each dollar invested.

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DCAA - Organization

• Headquarters – Fort Belvoir, Virginia• 5 Regions – Texas, Georgia, Pennsylvania,

Massachusetts and California• Resident Offices• Branch Offices• Special Offices

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Auditing and Reporting Standards• Reporting

• Comments on scope of audit• Adherence to accepted

accounting principles• Nature of report• Auditors Opinion

• GAO Yellow Book

• General Auditing• Training• Independence• Due Care

• Field Work• Planning• Supervision• Review of Internal

Controls• Evaluation of

management practices affecting costs

• Supporting Documentation

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Audit Planning

• Mandatory Annual Audit Requirements• Audit Assignment• Factors influencing scope of audit

– Extent of Government business– Type of contract– Similarity of items produced– Adequacy of policies, procedures and controls– Audit evidence

DCAA Mission Statement

Defense Contract Audit Agency (DCAA), while serving the public interest as its primary customer, shall perform all necessary contract audits for the Department of Defense (DoD) and provide accounting and financial advisory services regarding contracts and subcontracts to all DoD components responsible for procurement and contract administration. These services shall be provided in connection with negotiation, administration, and settlement of contracts and subcontracts to ensure taxpayer dollars are spent on fair and reasonable contract prices. DCAA shall provide contract audit services to other Federal agencies as appropriate.

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Auditing Techniques

• Using technology – EZQuant, templates• Review of management decisions• Review of budgets• Review of policies and procedures• Review of internal controls• Physical observations• Sampling techniques• Review of business systems – ICQ and ICAP

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Auditor Guidance

• Defense Contract Audit Manual• MRD and other Guidance• DCAI Training Materials• Guidance for New Contractors• Formal and Informal Guidance

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DCAA and the Web

• DCAA Home Page: www.dcaa.mil • DCAI Home Page: www.dcaa.mil• GAO Home Page: www.gao.gov• Procurement Stuff: www.policyworks.gov

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VII - How to Survive

• Compliance Programs• Use of Internal Audit• Single Audit Act• Due Diligence• Review for Potential Vulnerable Areas• CRAG

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Questions and (hopefully) Answers

• Or:• If you have a question that you’ve been

holding ask NOW

Questions?

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