NCMA Upper Chesapeake Chapter

John ShireDeputy Assistant Director

Policy and PlansDefense Contract Audit Agency

The views expressed in this presentation are DCAA's views and not necessarily the views of other DoD organizations

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DCAA Organization

DirectorPatrick FitzgeraldDeputy Director

Anita Bales

CentralRegion

Tim CarrVacant

EasternRegion

Paul PhillipsGary Spjut

NortheasternRegion

Ron MeldonianWilliam Adie

Mid-AtlanticRegionVacant

Steve Hernandez

WesternRegion

Donald MullinaxDavid Johnson

General CounselDefense Legal Service

Susan Chadick

Assistant Director,Resources

Philip Anderson

Assistant Director,Policy & PlansKen Saccoccia

Assistant DirectorOperationsTom Peters

Internal ReviewKaren Cash

Field Detachment Karen Cash

Terry Schneider

RegionsHeadquarters

Assistant Director, Integrity &

Quality AssuranceDon McKenzie

Executive OfficerJoe Garcia

Executive OfficerJoe Garcia

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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 issues/inadequacies

All Raytheon audits under cognizance of one region Issued extensive changes to audit guidance, procedures and

processes Authorized additional management/supervisory positions to

allow more time on audits Holding Agency-wide Field Audit Office (FAO) Managers

Conference annually

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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 Complementary” Increased Thresholds for Price Proposal Audits Forward Pricing Rate Agreements/Forward Pricing Rate

Recommendations Financial Capability Reviews Purchasing System Reviews Contractor Business Systems Rule

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Making a concerted effort to engage with stakeholders: Issued “Rules of Engagement” Initiated regular high level meetings with contracting

communityExecutives participated at speaking engagements with

DoD Procurement and Contractor Associations Issued Joint DCAA/DCMA Directors Memorandums

Established MOU on EVMS

Improve Communications and Working Relationships with Stakeholders

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DCAA Rules of EngagementMRD 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 auditEstablishing the engagementEntrance conferenceDuring the auditExit conferencePost report issuanceNegotiations

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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 conferenceAuditor attendance at negotiations

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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 Standards.

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.

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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 amounts

Consolidated Bill of Material Detailed support for additive factors applied to various cost

elements 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

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Top Reasons for InadequateContractor Proposals

Significant variances between proposed amounts and basis of estimate/supporting documentation (proposed amounts not supported)

Significant variances between prior buy actual cost data and proposed amounts without supporting justification/explanation

Lack of consolidated Bill of MaterialUnsupported additive factors applied to various elements of costs

often leading to duplicate costs proposedRates 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

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Proposal Walk-Through

Includes PCO, ACO & DCAAGain full understanding of contractor’s

proposal/assertionIdentify obvious data omissionsFacilitate early identification of proposal

inadequaciesProcess allows for expediting appropriate action if

proposal is inadequate or other problems requiring contracting officer assistance

Establishment of suspense dates for contractor corrective actions

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Importance of Proposal Adequacy

Reduces time and resources needed for review of proposal- more efficient use of audit resources

Ensures timely service to the requestorFacilitates contract negotiationsFacilitates accomplishing the contracting

officer’s requirement for ensuring proposal complies with FAR and CAS

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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 walk-throughs

Contracting officer has the option to have DCAA go forward on proposal review based on the available information

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

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Contractor Support to Facilitatea 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

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Acquisition Example 1

Firm Fixed Priced $176M Proposal for services

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

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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

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Contractor Business Systems

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Contractor Business Systems

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Incurred Cost Initiative

Developed a risk-based approach to working down backlog in a effective manner:Increase staffingDedicated audit teams (FAO Manager, Supervisors, and auditors)Revising guidance to perform audits covering multiple contractor years in a single assignment at certain contractorsDeveloped revised incurred cost audit programDelivering an incurred cost auditing refresher training courseContinue working with DoD on strategies to better align the limited DCAA resources to the higher risk contracting areas

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Continuous ImprovementAd-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 timelinessFull participation of proposal walk-throughs to assess

proposal adequacy and understand the basis of estimateEmphasizing annual program plan meetings with contracting

officer and contractor to discuss prioritiesImplementing a project management approach to include

detailed milestone plans to facilitate timely completion of audits

Enhancing the role of the prime contract auditor in coordinating major subcontract proposal audits under major procurements

The use of audit reports on parts of a proposal to help get audit results to the contracting officer more timely

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Additional information on DCAA and Points of Contact available at

www.dcaa.mil

Defense Contract Audit Agency